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Publishers close the book on one e-books case; Supreme Court decides whether to reopen another

We will soon know whether the Supreme Court will grant Apple’s cert petition asking the Court to review and reverse its antitrust violation for conspiring with publishers to fix the prices of e-books.  The Court will consider the petition at its next conference on February 19.  As we previously reported here and here, a divided Second Circuit panel affirmed the district court’s findings that the per se rule applied to Apple’s conduct and that Apple violated Section 1 of the Sherman Act.

In its cert petition filed on October 28, 2015, Apple contends that the Second Circuit made a legal error in affirming that Apple was per se liable for joining the publisher’s horizontal conspiracy, arguing that under the Supreme Court’s ruling in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007), its conduct is properly considered vertical, and thus must be evaluated under the rule of reason.  In a bid for certiorari, Apple contends that by treating its conduct as per se, the Second Circuit has created a circuit split with the Third Circuit’s decision in Toledo Sales & Serv., Inc. v. Mack Trucks, Inc., 530 F.3d 204 (3d Cir. 2008), which Apple argues evaluated a vertical agreement that facilitated a horizontal conspiracy under the rule of reason.

Apple’s cert petition is opposed by the U.S. government and by thirty-one states, the District of Columbia, and the Commonwealth of Puerto Rico.  The respondents dispute Apple’s characterization of itself as a vertical participant, and contend that as an organizer or participant in a horizontal conspiracy, they argue, Apple is subject to per se liability to the same extent as any other horizontal participant.  They disagree that the Second Circuit’s decision conflicts with the Third Circuit’s Toledo decision or that it is inconsistent with Leegin.  Respondents contend that Toledo applied the rule of reason because it found that the defendant there entered into a vertical agreement separate from the horizontal agreement.  The Second Circuit, in contrast, found that Apple was a member of the horizontal conspiracy.

Should the Supreme Court choose to grant certiorari, the resulting decision could provide significant guidance on the reach of Leegin and the application of the rule of reason in general.

Meanwhile, further antitrust litigation regarding e-books is proceeding at the trial court level.  Last week, Judge Cote of the Southern District of New York (whose prior ruling is the subject of Apple’s cert petition) granted summary judgment to defendant publishers in a case brought by Diesel, an e-book retailer, related to the same conspiracy as was litigated by the United States and the States.

Judge Cote found that Diesel’s claims ultimately foundered on an inability to show any antitrust injury.  Unlike consumers, who the federal and state governments alleged suffered injury from higher prices, Diesel did not attempt to compete with the publishers on price.  Rather, Diesel tried to distinguish itself in the market by providing services, such as bundling, that would allow it to maintain customers without competing on price.  The District Court found that the alleged antitrust violation—a horizontal agreement to institute an agency pricing model that raised e-book prices—therefore did not harm it.  Though perhaps not dispositive, Diesel was hurt by evidence showing that its CEO made numerous public statements praising the agency model that it now attacks.  The District Court’s ruling underscores the need for a plaintiff to plead a specific injury as the result of antitrust conduct; merely pointing to potentially illegal conduct by a defendant, even conduct that has been sufficient to sustain a judgment by another plaintiff, is not enough.