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The persecution of Apple: is the ebook investigation out of control?

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Fresh controversy over Apple’s(s aapl) role in an alleged ebook conspiracy raises questions about the judge’s handling of the case, and even led the Wall Street Journal to say she is a “disgrace” and call for her removal.

These are harsh words but, according to antitrust experts, the judge may indeed be out of line. More broadly, it’s starting to look like the overall investigation is out of hand as an overzealous judge and Justice Department turn Apple into a victim and the case into a farce.

An over-priced inquisition?

Michael BromwichThe current controversy arose after U.S. District Judge Denise Cote’s appointed a monitor to oversee Apple’s compliance with a series of antitrust measures. Cote imposed the monitor as part of a ruling this summer in which she found Apple was the mastermind of an illegal conspiracy by publishers to fix the price of ebooks.

Apple will file briefs before the Second Circuit appeals court in February, but in the meantime the company is asking Cote to review the conduct of the monitor, Michael Bromwich. According to Apple, Bromwich overstepped his authority by demanding immediate interviews with every important person tied to Apple — including CEO Tim Cook, designer Jony Ive and board member Al Gore — and by going over the head of Apple’s lawyers and approaching its board members directly.

Apple, which is paying for the monitor, also balked at the $138,432 that Bromwich charged for his first two weeks of work. The company claimed that Bromwich’s $1,100 hourly rate (plus $1,025 for a sidekick) is unreasonable, especially as he doesn’t have a background in antitrust issues, which is what the case is about. Apple is also mad about Bromwich’s law firm boasting about his appointment in a press release.

But, as Fortune pointed out, it’s not money that is the issue for Apple, and its prime target isn’t Bromwich himself. Instead, Apple is really targeting Judge Cote, who it believes hasn’t given the company a fair shake since the beginning. Recall that Cote publicly declared this summer that she “was leaning” to side with the government — before the price-fixing trial even started.

Whatever the merits of Apple’s legal claims, its filings about the monitor have earned the sympathy of media outlets, which have published stories questioning Bromwich’s conduct in the case.

The most damning account to date has been “Apple’s Star Chamber,” a Wall Street Journal editorial that describes Bromwich as Cote’s friend and political ally, and calls the monitor a “greenhorn,” asking sarcastically, “Does [Bromwich] want to disinter Steve Jobs too?”

The Journal has been skeptical of the antitrust investigation since the beginning, but the paper’s criticism of Cote is extraordinarily harsh. It says Cote’s arrangements with the monitor are unconstitutional and concludes:

[S]he is giving her friend whatever he wants. The Second Circuit where her ruling is on appeal should remove her from the case. Her condominium with Mr. Bromwich is offensive to the rule of law and a disgrace to the judiciary.

“Not normal”

The fuss over Bromwich has some suggesting that Apple is being a bad sport: that the company can’t accept that it broke the law and won’t accept its punishment. It turns out, however, Apple has good reason to gripe.

The main problem with Judge Cote’s Apple arrangement is that Bromwich is not only unqualified, but that he’s going way beyond what monitors are supposed to do in the first place. According to Andre Barlow, an antitrust expert and former Justice Department lawyer, monitors are typically attorneys or industry specialists (unlike Bromwich) who watch to make sure a company is complying with specific rules but:

it is not normal for a monitor to act like a special prosecutor with investigation powers over the entire company.  The monitor’s role should be limited to the order related to the antitrust issue and he should not have the power to investigate the entire company for matters unrelated to making sure the decree is carried out. [my emphasis]

The Bromwich situation is also unusual because monitors or “special masters” are typically appointed under a consent order, which come as part of a settlement. In this case, there is no consent order because Apple has not settled anything and is still fighting the case. As for Bromwich, he is not monitoring compliance, but trying to launch an active investigation.

Barlow and legal scholars also noted that monitors are usually appointed in antitrust cases that involve mergers, where an agency wants to verify that a company has got rid of certain assets. In this case, it appears that Bromwich just wants to rummage around Apple’s business in general; the situation is even stranger since the agency pricing system that got Apple in trouble in the first place was dropped by publishers months ago.

Finally, Cote’s decision to choose a friend and political connection as the monitor for the case is also a cause of concern to Barlow:

If the allegation is true, the conflict of interest and the fact that the special master is overstepping his authority by acting like a prosecutor is a significant concern.  The judge has to clear this up and if true, be accountable for her actions.

Runaway investigation

When you think of antitrust cases, the classic examples are Standard Oil or AT&T — massive companies that abused monopolies until the government was forced to intervene. It’s hard to see Apple and the ebook market the same way.

Apple is certainly a large company, but it’s presence in the ebook market was (and is) negligible — if you ask someone to name a big ebook retailer, it’s a safe bet they’ll name a different company whose name also starts with “A.” That doesn’t, of course, give Apple the right to organize price-fixing conspiracies (the Second Circuit will confirm if they actually did so), but by now the Judge Cote and the Justice Department’s zeal for punishing Apple is starting to feel tired.

Don’t forget that Apple is still neck-deep in two related legal pile-ups involving ebooks: attorneys general in 33 states are suing it for money, and Apple also has class action lawyers hanging around its neck. And there’s no end in sight.

Apple and its army of lawyers regularly show that they will throw down for lawsuits anywhere, anytime and will fight to the last comma. This is not an endearing quality and may have exacerbated the company’s current misery with Judge Cote and the Justice Department. But in the case of the ebooks, the investigation risks becoming a farce; it’s time for feds and Judge Cote to leave Apple in peace while it pursues its appeal.

21 Responses to “The persecution of Apple: is the ebook investigation out of control?”

  1. James Katt

    What is so unbelievable is that Bromwich has ZERO EXPERIENCE and is COMPLETELY UNQUALIFIED for the job of monitoring compliance with the judge’s ruling. And he is SO ARROGANT as well as GREEDY. What is further unbelievable is that Bromwich has HIRED A LAWYER WHO HAS ACTUAL EXPERIENCE and wants Apple to pay him too.

    Why not simply cut Bromwich out and hire the lawyer who has actual experience?

    Of course that is simply too easy a solution for Judge Cote. After all, Bromwich is a crony of hers.

  2. tetracycloide

    The DOJ has a long and sortied history of over pursuing defendants that dare to take things to an actual trial. All the conspiracy theory crap about Google and amazon is silly, the AG needs no outside influence to do what it is wont to do.

  3. Nightwriter927

    “The DOJ and the majority of states’ attorneys general don’t usually go for this kind of concerted action on a whim. They must feel they have a very good case.”

    Perhaps they have visions of $$ from the world’s most valued company dancing in their heads to boost their starving state treasuries?

  4. Balanced View

    Interesting to see all the Apple apologists coming out of the woodwork. While it sounds like there is some improper stuff going on with this monitor situation specifically and possibly the wrong judge for the case (which will all hopefully be corrected), that doesn’t invalidate what certainly appears like a price-fixing conspiracy between Apple and the book publishers. We will see how the case(s) turn out. The DOJ and the majority of states’ attorneys general don’t usually go for this kind of concerted action on a whim. They must feel they have a very good case.

    • Chuck Dotson

      “The DOJ and the majority of states’ attorneys general don’t usually go for this kind of concerted action on a whim. They must feel they have a very good case.”

      Actually state attorneys general will often go after companies with deep pockets, not because they have necessarily done grievous harm to the states but because states will do virtually anything to rake in more money to cover their inability to budget properly.

      The AG suits are a cash grab, plain and simple. The DOJ case is punishment for Apple having not played the Washington money-grubbing game of greasing the wheels with campaign and lobbying money.

  5. Vicious Cur

    The DOJ alleges Apple’s “secret” meetings with the publishers were improper, and yet Amazon hosted a secret lake house weekend with the DOJ and Cote and Bromwich are having their own secret meetings.

    Something about this case stinks to high heaven.

    • If you are going to debate, at least get your facts straight. The DOJ was. It at the bathhouse meeting which our to the publishers forcing Amazon into the agency .model. Amazon knew what the publishers were planning and this was a strategy meeting. You know, Apple had their own in which one time Jobs and Cue contemplated proposing to Amazon that they would stay away from ebooks if Amazon stopped selling music

  6. neilsteinmetz

    2. To the extent that there is a market in e-books, Amazon held a near monopoly. Their pricing below marginal cost was a per se violation of antitrust law. To the extent that Apple and the book publishers sought an efficient pricing model, their actions were permissible under antitrust law even if the result was to raise the illegal below margin prices Amazon was charging on certain e-books.
    3. Judge Cote should have recused herself following her pretrial statement that she was leaning against Apple. Her post trial behavior only confirms her unreasonable prejudice.
    4. Even under the hub and spoke theory of antitrust conspiracy, neither the facts nor the law support Judge Cote’s judgment in this case.
    5. Bromwich is clearly out of his element, and out-of-control. If Judge Cote doesn’t do so, the Second Circuit should promptly grant emergency relief.

    • tetracycloide

      If pricing something below margin was a per se violation of anti trust nearly every retailer ever would be in violation. No, anti trust violations require consumer harm.

        • yes you’re correct…I believe it’s called in common argot ‘dumping’, where one company with a near monopoly uses it’s power in the market (Amazon)
          to dump below cost products into the market to financially harm competitors, drive them to near bankruptcy and scare the hell out of suppliers – and this was done by a company WHICH PAYS NO TAXES.

  7. neilsteinmetz

    1. “Ebooks” is not a relevant market for antitrust purposes. It is both too narrow and too broad. To narrow in that e-books compete with audiobooks, hardcovers, paperbacks, as well as electronic games and movies and other types of entertainment. Too broad in that each title is unique, and a market unto itself.

  8. Henry 3 Dogg

    It was clear in court that the Justice department had conspired with Google to present faked evidence of a conspiracy.

    Yet this “judge” largely based her decision on a personal distrust of one Apple witness. Not because his evidence didn’t hold up, but because she didn’t trust him.

    I hope someone is keeping a very close watch on here spending patterns and bank balances.

    This whole business stinks.