Remember when the U.S. Department of Justice sued Apple and five big publishers* for antitrust violations? The publishers all settled before trial. Then, after a trial last year, Judge Denise Cote of the U.S. District for the Southern District of New York found Apple liable for violating antitrust laws by conspiring with the publishers to raise prices on consumers.
Cote’s opinion meant that a related consumer class action case against Apple would go to a damages trial to see just how much Apple would have to pay to compensate readers. However, a week ago, Apple and the lawyers for the consumer class proposed a settlement, which now goes to Judge Cote for approval. (Individuals can settle their own lawsuits whenever they want, but class action settlements have to be approved by the Court to make sure that they’re fair to all the members of the class.)**
I’ve written before about Apple’s rather unrealistic view of their own products, and their proposed settlement reveals yet another example of Apple’s penchant for hyperbole. Just a few months after Apple attempted to remove Judge Cote from the case because she had noted “consumers of e-books—including Apple’s own consumers—suffered hundreds of millions of dollars in harm,” Apple is now proposing a settlement that would pay up to $400 million to consumers (plus $50 million to the states and the attorneys).
But there’s a catch, and that’s what Judge Cote was concerned about in a conference call with the lawyers yesterday. The proposed settlement would not end the case, but would simply avoid the damages trial. Apple would continue with its appeal of Judge Cote’s findings last year: if Apple lost that appeal, Apple would pay $400 million towards a fund for consumers who bought e-books from any of the settling publishers between April 1, 2010 and May 21, 2012, plus $20 million to States that sued Apple, and $30 million to the lawyers for the class. Conversely, if Apple won the appeal, Apple would pay nothing.
This is the part Judge Cote was worried about: if Apple wins just a part of the appeal, even on a very technical issue that simply results in a new trial, then Apple only has to pay $50 million to the consumer fund, plus $10 million to the States and $10 million to the lawyers for the class. That is a significantly worse deal for consumers, and it could end up creating a situation where Apple has been found, conclusively, to be liable for antitrust action, and yet walks away paying only a fraction of the apparent damages. $50 million for consumers is chump change for a company with $160 billion in cash on hand. It’s probably not enough to truly deter them from violating antitrust laws again as soon as they have the chance.
If we want to keep the e-book market lawful and competitive, companies like Apple need more than a slap on the wrist and a suggestion that they behave better next time. We’ll see whether Judge Cote approves the settlement proposal.
[Update August 2014: Despite the concerns Judge Cote raised during the conference call, she gave her preliminary approval for the Apple agreement]
*The list of publishers accused of collusion includes Hachette, HarperCollins, Penguin, Simon & Schuster, and Macmillan.
**Here’s Apple Proposed Settlement (a PDF).