Apple loses appeal in e-book antitrust case - Part 3

This is the third and final comment in a series on the Second Circuit’s June 30 decision in the Apple e-books antitrust case.

The Second Circuit's decision in the Apple e-book case contains a rather acrimonious exchange between Judge Debra Livingston (author of the majority opinion) and Judge Dennis Jacobs (the dissenting judge) - which is a bit unfortunate, as there is much to harvest from their debate. The judges directly address each other - and are unsparing in their disdain for the other's theory of the case. Livingston may have the better of the argument (and she in part writes for the majority), but there is much to value in Jacobs's dissent as well. This is the final comment in a series examining the Apple e-book case (Part I and Part 2 of the series examine the background and the majority theory of liability, respectively). This comment examines Judge Jacobs's dissent and the ideas behind it.

Let's first look at the rather broad zone of agreement between Jacobs and the majority of the panel. Jacobs has no illusions about Apple's bruising conduct - he accepts Apple's forceful role in moving e-book distribution towards commissioned agency pricing. But he doesn't view Apple's conduct (when considered together with the e-book publishers) as constituting per se price fixing. Rather, he believes that any agreement among Apple and the e-book publishers should be evaluated according to the Rule of Reason - and he would further find that application of the Rule, given the Amazon-imposed market structure for e-books prior to Apple's iPad introduction, compels discharging Apple of antitrust liability (recall the e-book publishers had settled with the government prior to the litigation, accepting that they at least engaged in questionable pricing behavior).

Apple loses appeal in e-books antitrust case - Part 2

This is the second in a series of comments on the Second Circuit’s June 30 decision in the Apple e-books antitrust case.

The Second Circuit has upheld a federal trial court finding that Apple, together with five of the so-called "Big Six" publishing companies, fixed prices for e-book editions of new issues and New York Times best sellers. The e-book reader market had been (and continues to be) dominated by Amazon's Kindle platform, first introduced in 2007; Kindle is an e-bookstore, an e-book format (including a digital rights management system), a cloud-based storage system, and a suite of e-readers. When Apple introduced its more general purpose iPad in 2010, it commenced competing with Amazon's Kindle across all these dimensions. Importantly, Apple sought to distribute e-books and so required access to the major publishers' catalog.

Amazon had been selling most new release and New York Times bestseller e-books below cost, attracting legions of readers to the Kindle ecosystem with its $9.99 pricing. Apple cleverly upset Amazon's $9.99 pricing policy by positioning itself as a sales agent (and not a retailer) of e-books, taking a 30% commission on sales. Apple thus generally restored retail pricing authority to the publishers. Apple's agency contracts, however. required e-book retail prices on iPad to match those offered on Amazon. This 'most favored nation' obligation drove the publishers to renegotiate their distribution deals with Amazon. Collectively (and with Apple playing an active coordinating role), the book publishers placed Amazon on an agency basis as well. The publishers then immediately raised e-book retail prices across both platforms - a surprising result in a market that appeared to be growing more competitive through the introduction of the iPad.

Apple loses appeal in e-books antitrust case

This is the first of a series of comments on the Second Circuit’s June 30, 2015 decision in the Apple e-books antitrust case.

Through a series of spectacular commercial moves, Apple succeeded in disrupting the e-book space upon its 2009 release of the iPad, sweeping away Amazon Kindle’s popular $9.99 pricing for new releases and for New York Times best-sellers. The iPad brought meaningful competition to Amazon’s wildly successful Kindle as an e-book platform; the emergence of this new distribution channel raised e-book prices, whether purchased on iPads or Kindles, seemingly defying an economic law of gravity. It was a coup that only a Steve Jobs could pull off. The e-book price shift attracted the attention of federal and state antitrust authorities. In 2012, the government brought a civil antitrust action against Apple and five major publishers. The book publishers settled, and the government proceeded in a price fixing claim against Apple. On June 30, a panel of the Second Circuit Court of Appeals upheld a federal trial court’s finding that Apple violated Section 1 of the Sherman Act.

Licensing Notes - introduction to the essential facilities doctrine

In this note, we prepare for our coverage of the Trinko case with an introduction to the essential facilities doctrine.

Let’s start will two fairly clear propositions about patent and copyright law in the United States. The first is that the proprietor of a patent or a copyright controls the extent to which she exploits her intellectual property. She need never manufacture or publish; there is no working requirement in U.S. law. And the proprietor may assign all or part of her IP rights to others. But there is no obligation to do so. A patent or copyright holder need not share her IP with anyone. To use the language of antitrust, there is no duty to deal, no duty to license.

Now the second proposition. A proprietor of a patent or copyright who chooses to exploit her intellectual property right -- whether directly or by means of a license to another -- may charge ‘what the market will bear.’ There are no limits -- imposed by either intellectual property law or antitrust law -- on the amount of license royalties that can be demanded.

Both of these propositions -- the freedom to license (or not) and the freedom to set royalties -- are seen to flow naturally from the very monopolies that patent and copyright law establish. A patent or copyright generates a set of exclusive rights. To require the proprietor to license to another is inconsistent with those exclusivities and undercuts the monopoly the intellectual property creates. A limit on royalties reduces the economic reward conferred by Congress on authors and inventors.

The Everything Store: Jeff Bezos and the Age of Amazon by Brad Stone

Brad Stone’s treatment, The Everything Store: Jeff Bezos and the Age of Amazon, is the talk of the business press this week. Jeff Bezos’ wife, MacKenzie Bezos, posted a ‘one-star review’ of the book on the Amazon site. In it, she expresses concerns about the book’s ‘factual inaccuracies’ and ‘narrative tricks.’ While she certainly had a better view of the recounted events than did Stone, her objections seem quibbling. This is a thoughtful and well researched book, with a surprisingly balanced tone: Stone neither praises Jeff Bezos nor does he bury Bezos.

Stone’s book is both a CEO biography and a corporate history. Bezos is the exception that proves the rule; he is the visionary founder who wasn’t pushed aside for a professional ('adult') manager. And given Bezos’ continuity at the helm of Amazon, one can fairly charge much of Amazon’s success -- and its bullying behavior -- to Bezos.

Stone’s book is a prosecutor’s dream -- it is a catalog of unfair business offenses (were such behavior disciplined today). There is a zone of indeterminacy involved in most bargaining: between the terms a party would accept and the better terms a party might exact (before driving the other party away). Bezos is shown to consistently drive for the very best outcome in Amazon’s dealings -- where the greater part of the joint benefit falls to Amazon and a bare minimum is left for the ‘cooperating’ counterpart. Perhaps this is to be admired; we’d all like to be ‘tough bargainers.’ But Bezos (as depicted by Stone) doesn’t pull punches. He is capable of ‘refusing to deal.’ He applies price pressure against smaller firms. He levers Amazon’s immense power against competitors and partners.