Legal Issues

With E-Book Appeal, Apple Sets Its Sights on the Supreme Court


Nothing about Apple’s legal strategy in the government’s lawsuit over charges of e-book price fixing has suggested it won’t fight this case hard. So an appeal Apple filed late Wednesday in the antitrust suit comes as no surprise—the company was clear that this was coming.

Apple (AAPL) is asking the Second Circuit Court of Appeals to overturn a July ruling by federal district Judge Denise Cote that found the company had violated antitrust laws and colluded with five book publishers to inflate the price of e-books. “The district court’s ruling that Apple, in the very act of launching the iPad, inventing the iBooks Store, and entering the e-books market, violated the Sherman Act is a radical departure from modern antitrust law and policy,” the appellate brief states. “If allowed to stand, the ruling will stifle innovation, chill competition, and harm consumers. This Court should overturn it.”

Its entry into the e-book business, Apple argues, marked “the beginning, not the end, of competition”—a real challenge to Amazon.com (AMZN). Apple also is pleading ignorance over the conspiracy the book publishers allegedly engaged in and says Judge Cote’s interpretation of the antitrust theories she based her ruling on is flawed. If the circuit court won’t overturn the decision, Apple wants a new trial with a different judge.

Apple’s resolve has been clear from the outset. It was the only defendant among those sued by the Justice Department in 2012 to go to trial. Hachette Book Group (MMB:FP), Macmillan, HarperCollins (NWS), Penguin Group (USA), and Simon & Schuster all settled federal and state cases. About a month after the government filed its lawsuit, Apple’s lawyers at Gibson, Dunn & Crutcher issued a strongly worded response, denying the price-fixing charges and calling the government’s case and the arguments it was built on “absurd,” “fundamentally flawed,” and favoring “monopoly, rather than competition.”

This is just the kind of challenge Apple’s legal team thrives on. Last May, the Gibson firm scored a big win for client Comcast (CMCSA) when it persuaded the U.S. Court of Appeals for the D.C. Circuit to reverse a decision by the Federal Communications Commission. The FCC had found that Comcast improperly discriminated against the Tennis Channel by refusing to make the channel more widely available to its subscribers. Gibson, Dunn argued at a hearing before the D.C. Circuit that the FCC decision was “one of the most outrageous invasions of the First Amendment since the Sedition Act.” In the spring of 2011, Gibson, Dunn partner Theodore Boutrous represented Wal-Mart Stores (WMT) before the Supreme Court, successfully persuading the Court to decertify a class of hundreds of thousands of female Wal-Mart employees whose discrimination case had, until then, stood as the largest employment class action in history.

Boutrous is the lawyer Apple turned to in August, about six weeks after Cote issued her ruling saying it engaged in price fixing and after the judge appointed an antitrust monitor to review Apple’s business practices. The high-profile appellate lawyer was brought on to handle post-trial issues and an appeal and to do for Apple what he’s done for Wal-Mart and other clients—pick apart the arguments that underlie a ruling his clients don’t agree with and secure a reversal, or a dismissal, or at least a new chance to fight back. This is the first time he has represented the tech giant; Gibson Dunn has represented Apple on other matters. Boutrous declines to comment on the case. Apple did not respond to requests for comment.

Apple’s resistance to the antitrust monitor appointed by Judge Cote took on a life of its own. The jousting over the course of several months at times bordered on the seemingly absurd and led to heated arguments over the scope of the monitor’s job. Apple argued that the monitor intended to stick his nose into areas he had no authority to review and was acting more like an investigator and an inquisitor in his approach, not like the “judicial officer” that he was. If allowed to proceed in that way, Boutrous argued, the monitor’s “investigation” would prove damaging to the business and to their appeal.

A ruling on Feb. 10 by a three-judge Second Circuit appellate panel—consisting of U.S. Circuit Judge Gerard Lynch; Guido Calabresi, a former Yale Law School dean; and Pierre Leval, an expert on the fair use standard—put many of those issues and questions to rest. While the monitor hasn’t been dismissed, his responsibilities are now more narrowly defined, closer to Cote’s original plan to have him assess Apple’s antitrust compliance programs.

Plenty more battles are to come. As Bloomberg reports, a second phase of the case gets underway later this year, also under Judge Cote, over the company’s liability to 33 states that joined the government’s lawsuit—those states are seeking $280 million in damages, and they’ve asked Cote to triple the amount to $840 million. The government plans to file its response to the appeal in May.

The appellate brief, in arguing that Judge Cote’s ruling contradicts other Supreme Court and Second Circuit decisions in price-fixing cases, leaves no doubt that Boutrous and his team at Gibson, Dunn are teeing the case up for Supreme Court review, should it come to that.

Kessenides is an associate editor for Bloomberg Businessweek.

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