June 20, 2012

Legal scholar tells The New Yorker that DOJ case is unwinnable


In a lengthy New Yorker dispatch on the Department of Justice lawsuit against Apple and five of America’s largest publishers Ken Auletta reports that almost no defense strategy is likely to succeed unless it can convince a judge that no collusion actually occurred.

As Auletta explains, because the DOJ alleges a “per se” violation of the Sherman Antitrust Act, in the form of horizontal, “‘hub and spoke’ collusion, in which a retailer coordinates manufactures to gain control of prices,” the only question a court can consider is whether or not Apple and the publisher defendants acted together to raise prices or prevent innovation. One legal expert on the question, Barry Hawk, the director of Fordham Law School’s Competition Law Institute, tells Auletta that:

the courts use two tests to adjudicate antitrust cases. In cases of vertical collusion, they typically use the “rule of reason,” which allows defendants to argue they were acting in the interest of healthy competition. For horizontal collusion, they use they use the per-se rule, in which agreements to fix prices are illegal under any circumstances. Hawk told me that he can’t think of a single horizontal-conspiracy case in which defendants were found to have engaged in price-fixing and still won. “That’s how strong this is.”

Hawk’s opinion is markedly different from that of commentators who earlier suggested that Apple and the publishers might defend themselves through a “rule of reason” defense, perhaps by relying on a 2007 Supreme Court decision on “retail price maintenance.” This defense doesn’t work, says Christine A. Varney, who led the Antitrust Division until last fall, who told Auletta that “The fact that publishers or record labels or movie producers say their business models may not survive the digital revolution is not a particular concern of the antitrust laws. The antitrust laws look to preserve competition and innovation.”

Legal scholars may disagree about the law, but Penguin, Apple, and Macmillan are in agreement: all have responded to the DOJ lawsuit with a simple message: we didn’t do it. Macmillan CEO John Sargent tells Auletta that the move to an agency ebook model “was my decision alone… That’s why the whole thing about collusion is ludicrous to me. I was in a silo. It was just me.”


Kelly Burdick is the former executive editor of Melville House.