Posted on 11/03/2015 4:51:22 PM PST by Swordmaker
It’s no accident that the petition Apple submitted to the Supreme Court last week begins with a reference to Leegin Creative Leather Products, a manufacturer of fancy cowboy belts. Or that the case known as Leegin v. PSKS comes up 81 times in the 250-page document.
Apple’s appeal rises or falls on Leegin. And Leegin, it turns out, is a precedent this Supreme Court knows well.
Seven of the nine justices who would hear Apple’s appeal were sitting on the high court in 2007 when Leegin was decided. And five of them saw things Apple’s way—or so the company believes.
Leegin raises the question at the heart of Apple’s antitrust defense: Whether the actions of a vertical player in a price-fixing conspiracy must be judged by the same antitrust rules that govern the activities of horizontal players who, by law, are supposed to compete with one another.
The facts in the Leegin case bear a striking resemblance to Apple’s. Here’s Wikipedia’s summary (drawn from court records):
“Leegin, a manufacturer of leather apparel, concluded that its interests would be best served by opting out of a price war ‘race to the bottom,’ focusing instead on quality and brand cachet. Accordingly, with specific exceptions, it decided to refuse sale to retailers if they intended to discount its products below their recommended retail price. Five years after this policy was introduced, Leegin discovered that Kay’s Kloset was violating the policy by marking down the Leegin products by 20%. When Kay’s refused to comply with Leegin’s policy, Leegin cut them off. PSKS, the parent company of Kay’s, sued charging that Leegin had violated antitrust laws when it entered into ‘agreements with retailers to charge only those prices fixed by Leegin.'”
It’s not a perfect fit. Leegin was a manufacturer cutting deals with retailers. Apple was an e-book distributor, negotiating contracts with publishers. Leegin was well-established in the leather-goods trade. In the e-books market, Apple was a new entrant.
But in both cases federal judges rejected the defense that their respective deals were procompetitive, given market conditions. Their actions were found illegal per se—on the face of it. No ifs, ands, or buts.
In Leegin, the Department of Justice and the Federal Trade Commission recommended replacing the per se rule with the rule of reason, a legal framework that takes market conditions into account. The Supreme Court agreed.
“Vertical retail-price agreements have either procompetitive or anticompetitive effects, depending on the circumstances in which they were formed,” wrote Justice Anthony Kennedy. He was joined by a majority that included Chief Justice John Roberts, Antonin Scalia, Clarence Thomas, and Samuel Alito.
In her decision in the Apple case, District Judge Denise Cote acknowledged that the company’s entry into the e-book market increased competition and benefited consumers. But because both Steve Jobs and Vice President Eddy Cue had actively participated in the price-fixing deal, Judge Cote ruled that Apple’s orchestration of the conspiracy was illegal per se.
Her ruling, and its affirmation by two of the three appellate judges in the 2nd Circuit, created what the (sharply) dissenting judge described as a “circuit court split.” Apple seized on that split and boiled the case down to a single question. Here’s how it was presented to the court:
“In 2010 Apple launched the revolutionary iPad, and with it, the iBookstore, an innovative retail platform; together, they disrupted Amazon’s dominant position in the e-books market. Apple entered with a new agency business model, concluding vertical arrangements with e-book publishers that included commonplace provisions that are often procompetitive and unquestionably served Apple’s legitimate business objectives in offering consumers a new e-books platform. Yet a divided court of appeals panel condemned Apple’s conduct as per se unlawful under Section 1 of the Sherman Act because its vertical activities supposedly facilitated horizontal collusion among the publishers, who wished to be free from Amazon’s dominance. The panel majority declined to follow this Court’s decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007), which instructed that such vertical conduct must be analyzed under the rule of reason, and also rejected another circuit’s decision that properly followed Leegin.
“The question presented is:
“Whether vertical conduct by a disruptive market entrant, aimed at securing suppliers for a new retail platform, should be condemned as per se illegal under Section 1 of the Sherman Act, rather than analyzed under the rule of reason, because such vertical activity also had the alleged effect of facilitating horizontal collusion among the suppliers.”
The petition is admirably lucid and almost Jobsian in its simplicity. You can read it here: Petition for a Writ of Certiorari
The Justice Department response is due by Nov. 28—although the DOJ can ask for a 30- or 60-day extension. If the government moves quickly, we could get a ruling before the end of June.
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The free market no longer exists. It is run by corrupt lobbyists, politicians and crooked judges. Price fixing by corporate interests should never be permitted to exist. Only the consumer should determine pricing.
As I recollect this original Leegins decision was about allowing manufacturers to actually set pricing, and to establish price fixing. That is contradictory to and never about free market.
In a completely free market price fixing would be legal. Companies would be able to enter any agreement they like and if the consumer doesn’t like the fixed price he will have to buy something else.
I’m all for Amazon and Apple duking it out. It is good for the consumers. The publishers don’t like it because it broke their near monopoly business model.
The first amendment includes protections for peaceful assembly. That includes for the purpose of doing business. Just as the customer is free to do or not do business, so is the re-seller or the supplier.
Anyone can do business with anyone or NOT due business with anyone for any reason. That is the plain interpretation of the assembly clause. However, this simple interpretation has been perverted.
Ever since the Civil Rights act introduced the unconstitutional concept of public accommodation, there have been more and more restrictions on personal property and peaceful assembly.
You've got it backwards. Amazon was the monopolist with 90% of the e-book market and was fixing pricing at a predatory low price keeping all comers out of competing with them. Barnes and Noble, which had tried to open a competing market, was going under with their Nook e-book reader because they could not compete by selling best-sellers and A-list books which account for 80% of book sales profits at prices 35% percent below wholesale cost, the price Amazon was selling them for at retail, and even the publishers could not make a profit competing against Amazon's retail pricing of their own products. Sony tried the same thing, and was going down for the same reasons. The e-books were killing the sales of the dead-tree books because they were priced so low it made the hard copy books look far too expensive, when they were actually fairly priced. One of the big publishers tried to break Amazon's stranglehold on the e-book market and Amazon turned off their buy buttons on all their products, hard-bound as well as e-books until they capitulated! That is the action of a monopolist using its overwhelming market power to control the market prices. . . but the DOJ refused to do anything about it, because the DOJ stated that "low prices are beneficial for consumers". . . but that is NOT the test for anti-trust behavior of a monopolist, and never has been. Predatory pricing is ALWAYS low and in the beginning beneficial for consumers, it is only later, when the market has been severely constrained that it isn't beneficial anymore.
Amazon claimed they were merely offering "loss-leaders" to attract people to their other e-books. But you cannot make a profit on books such as "The Economics of Aboriginal Natives of New Guinea" or the ten year old once best seller remainders selling at a discount. It takes a lot of low-margin, low-profit sales of no-demand e-books like those, to make up for shipping $5 out the door with every best-seller and and A-list book sold. . . if you ever can. The numbers just don't work out. The profits are in the new-releases and best selling authors that everyone wants to read. . . that 80% of sales is what makes up the bread and butter of all books sales.
Amazon was killing the profits in those areas and in the process killing the brick and mortar stores as well by the predatory pricing of those hard-cover best-sellers and A-list titles as well. Nobody had the deep-pockets to even TRY to start competing with the monopolist Amazon elephant in the corner until Apple tried to compete and did so with their tried and true Agency Model. . . and Amazon filed a complaint with the DOJ because Apple dared compete. Did you know that Amazon's Bezos was a big contributor to Obama???
The big six publishers never had a monopoly because not one of them sold the same title in competition against each other. . . ever! (except perhaps the Holy Bible.)
Combined, these Big Six had only 47% of the publishing market. People don't pick book A over book B based on price. They select books based on authors and genres. . . pricing has little to do with it.
The overall pricing of e-books actually went DOWN after Apple entered the market.
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