United States v. Apple Inc.

• Decision Date: 16 January 2014
• Docket Number: Nos. 12 Civ. 2826(DLC), 12 Civ. 3394(DLC).,s. 12 Civ. 2826(DLC), 12 Civ. 3394(DLC).
• Citation: 992 F.Supp.2d 263
• Parties: UNITED STATES of America, Plaintiff, v. APPLE INC., et al., Defendants. The State of Texas, et al., Plaintiffs, v. Penguin Group (USA) Inc., et al., Defendants.
• Court: U.S. District Court — Southern District of New York

992 F.Supp.2d 263

UNITED STATES of America, Plaintiff,

v.APPLE INC., et al., Defendants.

The State of Texas, et al., Plaintiffs,

v.Penguin Group (USA) Inc., et al., Defendants.

Nos. 12 Civ. 2826(DLC), 12 Civ. 3394(DLC).

United States District Court, S.D. New York.

Jan. 16, 2014.

Mark W. Ryan, Lawrence E. Buterman, Daniel McCuaig, United States Department of Justice, Washington, DC, for the plaintiff the United States.

Gabriel Gervey, Eric Lipman, David Ashton, Office of the Attorney General of Texas, Austin, TX, for State of Texas, Liaison Counsel for Plaintiff States.

W. Joseph Nielsen, Gary M. Becker, Office of the Attorney General of Connecticut, Hartford, CT, for State of Connecticut, Liaison Counsel for Plaintiff States.

Theodore J. Boutrous, Jr., Daniel G. Swanson, Gibson, Dunn & Crutcher, LLP, Los Angeles, CA, Cynthia Richman, Gibson, Dunn & Crutcher, LLP, Washington, DC, for the defendant Apple, Inc.

OPINION & ORDER

DENISE COTE, District Judge:

On December 14, 2013, defendant Apple, Inc. (“Apple”) filed a motion by order to show cause for a stay of one aspect of the injunctive relief granted by this Court's Final Judgment of September 5, 2013 (“Judgment”). The motion is addressed to the External Compliance Monitor (“Monitor”) position created in the Judgment.

Apple originally premised its motion for a stay of the monitorship on several arguments that it is no longer pursuing. By the time Apple filed its reply brief and presented its oral argument on the motion, Apple's motion for a stay was premised on an application to disqualify the Monitor, along with its contention that it would be irreparably harmed if the Court denied that application. It contends that the millions of dollars in fees that it expects to be paying the Monitor over the course of the next two years, and the Monitor's desire to interview company executives and Board members constitutes irreparable harm. On Monday, January 13, during oral argument on this motion, the Court advised Apple that it would be denying its application and would be filing an Opinion shortly to explain its reasons. This Opinion, together with the Court's observations at the January 13 conference, contains those reasons.

In brief, many of the arguments which Apple once made (and is no longer pursuing) have been waived or are moot. In addition, Apple has access to a dispute resolution mechanism which has and will be in place to ensure that the Monitor does not exceed the bounds of the Injunction. Finally, there has been no showing that the Monitor should be disqualified or that Apple will suffer irreparable harm. For these and all of the other reasons stated herein, Apple's request for a stay is denied.

BACKGROUND

On July 10, 2013, following a bench trial, this Court found that Apple had violated Section 1 of the Sherman Act by participating fulsomely in a price fixing conspiracy with various book publishers, in which Apple facilitated and encouraged the publishers to collectively raise e-book prices in an illegal restraint of trade. United States v. Apple Inc., 952 F.Supp.2d 638 (S.D.N.Y.2013) (“Trial Opinion”). The Court issued a Final Judgment and Order Entering Permanent Injunction (“Injunction”) on September 5, 2013 WL 4774755. Among other things, the Injunction created the position of Monitor. See Injunction § VI.

To put Apple's stay motion in context, it is helpful to lay out the factual circumstances surrounding the adoption of the Monitor provision in the Injunction, the terms of Injunction that concern the Monitor, the process by which a Monitor was chosen, the interactions between the Monitor and Apple in the months following the Monitor's appointment, and the procedural history associated with the filing of this motion for a stay.

I. The Adoption of the External Monitor Provision in the Injunction and Apple's Involvement in the Injunction Drafting Process

On the day the Trial Opinion was filed, the Court issued a scheduling Order requiring the plaintiffs to submit a proposed injunction (“Proposed Injunction”) by July 19, and for Apple to submit any submissions related to the Proposed Injunction by August 2. Pursuant to that Order, the plaintiffs submitted on July 19 their Proposed Injunction, which provided inter alia, for the creation of an “External Monitor” position. As described in the Proposed Injunction, the External Monitor would for a period of ten years “have the power and authority to monitor Apple's compliance with the terms of this Final Judgment, to review and evaluate Apple's existing internal antitrust compliance policies and procedures, and to recommend to Apple changes to address any deficiencies in those policies and procedures.”

Apple submitted its memorandum of law setting forth its objections to the Proposed Injunction on August 2. In that filing, Apple did not object to the Court's authority—constitutional or otherwise—to appoint an External Monitor according to the terms set forth in the Proposed Injunction. Instead, Apple objected, in sum, that the Court should not impose an External Monitor because “[e]xternal monitorships can be extremely costly and burdensome, and in a case like this would have few benefits.” Apple acknowledged that the Government could properly obtain injunctive relief in an antitrust case not only to cure the ill effects of past illegal conduct, but also to “ ‘assure the public freedom from its continuance.’ ” (quoting United States v. Glaxo Grp., 410 U.S. 52, 64, 93 S.Ct. 861, 35 L.Ed.2d 104 (1973) (citation omitted)). It emphasized, however, its view that several provisions in the Proposed Injunction were punitive, vague or unnecessary.

A conference was held on August 9 to discuss, among other things, Apple's motion to stay all further proceedings against it as well as the terms of any injunction. After the request for a stay was denied, the Court addressed the schedule for remaining proceedings, the terms of the Proposed Injunction, and Apple's objections to it. Before addressing the particular terms of the Proposed Injunction, the Court described in detail the legal standard it would apply.

As of the date of the conference, Apple had been on notice of the plaintiffs' proposal for an External Monitor for two weeks. The Court had hoped that Apple would submit evidence of antitrust compliance reform which would render the appointment of an External Monitor unnecessary. As the Court said at the conference:

My preference would be to appoint no external compliance monitor. I would prefer that Apple adopt a vigorous in-house antitrust enforcement program and convince the plaintiffs, and this Court, that there is no need for a monitor.

The Court emphasized the narrow scope of its aim, explaining that

I don't want to do more than necessary here. I want to protect the market, protect the consumer, encourage price competition, and ... allow this market to develop and change and prosper in ways we all can't imagine today. And that goes for Apple as well.

Disappointingly, Apple made little showing at or before the August 9 conference that it had taken to heart the seriousness of the price fixing conspiracy it orchestrated. Nor did Apple provide the Court with any evidence that it was seriously reforming its internal antitrust compliance policies to prevent a repeat of its violation. Apple's submissions failed to demonstrate that it took seriously the burden that its participation in the price fixing conspiracy imposed on consumers and on the resources of the federal and state governments that were compelled to bring Apple and the publishers into federal court to put an end to that harm. Instead, as the Court noted at the August 9 conference, “[a]ll I have [from] Apple's submission is a very cryptic reference to the fact that it enhanced some compliance program it adopted at some point during this litigation.” ¹ The Court explained that it would have appreciated a presentation by Apple that a monitor is unnecessary. At this point, it has made no such showing. There is no admission of wrongdoing. There is no contrition. There is no showing of any awareness of illegality or the danger of collusion by publisher defendants to raise eBook prices. There is no showing of institutional reforms to ensure that its executives will never engage again in such willful and blatant violations of the law.

(Emphasis added.)

After hearing the Court's comments on their disputes regarding several provisions in the Proposed Injunction, the parties agreed to confer with each other further regarding its terms. On August 23, Apple and the plaintiffs each filed a revised proposed injunction in anticipation of a conference to be held on August 27. In a supporting submission, Apple acknowledged the Court's expressed preference that Apple itself adopt a “vigorous in-house antitrust enforcement program.” In its letter to the Court, it explained that it had hired, since the underlying activities which formed the basis of the litigation, two seasoned antitrust lawyers with extensive experience at both the Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”), that it had improved its compliance programs, and that the lessons it had learned from this lawsuit would be incorporated into advising its employees. An attachment to the letter added, inter alia, that Apple intended to establish an annual formal antitrust compliance training program, publish a revised compliance guide, and institute regular auditing by an “Antitrust Compliance Director.” In light of these steps, Apple argued that the appointment of an External Monitor was “unreasonable and unjustified” and would be punitive. Apple made no argument that the appointment of an External Monitor would be beyond the Court's power.

On August 27, the Court held another conference to finalize the terms of an injunction. The Court made a set of proposals regarding several sections of the parties' most recent drafts of an injunction. When it came to a discussion of the...