Tag Archives: Justice Department

The absurd ebook case: Apple fights on as consumers spend settlement money at Amazon

The high-fives must have been flying at Amazon this morning: millions of the company’s customers got notices to spend credits at its Kindle store, and Amazon didn’t have to pay a cent. Meanwhile, rival Apple will likely underwrite an even bigger shopping spree for Amazon customers sometime yet year.

Welcome to the ironic denouement of l’affaire ebooks, which reached a climax in 2013 when a federal judge found that Apple had brokered a conspiracy with book publishers to fix prices. The legal tussle resulted in the publishers settling their cases — which is what paid for the customer credits that went out today — while Apple fought on alone.

For now, the biggest winner is Amazon, which already dominated the ebook market at the time of the price-fixing scheme in 2010. Today, as a result of lawsuits brought by the Justice Department and state governments, Amazon is in an even stronger position with the publishers; it will also get a healthy cut of the $160 million or so that the publishers agreed to pay under a settlement.

As part of the settlement, ebook customers received credits to their Amazon Kindle, Barnes & Noble or Google Play accounts. While all this cost the publishers a pretty penny, they didn’t make out so badly since much of the money they paid out will come right back to them as customers use their credits to buy new ebooks. Meanwhile, the retailers — most of all Amazon — will collect their usual commission.

For Apple, which chose to fight rather than settle, it’s a whole different story. Right now, the company is in the midst of high legal torture at the hands of a hostile judge, class action lawyers, state attorneys general and the Justice Department.

Recent court records show that the class action lawyers and the states want Apple to pay damages of $280,254,374; they will then seek to triple that amount under special penalty provisions — which would result in a final bill close to $1 billion. The damages trial is set to start in May and, if Apple loses, consumers (and indirectly Amazon) can expect to receive another bushel of ebook credits next year.

Meanwhile, Apple is waging an uphill fight against the Justice Department to overturn last year’s anti-trust verdict. Currently, the company is waiting for its appeals court trial to begin, and is also asking for a change of venue in related proceedings to get away from the clutches of Judge Denise Cote, who has been openly hostile to Apple — even requiring the company to pay for a monitor, who is reputedly Cote’s friend and colleague, to investigate itself.

The whole business is starting to look absurd, especially as Apple remains a marginal player at best in a world where Amazon is still dominant. While Apple deserves some of the blame, not least for its ongoing intransigence, it’s also about time for the states and the Justice Department to find another target.

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Apple provides update on government requests as tech companies reach settlement with DOJ

Apple-Account-informaiton-requests-01

Just a few days later after Apple CEO Tim Cook expressed his thoughts about the NSA and data collection transparency, Apple has posted an update to its website with new information regarding account data requests. The company’s press release comes as US Department of Justice comes to a settlement with technology companies over how they are allowed to disclose information about government data requests.

A statement from the DOJ explains the agreement will allow “detailed disclosures about the number of national security orders and requests issued to communications providers, and the number of customer accounts targeted under those orders and requests including the underlying legal authorities.” Due to these new guidelines, Apple has now been able to report FISA and National Security Letters separate from law enforcement requests as show in its graphics above and below.  It also notes the new data released today replaces the U.S. data from its Feb. 5 2013 Report on Government Information Requests.

Apple-National-Security-orders-02Apple has been working closely with the White House, the U.S. Attorney General, congressional leaders, and the Department of Justice to advocate for greater transparency with regard to the national security orders we receive. We believe strongly that our customers have the right to understand how their personal information is being handled, and we are pleased the government has developed new rules that allow us to more accurately report law enforcement orders and national security orders in the U.S.

Apple CEO Tim Cook said in a recent interview that he would push congress for more transparency regarding controversial surveillance programs and how companies can disclose information related to information requests. At the time, Cook said that there was much the company couldn’t speak about due to gag orders:

Number one, we need to be significantly more transparent. We need to say what data is being given, how many people it affects, how many accounts are affected, we need to be clear. And we have a gag order on us right now so we can’t say those things… .Much of what has been said isn’t true. There is no backdoor. The government doesn’t have access to our servers. They would have to cart us out in a box for that, and that just will not happen. We feel that strongly about it.

The full press release from Apple is below with the actual data on requests pictured above.

Screen Shot 2014-01-27 at 4.55.32 PM


Filed under: AAPL Company, Tech Industry Tagged: Apple, Apple CEO, DOJ, Government, Justice Department, Nation Security, NSA, Tim Cook, United States, White House

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No, the Justice Department didn’t cripple Microsoft — the internet took care of that

Not surprisingly, there’s been a lot written over the past few days about the upcoming retirement of Microsoft CEO Steve Ballmer and the impact his departure will have on the software giant, and also about his legacy, such as it is, and what he could have done differently. Some visions of this alternate future are more likely than others, but others are closer to being flat out wrong — like the version that Matt Yglesias tries to put forward in a piece at Slate, where he argues that the Justice Department’s prosecution of Microsoft saved us from a hideous future in which Apple and Google never existed.

Yglesias makes his point obvious in the headline of his piece, which is entitled “The Justice Department Was Absolutely Right to Go After Microsoft in the 1990s.” In a nutshell, the Slate writer argues that if the federal antitrust authorities hadn’t launched a case against the software company in 1998 and extracted a series of concessions from it during a long settlement process, we would be living in a very different world — one in which Microsoft us such an impervious monopoly that neither Apple nor Google are really able to build much of a business in search or mobile technology. For Yglesias, the lesson is:

“There was nothing foolish about the DOJ’s pursuit of a case against Microsoft, the settlement eventually reached with the company was perfectly reasonable, and what we’ve seen over the past decade or so is very possibly the benefits of that litigation — litigation that, in retrospect, has had no meaningful costs or downsides.”

No Google and no Apple iPhone?

Internet_Explorer_9-Firefox-4

According to Yglesias, forcing Microsoft to dismantle the integration of Internet Explorer and the Windows operating system — one of the main targets of the government’s antitrust case — was the key to unlocking the potential of the internet, which in turn led to the rise of Google and that company’s dominance of web search and related services (somewhat confusingly, Yglesias also argues in a separate piece for Slate that we should thank Microsoft for blunting the impact of a potential Google monopoly). As he describes it:

“Had that not happened, it’s entirely possible that Microsoft could have used its dominance of the PC marketplace to substantially pre-empt the rise of Google. Imagine a world in which more than 90 percent of people have Microsoft computers that default to a Microsoft Web browser that defaults to a Microsoft-owned search engine. Google search is out there as a kind of niche product for serious nerds, but it never generates the kind of revenue flow necessary to move in to start dominating the webmail and map spaces.”

Not only that, but Microsoft’s monopoly over the internet — in Yglesias’s version of events — also winds up blunting the impact of Apple, and thereby effectively prevents the company from building on its success with the iPod to launch the iPhone and reinvent the entire mobile phone market. Says Yglesias:

“With Microsoft-owned Web services for search and mapping dominating the Internet and exclusively available to users of Windows Phone, it’s not possible for rival smartphones to ever go mainstream… The mobile revolution looks more like a slow inching forward, with cutting-edge technology rarely finding marketplace acceptance and market-leading technology rarely being genuinely the best stuff [and] app-based services find it harder to take off.”

Is it possible that what the Slate writer describes might have actually happened if there had been no Justice Department prosecution of Microsoft? Theoretically anything is possible — but for me at least, his vision of a Microsoft-led future stretches the bounds of credulity to the breaking point.

The web disrupted Microsoft, not the JD

usinternet.gif

Why? Because even before the antitrust case was concluded and a settlement reached, it was already blindingly obvious that Microsoft had missed the potential of the internet completely. While it saw the browser as another piece of software it could tie into Windows and get people to use, it had no clue about the disruptive effects the web would have on virtually every aspect of the technology business over the subsequent decade, from search to advertising to mobile and personal web services. None of that even started to become obvious until Google came along, and even then it took awhile to sink in.

Internet Explorer was almost pathetically inadequate for a long time (although I am willing to admit that it did eventually get better), as were almost every single one of Microsoft’s attempts at web services such as MSN and all of its various related features, on which the company wasted untold billions of dollars. The web-ification of Office and other moves by the company eventually found a market with Windows users, but that also took years to accomplish.

The idea that the company could have built up this unassailable monopoly on the internet that would have ensured Google and Apple never became as dominant as they are in search or mobile borders on the ridiculous. And it also plays into a dangerously complacent view of antitrust investigations like the Microsoft one, which argues that if it wasn’t for the Justice Department swooping in to rescue us, we would have been condemned to a nasty future, trapped under the boot-heel of a monopolist, unable to save ourselves.

The reality is that in most cases, as in Microsoft’s, the disruptive effects of a changing technology environment have far more impact on dismantling a company’s monopoly control over a specific market than anything an antitrust regulator does. If Matt Yglesias wants to thank someone for crippling Microsoft, he should be thanking the internet — and the company’s own sclerotic management — not the Justice Department.

Post and thumbnail images courtesy of Flickr user Mark Strozier


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Apple faces triple damages, longshot appeal in ebook conspiracy

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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Apple faces triple damages, longshot appeal in ebook conspiracy

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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At close of ebook trial, Apple gains ground: what lies ahead

At the outset of a June trial that captivated the publishing world, Apple’s role in fixing ebook prices was nearly a foregone conclusion: Five publishers had already settled and the trial judge started the proceedings by saying the government could likely prove Apple had organized the whole thing.

Three weeks later, the situation looks somewhat different. Apple made a forceful argument that it brought competition to a market dominated by Amazon and, according an antitrust expert, forced the trial judge to rethink the foundation of the case. Here’s an easy-to-read Q&A about the case and what will happen next.

Why was Apple on trial in the first place?

The Justice Department filed a lawsuit claiming that Apple was the ringleader of a conspiracy among publishers to fix the price of ebooks. All of the publishers agreed to settle, pay fines and change their pricing systems. Apple held out and the case went to trial.

What happened at the trial?

The government held up emails and phone calls between Apple and the publishers as evidence of a conspiracy brokered by Apple. The company’s lawyers, however, made slides to show that these communications were not the smoking gun that the Justice Department claimed. More importantly, Apple laid out an alternative theory of the case: that its pricing policies were not a conspiracy but a business decision that was good for consumers.

“[Judge Cote] may have had certain impressions before the trial started from reading the written materials. But then, throughout the trial, Apple made a lot of headway in explaining their actions and how their model came about, and how they interacted with these publishers,” said Andre Barlow, a former Justice Department lawyer who is now a partner at the antitrust firm, Doyle, Barlow & Mazard.

“The judge now has a lot more to think about it. It’s not a simple case the way the Department of Justice was presenting it.”

What happens now?

The judge is expected to issue her decision later this summer. If Apple loses, the company will have to agree not to use certain types of pricing terms in its ebook contracts. It will also have to pay millions in fines to state governments who are suing on behalf of consumers.

More broadly, the case could be a bellwether for the tech sector.

“It’s going to be a big deal, whatever the decision is, because not many of these cases go to trial. Whenever you have an Apple, or Amazon or Google go to trial against antitrust, it’s really important,” says Barlow. ”This isn’t a case about money, it’s about conduct and principle on both sides. The Justice Department is concerned about these tech companies that control distribution.”

How will the decision affect the ebook market?

Ironically, the decision will have very little practical effect. That’s because the publishers, under the settlements, have already agreed to abandon controversial pricing tactics, including some forms of “most favored nation” clauses. If Apple is barred from using such clauses in the ebook market, it won’t change anything at this point.

Will there be an appeal?

If Apple loses, yes. The company will almost certainly file an appeal to the Second Circuit Court of Appeals. The commission-style pricing system at issue is a basic part of how Apple does business, says Barlow, and the company will appeal out of principle.

If the government loses, an appeal is less certain. The Justice Department has already made a high profile legal and public relations bet. A loss would be an embarrassment and an appeal would mean doubling down.

“From the Justice Department perspective, I’m sure they’ll have to go back and decide if it makes sense to appeal. It’s one thing to have a district court decision – it’s another to lose at the Second Circuit.”


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Google, Amazon ask to shield sales in Apple ebook trial; judge says issues have “shifted”

Apple and the Justice Department will make closing arguments on Thursday in a closely-watched trial over whether the retail giant brokered an illegal conspiracy with publishers to fix the price of ebooks.

The case has provided more drama than expected, with nostalgic discussions of Steve Jobs and a concession on Wednesday by US District Judge Denise that the issues have “somewhat shifted” during the trial and that “things change.” Cote had earlier raised eyebrows during a pre-trial hearing when she said her “tentative view” was that the government would prove an illegal conspiracy.

Wednesday also saw Google and Amazon file new petitions asking that Cote require Apple to redact sales information from the public exhibits that Apple will put on the court record. Amazon wants to redact certain of its print sales as well as the growth rate of free ebooks between 2009 and 2011.

Google, meanwhile, complains that Apple wants to “splash some of the most confidential Google material onto the public record.” The company also describes itself as a “very small rival in ebooks” and asks the court to protect it from “serious competitive harm.”

My colleague, Laura Owen, will be at the trial in New York today and will have highlights from closing arguments. Judge Cote will issue her decision in the coming weeks or months.

Here’s Google’s petition to keep its revenue share with publishers a secret:

Google Petition to Redact


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