Apple faces triple damages, longshot appeal in ebook conspiracy

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Five publishers agreed to pay a total of $166 million to settle their roles in a high-profile ebook price-fixing scheme. For Apple, however, the price tag could be much higher in light of a damning court decision that fingered it as the conspiracy’s ringleader.

The publishing and tech sector is still digesting the implications of Wednesday’s 160-page decision but, according to antitrust lawyers, Apple is in a tight legal spot. Here is an overview of what the company might pay and how the process will unfold.

Triple damages could mean large payout

Wednesday’s court ruling was a resounding victory for the Justice Department, which sued Apple and the publishers last year. The ruling will mean symbolic changes to Apple’s ebook pricing practices, but it also lays the table for cash damages in a parallel suit brought by state governments and class action lawyers.

The five publishers, who have already settled, will each pay amounts ranging from around $20 million to $75 million to compensate consumers who overpaid for ebooks — the money will come in the form of retail credits or, in some cases, small payments by check. It’s no coincidence, by the way, that Penguin, who fought the longest, will pay the most; those who settled early got a better deal.

Apple is in a different position. It vehemently denies wrongdoing and has fought the price-fixing accusations at all turns, in court and in the press. Now, if a verdict is entered after the damages phase of the trial, Apple is on the hook to pay special damages under a section of the Clayton Act that automatically triples antitrust awards.

Apple’s liability, according to lawyer Jeff Friedman, will be determined by this formula: harm to consumers x 3, minus the $166 million paid by the publishers.

Friedman is a partner with Hagens Berman, the lead class action firm in the case. He says the damages will be assessed by economists in court but that Apple’s ultimate payout will be in the hundreds of millions of dollars (this prediction, given his interest in the outcome, is likely on the high side).

The appeal and when Apple might pay

Apple says it will appeal Wednesday’s ruling, meaning the U.S. District Judge Denise Cote is likely to put the damages phase of the trial on ice.

According to Andre Barlow, a former Justice Department lawyer and antitrust expert, the judge who issued the ruling “will not want to waste time and resources” on assessing damages if her finding on Apple might not stand. From a technical standpoint, this means that Apple will file for a stay once the judge schedules the damages phase of the trial.

As for the appeal itself, Apple’s chances are slim. Prominent legal scholars told All Things D yesterday that they doubt the appeal will succeed because the decision is very fact specific — leaving Apple with few points of law to attack before the Second Circuit Court of Appeals.

This jibes with Barlow’s assessment:

“The Second Circuit may review the factual findings of the trial court, but typically may only overturn a decision on factual grounds if the findings are ‘clearly erroneous.’  Therefore, it is a huge hurdle in terms of arguing the facts.  If Apple loses at the Second Circuit, the case likely ends unless it is appealed to the Supreme Court and the Supreme Court could decide not to hear the case.”

Ripple effect unlikely

The upshot of the case is that Apple is likely to write a large check to consumers sometime in 2014. The dollar amount, however, is unlikely to faze Apple, which is rich enough to buy the entire publishing industry if it chose.

Instead, the episode will probably be remembered most as a PR headache for Apple, especially as the decision portrays the company’s executive and co-founder as ruthless arch-manipulators.

If there is a silver lining for Apple, it is that the decision is unlikely (as some have suggested) to ripple far beyond the ebook market, which is a relative drop in the bucket in the larger tech industry.

According to David Balto, a Washington antitrust lawyer, the decision could embolden others who deal with Apple — app makers, publishers and so on — to bring class action suits of their own.

Barlow and other lawyers, however, say the decision is very specific to the ebook conspiracy and doesn’t provide legal grounds to attack Apple’s other business practices.

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