Class 9 Antitrust, Winter, 2018 Apple eBooks 9/19/2018 Class 9 Antitrust, Winter, 2018 Apple eBooks Randal C. Picker James Parker Hall Distinguished Service Professor of Law The Law School The University of Chicago Copyright © 2012-8 Randal C. Picker. All Rights Reserved.

The Point of the Conspiracy in Apple? From the Second Circuit Majority Opinion “Each of these agreements, by virtue of its terms, resulted in each Publisher Defendant receiving less per ebook sold via Apple as opposed to Amazon, even given the higher consumer prices.” September 19, 2018

The Point of the Conspiracy in Apple? From the Second Circuit Majority Opinion “Just a few months after the iBookstore opened, however, every one of the Publisher Defendants had taken control over pricing from Amazon and had raised the prices on many of their ebooks, most notably new releases and bestsellers.” September 19, 2018

September 19, 2018 Publisher Revs under Different Models

Framing the ebook Case Hypo 1 Antitrust issues? Five of the leading six book publishers meet for lunch at Picholene and agree on a table of prices for ebooks. They also agree that they will not do business with any ebook platform that doesn’t adhere to those prices. Antitrust issues? September 19, 2018

Framing the ebook Case Hypo 2 Antitrust issues? One book publisher approaches Apple to negotiate to sells its ebooks on Apple’s new platform. Apple and the publisher agree on terms. Antitrust issues? September 19, 2018

Framing the ebook Case Hypo 3 Antitrust issues? One book publisher approaches Apple to negotiate to sells its ebooks on Apple’s new platform. The publisher wants a contingent contract: only goes effective if Apple signs up 4 of the other Big 6 publishers. Antitrust issues? September 19, 2018

Framing the ebook Case Hypo 4 Antitrust issues? One book publisher approaches Apple to negotiate to sells its ebooks on Apple’s new platform. The publisher wants the other 4 of 6 contingent contract and an MFN clause w/guarantee for publisher of best terms from other contracts Antitrust issues? September 19, 2018

Framing the ebook Case Hypo 5 Antitrust issues? Apple announces that it will open a digital store. App/content providers set the price to consumers Apple charges a 30% fee on each sale. Antitrust issues? September 19, 2018

Framing the ebook Case Hypo 6 Antitrust issues? Apple extends its online store deal to ebooks on the same terms. Apple charges a 30% fee on each sale. Antitrust issues? September 19, 2018

Framing the ebook Case Hypo 7 Antitrust issues? Apple extends its online store deal to ebooks on the same terms. Apple charges a 30% fee on each sale. Apple also negotiates for an MFN clause from each publisher Antitrust issues? September 19, 2018

Apple Phone Calls to Book Publishers Apple’s Eddie Cue makes phone calls to Big Six publishers to set up in-person meetings in NY Makes clear to each that he is meeting with each of the Big Six September 19, 2018 Tuesday, Dec 8, 2009

Apple discloses iPad and wants bookstore on iPad with Big Six Cue, Moerer and Apple in-house attorney Saul meet with each of the Big Six Apple discloses iPad and wants bookstore on iPad with Big Six Apple won’t sell books at a loss but doesn’t want to be at a price disadvantage with Amazon Apple suggests eBook prices at $11.99 to $14.99 September 19, 2018 Tues/Wed, Dec 15-16, 2009

Agency Model vs. Wholesale Model Hachette and HarperCollins propose that Apple use agency model rather than wholesale model Cue rejects that September 19, 2018 Tues/Wed, Dec 15-16, 2009

Two Books Sales Models The Wholesale Model Book publishers set wholesale prices and sell books to retailers Retailers, as owners of books, set retail prices to consumers September 19, 2018

Two Books Sales Models The Agency Model Wholesalers do not sell books to retailers Retailers instead act as agent of wholesalers in selling books directly to consumers Wholesalers set prices at which books are sold to consumers Retailers are paid fee for agent services September 19, 2018

Second Round of Apple Meetings with S&S, Macmillan and Random House 9/19/2018 Second Round of Apple Meetings with S&S, Macmillan and Random House Described prior meetings with Big Six Stated that industry needed to move to agency model Apple wanted 30% fee Proposed general eBook pricing at the iBookstore of $12.99 Publishers needed to adopt agency model with other ebook retailers September 19, 2018 Mon/Tues, Dec 20-21, 2009

September 19, 2018 Cue Email to Jobs, Mon, Dec 21, 2009, PX-0043 9/19/2018 September 19, 2018 Cue Email to Jobs, Mon, Dec 21, 2009, PX-0043

September 19, 2018 Cue Email to Reidy, Mon, Jan 4, 2010, PX-0021

September 19, 2018 Cue Email to Reidy, Mon, Jan 4, 2010, PX-0021

September 19, 2018 Cue Email to Reidy, Mon, Jan 4, 2010, PX-0021

Apple Distributes Draft Agency Agreement September 19, 2018 Sun/Mon, Jan 10-11, 2010

The Draft MFN Clause The Clause: “If, for any particular New Release in hardcover format, the then-current Customer Price at any time is or becomes higher than a customer price offered by any other reseller (“Other Customer Price”), then Publisher shall designate a new, lower Customer Price to meet such lower Other Customer Price.” September 19, 2018

Understanding MFNs Simple Static Version How should we assess that? Each publisher does a deal for the price of a particular book with each ebook vendor (Amazon, Apple, others) At end, ebook vendors survey prices and then prices sync How should we assess that? September 19, 2018

Understanding MFNs Dynamic Version Each ebook vendor understands that as it negotiates for a good price, its efforts will redound to the benefit of other ebook vendors. How will that change negotiation dynamics? September 19, 2018

September 19, 2018 Cue/Moerer Emails, Jan 9-10, 2010, PX-0487

September 19, 2018 Cue/Moerer Emails, Jan 9-10, 2010, PX-0487

September 19, 2018 Amazon, Jan 20, 2010

September 19, 2018 Direct Testimony of Amazon’s Grandinetti

September 19, 2018 Direct Testimony of Amazon’s Grandinetti

September 19, 2018 Direct Testimony of Amazon’s Grandinetti

HarperCollins Meeting/Email with Amazon “[d]eliberations are moving fast. If I could get your support to this kind of agency model in principle, I have less need to support other partners who wish to enter the ebook business. As I mentioned we haven’t made any decisions yet about how we will sell ebooks to consumers yet, but decision time is approaching.” $12.99 or $14.99 prices at 5% Amazon commission September 19, 2018 HC Email to Amazon, Fri, Jan 22, 2010, PX-0309

9/19/2018 September 19, 2018 Cue Email to Jobs, Jan 21, 2010, PX-0042

9/19/2018 September 19, 2018 Apple iPad Press Release (27 Jan 2010)

September 19, 2018 Sargent Email to Cue, Jan 31, 2010, PX-0053

September 19, 2018

What is at Stake in Apple? Key Questions What exactly is the contract, combination or conspiracy in restraint of trade? Is this a horizontal or a vertical case? Why does that matter? September 19, 2018

On the CCC Per the Majority “At the start, Apple’s benign portrayal of its Contracts with the Publisher Defendants is not persuasive—not because those Contracts themselves were independently unlawful, but because, in context, they provide strong evidence that Apple consciously orchestrated a conspiracy among the Publisher Defendants.” September 19, 2018

On the CCC Per the Majority “As explained below, and as the district court concluded, Apple understood that its proposed Contracts were attractive to the Publisher Defendants only if they collectively shifted their relationships with Amazon to an agency model—which Apple knew would result in higher consumer-facing ebook prices.” September 19, 2018

On the CCC Per the Majority “In addition to these Contracts, moreover, ample additional evidence identified by the district court established both that the Publisher Defendants’ shifting to an agency model with Amazon was the result of express collusion among them and that Apple consciously played a key role in organizing that collusion.” September 19, 2018

On the CCC Per the Majority “The district court did not err in concluding that Apple was more than an innocent bystander.” September 19, 2018

On Horizontal v. Vertical Per the Majority “But the relevant ‘agreement in restraint of trade’ in this case is not Apple’s vertical Contracts with the Publisher Defendants (which might well, if challenged, have to be evaluated under the rule of reason); it is the horizontal agreement that Apple organized among the Publisher Defendants to raise ebook prices.” September 19, 2018

On Horizontal v. Vertical Per the Majority “As explained below, horizontal agreements with the purpose and effect of raising prices are per se unreasonable because they pose a ‘threat to the central nervous system of the economy,’ United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 224 n.59 (1940);” September 19, 2018

On Horizontal v. Vertical Per the Majority “that threat is just as significant when a vertical market participant organizes the conspiracy. Indeed, as the dissent notes, the Publisher Defendants’ coordination to fix prices is uncontested on appeal. The competitive effects of that same restraint are no different merely because a different conspirator is the defendant.” September 19, 2018

What Should We Make of Amazon? September 19, 2018