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?
The 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.
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.
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.