U.S. Supreme Court rejects Apple appeal over $450 million e-book case

Mac Daily News ^ | March 7, 2016

[Swordmaker]

“The Supreme Court has rejected an appeal from Apple Inc. and left in place a ruling that the company conspired with publishers to raise electronic book prices when it sought to challenge Amazon.com’s dominance of the market,” The Associated Press reports.

“The justices’ order on Monday lets stand an appeals court ruling that found Cupertino, California-based Apple violated antitrust laws in 2010,” AP reports. “The 2-1 ruling by the New York-based appeals court sustained a trial judge’s finding that Apple orchestrated an illegal conspiracy to raise prices. A dissenting judge called Apple’s actions legal, ‘gloves-off competition.'”

“Apple Inc. must pay $450 million to end an antitrust suit after the U.S. Supreme Court refused to question a finding that the company orchestrated a scheme to raise the prices for electronic books,” Greg Stohr reports for Bloomberg. “The accord calls for Apple to pay $400 million to e-book consumers, $20 million to the states, and $30 million in legal fees.”

“At the Supreme Court, Apple argued that its actions enhanced competition by providing consumers with a new e-book platform. The company said overall e-book prices have fallen in the years since the introduction of iBookstore [sic],” Stohr reports. “‘Following Apple’s entry, output increased, overall prices decreased, and a major new retailer began to compete in a market formerly dominated by a single firm,’ the company said in its appeal.”

Read more in the full article here.

MacDailyNews Take: Travesty. Justice was not served in this case.

[TexasGator]

“The thread and FR would be better off without such personal attack posts. “

Like calling someone an IDIOT!

[Swordmaker]

I understand Apple had a pretty ugly contract/agreement they expected publishers to sign (particularly independent publishers/individuals) if their material was to be carried by iBooks.

I would not consider it "ugly." In fact it was pretty much similar to the contract used in the App store. Apple merely required that Apple's customers would not be put in the position of being forced to pay higher priced books than were available elsewhere. The publishers were free to continue selling books on the wholesale model as they chose, but if a major retailer started undercutting prices again, as Amazon had done, then the same ebook on the Apple bookstore had to be available at the same price.

Even Judge Denise Cote stated as a matter of law and fact that the contract with the publisher was perfectly legal. The lawyers of the publishers all signed off on it. The DOJ lawyers also agreed it was perfectly legal. . . and similar to other contracts executed between retailers and suppliers using an agency model which contained what was being called a "most favored nation clause." It was, in fact, an advancement of competition.

Further, as Apple said in their defense, eBook prices have fallen since Apple joined the fray, with or without the agreement/use policy in place. I don’t see how consumers were harmed (indeed, they benefit with competition).

Before Apple entered the e-book market, there simply WAS no "fray", because Amazon with its 90% share, was keeping all significant competition out of the market. What "competition" in e-books there was, came from people who had bought reading devices that had systems incompatible with Amazon's Kindle system and could not load apps to install a Kindle App—those were only available from micro-monopolists with captive customers, or were non-A list ebooks available from their publishers only. There literally was no competition from Amazon, who was keeping competition out of the market, even from the publishers themselves, by pricing the best-selling and A-List eBooks—those that account for approximately 80% of the profitability in the eBook market—at 60% of the lowest wholesale cost eBook! No reasonable competition could open an eBook store guaranteed to lose 40%-50% — taking a loss of between $5 and $8 per eBook—on 80%, the vast majority of its sales, merely to be in that market!

IN other words - my question is: What, exactly did Apple do wrong (legally)? How did they harm consumers? Indeed, WHO was harmed- particularly to the tune of $450million?

That was what I've been trying to get through to some people on here. That is what the Rule of Reason, which the US Supreme Court 2004 Areeda & Hovenkamp decision and the got more explicit and set down rules in the 2007 Leegin decision, is all about. . . and which these people keep obfuscating what I write. That is why I call them out when they keep repeating the same non-responsive claims. They simply REFUSE to budge from a know-nothing attitude. . . despite the facts in front of their faces. It doesn't take a genius to see that a definition is "definitive" and that LIBERALS are the ones who change words to mean what THEY want them to mean as they go along to get the result they want on a whim, not what the law actually says.

The Rule of Reason says the government has to DEMONSTRATE that the public has to have been substantially damaged by the accused activity.

The defense only has to PROVE that by their activity, COMPETITION was increased. It doesn't even have to be a substantial increase in competition, only that competition is increased. PERIOD. What is hard to understand about that?

Price is NOT a question in this competition equation. Prices go up and down all the time due to many market forces.

Since Apple could easily demonstrate that before Apple's entry to the eBook market, Amazon literally dominated the eBook market with a 90% share and could dictate retail prices to the publishers—prima facie evidence of that domination—and that after Apple's entry, Amazon's market share dropped to only 60% and its ability to dictate retail pricing had been broken, competition was obviously and massively increased.

The Rule of Reason, as established to be used by the lower courts by the US Supreme Court, to be applied to a vertical participant in such activity, is did competition increase due to the defendants' actions. If it competition increased, then the spirit of the anti-trust law was met, increasing competition, and the defendant is not liable. It is therefore obvious Apple met the burden required by the Supreme Court to be shown, Apple, by definition in law, had NOT violated anti-trust law. The anti-trust laws were NEVER intended to protect a monopoly, but that is what the DOJ and the courts in this case have come down to, corrupting the LAW by using the rule of Men.

District Trial Judge Denise Cote, who had ASKED to try this case from the District head judge, admitted to have determined from the beginning that price increases was the only evidence she needed to prove damages to the consumer, an ignorant LIBERAL viewpoint not based in any economic facts, theories, or jurisprudence. For Cote, everything else was irrelevant. To her, the prices went up was proof enough. . . but it isn't. An unsustainable market model is, in and of itself anti-consumer, damaging them in the long-run, but Cote did not want to hear any testimony about that. Her ignorance of economics trumped all of that. All she could see was retail prices went up after Apple entered the market.

Judge Cote also had made her determination of GUILT before reading Apple's response or hearing any testimony at trial, and announced she had written 80% of her decision before the trial had even begun. She also announced this conclusion publicly. This is a practice she is well known for. . . and one of the reasons she has the reputation as the worst "judge" in the district. She already KNOWS before the trial starts how she is going to rule and excludes any testimony that doesn't support her pre-judicial opinion. What she doesn't exclude that doesn't match her pre-assumed conclusion, she assumes are lies. You can see that in her written decision where every testimony of Apple witness is concluded by her to be false or discounted, even when supported by other evidence.

Had Judge Denise Cote not EXCLUDED the testimony of economists from the trial, any economist about what the trial was about they would have testified that increasing price is a naturally expected result of BREAKING the artificial anti-competition barriers erected by a monopolist to the entry of competition they would naturally have to increase to their natural, sustainable, competitive market prices! Instead, Cote took the word of the Department of Justice's LAWYERS that price increase was all that had to be shown to prove anti-competitive behavior in concert.

It seems to me, as an economist, that the consumers who bought the eBooks at the new prices after Apple entered the market and BROKE Amazon's predatory pricing, willing bought those eBooks at the prices then offered. That, under well established economic laws, shows that those consumers were willing buyers buying products from willing sellers at prices agreeable to both. That means that the prices established by the market place of eBook competition, absent the completely non-market driven artificial anti-competition pricing put in place by a 90% Market Gorilla wiling to accept huge losses on each sale to keep out any competitor, were entirely acceptable prices to the purchasers, they were happy with the prices they paid for the eBooks they bought by the millions. . . and the market more than DOUBLED after Apple entered before Amazon filed its antitrust complaint with the DOJ!

[Swordmaker]

So when he stated that it was impossible for Apple to do what was requested of them (despite the fact that they indirectly admitted that it was not, btw), my concerns about his honesty were, unfortunately, confirmed. I then started looking into his past and current posts on other threads, and what I found was a pattern of shouting, insulting, and cursing at others. I think people who behave that way need to have that behavior called out until they either stop or go away. Too many of that sort on a forum, and it becomes an unpleasant place to visit.

You are misrepresenting the discussion we had, Scutter. The iPhone 5C in question does NOT have an A9 processor, as I pointed out to you. It has a A6 processor. I also posted multiple sources that provided proof that Apple places the start-up IN SILICON specifically on the later processors to prevent exactly what you were claiming. I also said that it was not impossible on the iPhone 5C in question, but it as on later iPhones. . . unless Apple were to rewrite their entire iOS. YOU were one who kept claiming it was trivial. On ALL of these iPhones there is a secure BOOTSTRAP in silicon which you keep ignoring and in that IS exactly what you say is NOT THERE. I posted links to Apple's own Security White Papers outlining how they were doing this, from both the latest, and the one that applied to the A6 processor that had the Encryption Engine in it, along with the Secure iBoot Bootstrap. You just kept repeating your litany that it couldn't be that way.

I used primary sources from Apple.

[Scutter]

You are misrepresenting the discussion we had, Scutter. The iPhone 5C in question does NOT have an A9 processor, as I pointed out to you. It has a A6 processor.

For others' benefit: I am not misrepresenting the conversation at all. I honestly didn't remember if it was an iPhone 6 or 5, and didn't bother to go back and look. But it's totally irrelevant as Apple has been tight-lipped about all the Ax processors. Everything I said is relevant to both.

SwordMaker, I guess you just don't understand the terms you are using. Let me elaborate. What you're referring to as a "secure bootstrap in silicon" is exactly what I was referring to when I said "things necessary to bootstrap a secure code environment". This is a portion of the silicon that is able to verify the signature of the code in the device flash. It works as follows.

All the trusted platform / secure boot facilities work in basically the same way. They uses asymmetric encryption (also called PKI) in which the authors generate a public-private key pair. Apple holds the private key, and keeps that safe and secret. The public key is hard-coded into the chip or into a one-time programmable (fused) portion of the chip that is programmed during device assembly.

At boot, the processor validates the authenticity of the code as follows. It calculates a message authentication code (MAC) on the code. This is effectively a high quality hash/checksum. Then using the public key burned into the silicon, it decrypts a similar MAC contained within the code at a known location, and which has been encrypted using the private key (of the public-private key pair). It is the unique and useful feature of PKI that only data signed with the private key will decrypt correctly using the public key. Since only Apple has this, only Apple code will have a signature (MAC) that matches.

If they do not match, the processor halts and does not continue. If they match, it vectors to the entry point of this code, and the boot process continues. Once it's validated the code and vectored to it, this code can do anything it wants. If Apple wants to change the policy for number of incorrect PIN entries, they build an OS image with that modification, sign it with the private key, and load that onto the flash ram on the phone.

Since Apple has the private key, they can "sign" whatever code they want, load it into the device flash, and the processor will happily verify its authenticity and then run it. You keep saying I'm ignoring your point; I'm not.

[Swordmaker]

“Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.”

Totally irrelevant but since you ask, ebook prices jumped up 30 to 50% immediately upon implementation of the contracts.

THERE is where you are making your mistake, Tex. You are mis-parsing that sentence legally.

The contracts Apple had did not "form a trust or otherwise." In fact, Tex, the DOJ and the court found Apple's contracts with the publishers to be completely legal. A trust is a specific form of agreement. That did not exist here. There was such an informal agreement between the publishers, but Apple was NOT in any way a party to the agreement of collusion between the publishers. Apple acted independently with each of them, and other publishers OUT SIDE of that collusion which just happened to assist them in their goals, but also worked toward Apple's independent goals. Apple never worked in concert with the publishers or even met with them as a group.

You also misconstrue "in restraint of trade or commerce."

Where was the "restraint of trade or commerce" when the sales of eBooks more than doubled after Apple entered the eBook market? What, exactly, was restrained when it actually was set free to bound ahead like an unfettered market should be, instead of kept fenced into a single retailer, bottlenecked on one retailer's devices, sold only through one source; demonstrably constrained by a retailer who would, at the raise of a rebellious publisher's wholesale prices, turn off the "Buy" buttons on that publisher's products, both eBooks and hardcovers, starving them of sales until they kowtowed to the demands of the overwhelmingly powerful, monopolist retailer?

Was not turning off the "Buy" buttons of any publishers who raised their wholesale prices a "restraint of trade of trade or commerce" when the monopolist had 90% power in the market and could starve a supplier of sales? Yet the Obama Justice Department declined to take action because they "felt" that such below cost prices were some how beneficial to consumers. . . against all rational economic theories or facts. . .or the law. Could it be they made their decision to not go after Amazon's predatory practices at every level be based on the fact that its CEO was one of Obama's primary political, financial, and policy supporters?

No, Tex, it is NOT irrelevant. "Harm to the consumer" is what the law was written to prevent. If there is no harm to the consumer, or if the benefit to the consumer overwhelms the cost, then there is no harm. That was the entire point of the US Supreme Court's teaching in it's 2007 Leegin decision reversing the conviction of just such a vertical participant as Apple, which went entirely ignored by Judge Cote and the two 2nd District Appellate judges. . . and what so incensed Judge Jacobs.

The more than doubling of the market despite the increase in prices shows that invisible hand of the economic market, comprised of millions of eBook consumers, spoke and found Apple NOT GUILTY of harming them.

[dennisw]

Judge Denise Cote....I’ll give you one thing. She is an entitled black robed loon the way she forced Apple to pay her boyfriend for his useless services

[TexasGator]

"THERE is where you are making your mistake, Tex. You are mis-parsing that sentence legally. The contracts Apple had did not "form a trust or otherwise."

Interesting that you selectively parsed so as to NOT contain the keyword that I have used time and time again and was used in the judgement!

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.”

[Swordmaker]

It absolutely is! You asked me to cite a federal statute legalizing same-sex marriage. I posted to you that it is NOT a federal but a state issue.

No, it is not. The US Constitution is not a statute. Again, you demonstrate your ignorance of the LAW. Statutes are laws written by legislative bodies. The Constitution does not meet that definition.

Words mean things, especially in law. . . and you seem to think they don't. . . just like Judge Cote, and the two Justices of the Appellate Court who ignored the definition of a vertical participant and the requirement for use of the Rule of Reason, and the Liberal anti-business members of the newly constituted evenly-divided Supreme Court after Justice Scalia's death who refused Certiorari to this case.

[Swordmaker]

Like calling someone an IDIOT!

yes, when they earn the epithet.

[TexasGator]

“No, Tex, it is NOT irrelevant. “Harm to the consumer” is what the law was written to prevent.”

Hey, if it is not in the law, it is not in the law!

And that is NOT in the law.

[TexasGator]

“Was not turning off the “Buy” buttons of any publishers who raised their wholesale prices a “restraint of trade of trade or commerce” when the monopolist had 90% power in the market and could starve a supplier of sales? “

Those actions would be outside the scope of the Sherman act as described in 15 U.S. Code § 1.

[TexasGator]

“The Rule of Reason, as established to be used by the lower courts by the US Supreme Court, to be applied to a vertical participant in such activity, “

Have your forgotten that this was NOT a vertical conspiracy but a horizontal conspiracy?

[TexasGator]

“No, it is not. The US Constitution is not a statute. “

In a way it is an inviolable statute but that is besides the point. The point I was making was that you were asking me to cite a federal statute but there isn’t one since it is not in the scope of the federal government.

[Swordmaker]

For others' benefit: I am not misrepresenting the conversation at all. I honestly didn't remember if it was an iPhone 6 or 5, and didn't bother to go back and look. But it's totally irrelevant as Apple has been tight-lipped about all the Ax processors. Everything I said is relevant to both.

No, they are not. They publish quite bit on the capabilities of those processors. You just don't bother to look. Just like you made leaps of assumption about what the iPhone in question was before you jumped in and started making ignorant ex cathedra declarations about what was or was not possible, based on your years' old experiences.

As for the rest of your attempts at teaching me, I've explained that in detail how that works on an iPhone several times. . . and it is essentially NO DIFFERENT than what you've said except in specific Apple details about WHICH chips they use for this and where and what they put in these chips. Apple does not use the same typical approach you are describing.

Quit trying to imply I don't know what I am talking about. . . especially when you are talking about external incoming software at boot up, no, you are not correct and you are demonstrating you don't know anything about iOS security.

[Swordmaker]

. . .in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.

I did so because it was irrelevant. I wasn't concerned with the dependent clause.

"Conspiracy" does not matter if there was no restraint of trade or commerce. That is the controlling clause. If there is no "restraint of trade or commerce", then the dependent clause preceding it is irrelevant. Take out that defining clause and you are left with:

"Every contract, combination in the form of trust or otherwise, or conspiracy, is declared to be illegal."

I have a trust. I am trustee of several trusts. I am in quite few contracts. If someone is on a strict weightless diet, and I agree to go to dinner with that someone, that could be considered a "conspiracy", absent the nefarious intent, or a contract but generally not, since no money changes hands between the two parties going to dinner unless my dieting buddy is paying me to sneak him out of the house against his wife's wishes, so we are back to conspiring to go to dinner. . . but removing the purpose in the primary clause makes every contract illegal. That's illogical.

The US Supreme Court in Leegin, 2007, which supplanted all jurisprudence that came before it, expanding on the previous decision in Areeda & Hovenkamp, 2004, which ALSO supplanted all previous jurisprudence that came before it, declared that VERTICAL participants' Actions MUST (there's one of those WORDS with a meaning again) be looked at differently than HORIZONTAL participants' Actions in any anti-trust legal case. The US Supreme Court, the final Arbiter of what the LAW ACTUALLY SAYS, established that a vertical participant MUST be evaluated by the RULE OF REASON rather than the per se rule used for all horizontal participants, competitors, who act in concert to act in a non-competitive manner.

By requiring the Rule of Reason for a vertical participant, which Apple being neither a publisher nor a wholesaler, clearly was not, and by the decision of the highest court in the land, could NOT be a horizontal conspirator and therefore, again by decision of the highest court in the land, had to be judged by the Rule of Reason under which Apple had only to show they increased competition, which is NOT, again by legal definition "a restraint of trade or commerce" in the market in which they were entering, which the court had ruled in two previous res judicata, decided cases, that such a vertical participant who had increased competition could not be found guilty of restraining trade because restraint of trade simply had not happened. That is what the Supreme Court is saying if your REASON tells you that restraint of trade or commerce has NOT OCCURRED, then no crime is evident, no guilt can exist if there is no damage the law was intended to prevent.

The US Supreme Court by ordering that the lower courts not use the per se standard but instead use the Rule of Reason when evaluating a vertical participant's involvement in a horizontal antitrust action to determine if that involvement resulted in increased competition, involving the vertical participant, and that the vertical participant had economic motives other than those of the horizontal participants. All that had to be demonstrated was that no economic damage to the market, not consumers, was created by the participation of the vertical participant, because it was merely competing against others in the market. The law must assume innocence and NOT guilt on the part of participants. The per se rule assumes guilt where there may be only perfectly legal self-interest. The application of the Rule of Reason should be applied to make that determination. That can be found by looking to see if the market shrinks, or remains static while prices drop or remain static, or not, which IS the sign of a vertical participant who is conspiring to restrain trade or commerce.

Once the Supreme Court has ruled, it is what is known as settled law, and that is a legal precedent that MUST be followed in all courts in the United States. It is not just something that is optional. It is an interpretation of what is how a court must determine, by using the Rule of Reason not the per se rule governing horizontal participants, which is what you are demanding, whether a particular accused vertical participant is guilty of restraining trade or commerce or not. It was not an optional decision. Liberal Judge Cote decided to get around the required rule by merely redefining squishing and squozing the very obvious vertical participant Apple into be a member of the horizontal definition of defendants without even explaining how she could do that.

Judge Cote erred by impermissibly redefining Apple, a clearly vertical participant, as a horizontal participant so she could make her finding work. All further errors concatenate from that original and very deliberate and unsupportable definitional error. There is ZERO evidence to call Apple a horizontal participant.

Tex, when words start meaning anything someone wishes them to mean, they lose all meaning at all. That is the path the Liberals have been taking. Have you read George Orwell's "1984"?

Unless Congress chooses to re-address the anti-trust laws, what the US Supreme Court has ruled is supposed to be the law of the land. . . and in this instance, the lower courts were wrong. In my opinion and in a lot of legal scholars, the Court should have granted Certiorari and corrected the errors.

[TexasGator]

“I did so because it was irrelevant”

Holy cow.

Apple conspired.

Apple was charged with conspiracy.

And you say it is irrelevant!

Irrelevant only if you ignore the facts.

[Scutter]

You don’t know what you’re talking about. You are so out of your depth here, it’s funny.

They don’t publish any details of the processor microarchitecture. Nothing beyond marketing materials, which is obviously all you really care about.

And I’m not talking about “external incoming software”. I’m talking about the OS. This is what’s loaded into the flash RAM, and is what the secure bootloader vectors to after verifying authenticity.

[TexasGator]

“The US Supreme Court in Leegin”

Irrelevant. That was a vertical case, not a horizontal case like the one under discussion.

But you know that since I told you earlier.

[TexasGator]

“That was what I’ve been trying to get through to some people on here. That is what the Rule of Reason, which the US Supreme Court 2004 Areeda & Hovenkamp decision and the got more explicit and set down rules in the 2007 Leegin decision”

You keep talking about Leegin but none of what you say in Leegin about horizontal agreements is in Leegin.

Here is what the Court said about Horizontal agreements in Leegin:

“Restraints that are per se unlawful include horizontal agreements among competitors to fixprices,”

[Scutter]

Here's an example of the sort of efforts people have to go to speculate on the internal details of Apple's processors. Quote from the article:

Unfortunately I can tell you straight up that we’re only scratching the surface on the architectural side. Apple really doesn’t like talking about CPU architecture, and every time we poke at an Apple SoC they clamp down just a bit harder. At the end of the day Apple can’t hide everything about the SoC, but a Cyclone-like disclosure is likely not going to happen with Twister.

It's a very good article, BTW. Long, but well worth the read.