United States of America vs. Apple, Inc. and Seven Other Publishers

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Summary of facts

The plaintiffs, the government of the United States of America, and thirteen states jointly filed a suit against Apple Inc. The Antitrust suit alleged that the defendant and other e-publishing companies had conspired to destabilize the retail prices of e-books. This was based on the significant rise in the prices of books in the United States in April of 2010.

It was the plaintiff’s case that the companies had conspired to fix and affect the prices of newly published books significantly. According to the defendants, such conspiracy was against the Sherman Antitrust Act. The defendants specifically sought to rely on section 1 of the Sherman Act. The suit was also backed by other specific state laws.

The cases closely related to other two cases brought in the same court relating to the hiking of the prices of e-books. The cases were founded on the allegation that Apple Inc. had conspired with the other publishing companies to raise the prices of e-books.

The publishers in this case were Hachette Book Group, Harper Collins Publishers, Holtzbrinck, Penguin Group, Simon & Schuster, and Macmillan. The above publishing companies were sued collectively.

There was direct movement into the trial phase for Apple since the other defendants had already settled some claims outside the court. In a joint Pretrial Order, the proposed parties requested for findings and conclusions based on the existing law. A number of rulings were made upon filing of the pretrial memoranda on April 26.

The judges were mandated to determine the liability of the injunction relief as per the requirements of the parties involved in the case. The bench was also meant to look into the status of the same injunctive relief. All parties involved agreed on these resolutions as the trial became apparent.

The parties consented to the trial being conducted in accordance with its practices, whereby the jury was excluded. The trial process also included taking direct evidence from the parties. This would be done through affidavits submitted during the time of the pretrial order. All evidence that was scheduled to be used in the trial was presented before the court in advance. All parties complied with this requirement.

The trial involved 12 witnesses produced by the United States as the plaintiff. This included two expert economists. Apple’s employees were also called in to give evidence. The senior Vice President of Apple Inc. in charge of Internet Software services at Apple was a key witness in the trial.

The director of iTunes at Apple and the Associate General Counsel in charge of the software also testified in the trial. On the other hand, the plaintiffs called senior executives from each of the publishing companies.

The plaintiffs also called 4 additional fact witnesses. In addition, expert witnesses were heavily relied on by the plaintiff. Evidence from 4 direct witnesses came as affidavits. The US produced this evidence too. It was the intention of Apple Inc. to call 4 of the plaintiff’s witnesses to support its case. By so doing, the affidavits were used by both the defendants and the plaintiff to support their case in different ways.

Each of the witnesses mentioned appeared during the trial process and was subsequently cross-examined. In its defense, Apple Inc. offered affidavits that constituted the direct evidence of its witnesses. The case was set for hearing basing on the above given facts. The court was to present findings based on the law and the testimonies of the witnesses.

Laws violated

The contracts and the transactions that Apple Inc. entered into were contrary to the Sherman Act of 1890. According to section 1 of the Act, all contracts that are designed to further any form of conspiracy are prohibited. The section literary prohibits conspiracies in restraint of trade. The section further states that all price fixing agreements are prohibited.

Any form of monopoly achieved through conspiracy is not permitted under section 2 of the Sherman Act. The attempt to monopolize using other parties in the United States or outside the United States is prohibited. The conspiracy could be done in one state or across several states. This Act prohibits any form of market dominance that a company or individual may introduce to maintain a monopoly in a given area of operation.

The Act seeks to control any form of horizontal restraint of trade. This is a kind of competition whereby firms reduce any present and potential competition between them. By so doing, actual and implied horizontal price fixing occurs. The mere collusion to raise prices to reduce competition is illegal, according to the Sherman’s Act. Any agreements reached between individuals and companies to raise prices are deemed illegal.

Apple Inc. conspired with the publishing companies to limit the supply of books and automatically raise the prices. Direct circumstantial evidence was needed in this case to prove that the company engaged in the said transactions. Parallel action without direct circumstantial evidence cannot sufficiently prove a violation of antitrust laws.

The Clayton Act of 1914 was also violated in the Apple’s Inc. case. Section 2(a) of the Clayton’s Act provides that any form of discrimination in the price is outlawed since it has the effect of lessening competition. The only exception under the section is where the consumers or buyers do not re-sell the product. In addition, section 2(b) allows any defense that shows good faith.

Good faith can be admitted as a defense if it shows that the price discrimination was introduced to meet competition. The guiding word in this case is that the good faith should be used in meeting the competition, but not beating the low price. The change in the prices should not be dictated by the rival’s differences or the cost of manufacturing, sale, and delivery.

Section 2(c) strictly forbids any form of price discrimination hidden in the claim of discount, brokerage, and commission. Section 2(d) and (e) prohibit any form of discrimination witnessed in the allowances. Under section 2(f), a strict prohibition is imposed on a large buyer who engages in illegal concessions to defeat a relatively small trader.

Section 3 of the Act is to the effect that all tying clauses within a territory or outside the territory that promote exclusive dealings are illegal. The effect of the tying and restraint clauses is that they lessen competition. As an enforcing clause, section 4 of the Clayton Act provides that any person injured due to the violation of the antitrust law in the business of the company or the person in violation may sue in a district court.

The person suing recovers from damages and the cost of the lawsuit. However, under section 4(b) the person suing must observe the limitation period since the suit must be within four years of the suffered injury. The requirement of the four year limitation may be dispensed if there is a government action pending. The four year period is counted from the time when the antitrust violations were discovered.

The act further gives specifications regarding the nature of suits and the type of evidence expected in the suits before the court. The applicability of the Clayton’s Act in the Apple Inc. case is debatable. However, there are indisputable sections in the Act that can be used hand in hand with the Sherman’s Act.

The five dimensions of the market

Product market refers to the already existing market for the product. In the case of Apple Inc., the product market was the Internet since the books were to be sold online. The publishers and the company dominated the market through the regulation of the supply side. The effect on the demand and the supply curves was a crucial one in determining the prices of books.

The market substantially diversified, but the products’ prices remained high. The raising of the prices determined the market forces and it was not easy for the consumers to afford the products. A lot of issues were discovered in the engagement of the product market changes.

Geographical market refers to the scope of the market in terms of geographical location. Although the products of Apple Inc. and other publishers are sold worldwide, it was the law of the United States that was applied in the case. It, therefore, means that the geographical market was the United States. In addition, the mentioned publishing companies were established in the United States as their area of operation.

In the wider sense, the United States’ courts had jurisdiction to try the cases, thus the defendants and the plaintiffs in the case assisted in identifying the geographic market. The prices of products are in many occasions determined according to the geographical setting of the market.

This means that any form of pricing must research on the overview of the market and the hindrances before imposing a higher price. In the antitrust case of Apple Inc. and the publishers, it was clear that the buyers in the geographic market were able to determine the prices. With their long experience of using the products, it was evident that the product’s prices were raised in order to determine the dominance of the product in the market.

Actual and potential sellers

The theory of actual sellers in a market presupposes the individuals who are engaged in the actual selling in a given market. Actual sellers determine the prices. In the forces of demand and supply, the actual sellers have an influential role to play since they dictate what is in demand. The supply of the product in the market is dictated by several forces.

However, it is evident that the actual sellers are, in many instances, the suppliers. This means that they have an option of keeping the products out of the market to lower the supply. The effect is that the demand for a given product will rise. In the antitrust case, the publishers and the Apple Company were the actual sellers and they dominated and controlled the market.

Any form of conspiracy could not be achieved without the parties taking an active role in selling the products. It is clear that the two mentioned companies were the actual sellers. On the other hand, potential sellers entail sellers who are yet to take part in the operations of the market. They have no controlling role on the prices since they are not actual sellers.

It has been observed that in instances where a potential seller dictates the price, the actual sellers have all it takes to change the situation. The potential sellers are essential in regulating the situation in the current market not to exceed the present rate. This can be done by observing the current forces of the market and identifying what needs to be changed. In the Antitrust case, the defendants were both potential and actual sellers.

Actual and potential buyers

The buyers of a given product are categorized into two. Just like the sellers, they could be actual or potential sellers. Actual sellers engage in the day-to-day transactions with the actual buyers. The framework of the markets only identifies those who are ready to buy. It is not in all cases that the market will be dominated by the actual buyers.

There are buyers who do not need to engage in buying at a given time, but they do it at a later time. The plaintiffs in the case were both actual buyers and agents of actual buyers. The plaintiffs would not have had locus standi without a proof of actual buyer or their representatives. The plaintiffs were the actual buyers in the antitrust case.

The overpricing of products is felt by the actual buyers. The actual buyers are faced with the challenges based on the sources of monopoly. The rising of the prices was a contrary event that had the effect of raising a conflict between the potential sellers and buyers. On the other hand, potential buyers are those buyers who are interested in the market, but they are not engaged in actual buying.

They closely watch the market with an aim of buying at a future date. They may choose not to buy. This means that they will become actual buyers once they buy the products. Courts do not entertain any action brought by potential buyers since they do not suffer any actual loss.

Potential buyers lack locus standi, thus their suit cannot be entertained unless they are enjoined with the actual buyers. Spot market refers to any market that is active at the time of selling and buying. In the Antitrust case, the spot market was the sale of the e-books.

Summary judgment in the case

The plaintiffs in this case collectively sought an injunction to restrict the operation of the Apple Inc. and the publishing companies following the hiking of the prices of e-books. The players in the trial were moved by the need to apportion liability to the company for engaging in antitrust transactions. An injunction in the favor of the plaintiff was to be issued upon the court finding the companies liable.

The strength of the evidence was a proof of the fact that the companies conspired in ensuring that the prices of books went up. The allegations put forth by the federal complaint were to the effect that Apple Inc. facilitated in the raising of the retail prices of the books. Apple had a direct participation in the scheme and it clearly understood the benefits of participating as a company and the benefits to close partners.

In the created model, it was the publishers who dictated the prices and not the sellers. The overwhelming evidence linked Apple with the role of conspiring with the publishers. The court was of the view that Apple Inc. was liable. The scheming acts of conspiring with the publishers were, by all means, against the Sherman’s Act and other laws. The injunction requested by the plaintiffs was granted.

A rebuttal to the judgment

The injunction sought by the plaintiff was draconian in the sense that it was a direct interference with Apple’s Inc. business. It was a punitive action that was, by all measures, out of proportion compared to the alleged wrongdoing. The injunction was a way of allowing the government to regulate the operations of Apple, which would affect the business operations of Apple Inc. across the markets and different partners.

The proposal of an injunction would establish a new compliance regime. The intrusion oversight was designed to last for ten years. This was a violation of all principles of fairness and due process. Going beyond ten years would make it easy to injure competition and consumers. The loss due to the injunction was not only in dollars, given that many people would also lose their markets.

The events were triggered by the trade in the e-book market. The plaintiff’s theories of liability based on the antitrust law were stretched far beyond the limits of liability. The nature of liability was understood, but the relief sought had the effect of establishing unwarranted oversight on Apple’s operations.

The injunction was not warranted in the sense that there were consent decrees by the publishers. It was agreed that the publishing companies would discuss their contracts with Apple Inc. again. The publishers’ ability was eliminated by prohibiting the publishers from entering into discounting arrangements.

The court approved the conditions sought by the plaintiffs under the injunction relief. The court concluded that this was reasonably calculated to restore the prices in the retail market. It was further held that the injunction would serve in making sure that the prices in the market remained competitive. This would benefit the public since the prices of the books would go down substantially.

However, the court had made the two remedies at the same time by granting an injunction to the plaintiff. The situation that the court sought to provide an injunction for had been catered by the consents of the publishers before allowing the trial to commence. Courts of law are not supposed to issue remedies that are moot. There was no threat of the right recurring.

The Sherman’s Act violation in the finding was remedied before the trial. The Court would have made a finding regarding the question of liability. The court was not at liberty to issue orders with anticipation of violation of antitrust laws in the future.

Such anticipation would lead to granting of relieves that are unrelated to the violations before the court. The proposal for the injunction was, to a large extent, asking the court to delve into matters not before the court.

An injunction comprises of provisions that are not clear. The provisions are also invasive. The provisions are not related to the outcomes of the antitrust case. The proposal mainly flouts the principle that the relief should be the remedy that emanates from the wrongdoing. Strictly speaking, the proposal by the plaintiff set terms that were hard to follow.

The company was left at the mercies of the plaintiff since they were given powers to regulate the terms in the books retail market. This had the effect of regulating Apple’s dealings with the app providers. The regulation appears unnecessary since there are laws that purposely regulate the content of markets. There is no legal justification regarding the reason for invading Apple’s market.

The business of Apple Inc. was not an issue during trial, thus there was no justification to issue remedies that dictated that the business should be regulated. The unilateral conduct of Apple was not an issue before the court, thus a decision that sought to regulate what was not an issue was an improper decision.

The suggestion that the dealings of Apple Inc. should be monitored was unreasonable and did not establish any nexus between the law and the alleged violation. Courts must establish clear nexus between the alleged violation and the remedy sought when making decisions about the nature of antitrust violations. A remedy should be set to address the violations and shortcomings that come from the harm caused by competition.

In this court, the antitrust laws were considered and they should have been applied with a lot of care. It was necessary for the court to consider market forces and regulations before making the ruling. This would have avoided unfair competition.

Antitrust laws are concerned with deterring, while also punishing the wrongdoers. It is clear that courts may not necessarily remember their duty to enjoin the lawful conduct with the available remedies when faced with such duties. The failure to couple the conduct with the appropriate remedy aids contempt since the defendant is put in a situation whereby it becomes hard to obey the court order.

The agency agreements in the case were held as price caps and they were deemed lawful. The proposed injunction had the complete disregard of the terms of the companies that were not held unlawful. Apple Inc. would be left exposed and definitely harmed by the conduct upon the expiration of the consent judgments.

Any decision made by the court should have put into consideration the public policy doctrine given that Apple Inc. is one of American’s most dynamic companies that is relied upon for its innovative practices that are popular in the world. Making the company strain to meet the demands of the international markets may worsen the situation that the finding sought to remedy.

Specifically, the court should have issued a remedy that did not hurt the competitive nature of the company in the international arena. Any form of regulation that was not imposed on other competitions in other countries was unfair to the company. The competition that the decision sought to foster was highly hindered by any means of regulation.

The injunction sought was to serve two broad purposes. The first purpose was to undo what the antitrust violation achieved. This is commonly known as restoring the status quo before the damage is occasioned. It was the purpose of the relief to cure all the ill effects that the illegal conduct did. This also restores the public freedom and enables continuation.

It should be observed that there are specific things that the grant by the court may not achieve. The punishment of the past transgression is not the main aim of the court’s decisions in an equity court. The effective and fair way of enforcing the judgment should be the main consideration of the courts. Penalties should not be issued under the guise of preventing future violations.

There is no need to impose harsh severe relief when there are lesser punishments that can serve the same purpose. The injunction, or any other relief sought should be tailored to cure the specific wrong at hand. There should be an indication of a causal connection between the wrong sought and the remedial goal that the court intends to remedy.

The provisions that achieve that goal should be cited with corrections and adjustments to fit in a given case. Injunctions are relief under equity, thus they should not be used to impose unnecessary and undue burden to the defendant. Due caution should be taken to avoid frustrating the future business opportunities of the company in a situation whereby the defendant is a business entity.

The issuing of injunctions when the practice that was designed to cure is remedied does not serve its purpose. The consent decrees by the publishing companies were enough to remedy the situation before the court. It is pertinent to take note of the possibility of having the cases continue due to the action of challenging the practices in situations where injunctive restrictions are eminent.

An injunction will serve well if there is a likelihood of the cognizable wrong recurring. The actions in the Apple’s case were found unlawful and there was no evidence showing the likelihood of a repeat, thus the injunction issued was improper in the eyes of the present law and the business environment.

An injunction is an improper remedy if the conduct is discontinued and there is no evidence of the defendants engaging in the conduct at a later stage. The process that leads to acquisition of an injunction takes the scale and terms of the injunction into consideration. It is important for the government to give notice in good time to alert the public about the behavior that is in line with the law.

Factors in this antitrust case that impeded the ability of a decentralized market economy

A decentralized market economy entails a free economy that is not regulated by the government. It means that parties are left to make their own decisions that are in compliance with the nature of the transactions that they carry. It means that their transactions are purely dictated by the forces of demand and supply. The government is not involved in the setting of policies and restrictions.

The American market has been decentralized and it does not require any form of government regulation. Willing sellers and willing buyers meet in the market and buy the products of their choice. The best remedy is to go to court in an event that a consumer is aggrieved by the decision of a seller or a manufacturer. The government must follow the same procedure in order to exercise regulation.

Court decisions are the only way that the behavior of sellers and buyers is regulated. The facts in the case indicate that the government sought an injunction that greatly interfered with the company’s power to operate freely. In so doing, the government was acting in contravention of the free market economy principles.

The regulation was not, in any way, desirable and many companies would be reluctant to introduce their products in the market in fear that the government regulation may be imposed. The decision placed other companies in a state of unhealthy competition. Other companies that are not regulated operate under a decentralized economy, while Apple Inc. is centralized.

The injunction relief is, by all means, a hindrance to the free market practices. The forces of demand and supply will not operate to the benefit of buyers and sellers in the market. Some of the sellers will be better placed in that they are not regulated. The unfair treatment is against the principles of liberal economy. The prices in the market are supposed to be as per the supply and demand conditions.

In this case, prices would be expected to rise when demand is high and the supply is low. That cannot be the case where one company has an injunction. The market cannot be decentralized when a government plaintiff gets an injunction to restrict the operation of another company. The restrictions hinder the ability of companies to determine the prices of their products.

The punitive nature of the injunction is, in many cases, supposed to remedy a situation. Viewed from the decentralization of markets, the injunction is not a tool that promotes decentralization. The injunction is an impediment to the free economy markets.

The government’s interest in the markets should be pegged on the promotion of the general public’s well-being. Anything lesser than that, as seen in the Antitrust case, will injure the freedom of markets.

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