A Wormy Answer in Wormyfruit

Apple has answered the government's complaint in Wormyfruit. US v Apple, Inc., et al., No. 12cv2826 (S.D.N.Y.) (Doc. 54, 22 May 2012) (PDF). I'm shocked — shocked — that what passes for "publishing journalism" has almost completely ignored the Answer, and certainly hasn't read it. Leaving aside the procedural problems with the Answer (sufficient to piss off the judge, but probably just short of rendering it inadequate), the underlying logic of the Answer is fairly clear:

"We din't do nothin' wrong, and you can't prove it anyway. But if you can prove it, the Big Brazilian River was worse, so anything we did was justified and you should be ashamed of yourself for not going after only the biggest bully instead of Our Gang. Nyah, nyah, nyah."

To say the least, I find this approach... unpersuasive. But then, I've actually read both the Complaint and the Answer; Apple's lawyers are clearly hoping for cut-and-paste "journalism" from those who have not.

As an example of what I mean, consider ¶ 6. The Complaint alleges:

Apple facilitated the Publisher Defendants' collective effort to end retail price competition by coordinating their transition to an agency model across all retailers. Apple clearly understood that its participation in thise scheme would result in higher prices to consumers. As Apple CEO Steve Jobs described his company's strategy for negotiating with the Publisher Defendants, "We'll go to [an] agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that's what you want anyway." Apple was perfectly willing to help the Publisher Defendants obtain their objective of higher prices for consumers by ending Amazon's "$9.99" price program as long as Apple was guaranteed its 30 percent margin and could avoid retail price competition from Amazon.

(brackets in original) Apple's Answer bloviates:

Apple denies the allegations of paragraph 6. Apple did not agree to, nor did it “facilitate,” the transition of other retailers to an agency model. The Government’s selective citation to hearsay from a small portion of Apple’s former CEO’s biography is irrelevant and has no place in this litigation. In an agency model, the “principal,” in this case the publisher, decides the price of its product in the retail marketplace. If that principal believes a particular product is worth more or less than others are charging, it is free under our economic and legal system to offer that higher or lower price. And it is perfectly legal for a principal and agent to discuss the pricing decisions of the principal. There is no allegation that Apple ever had any communications or agreements, directly or indirectly, with its competitor, Amazon, on any of the issues raised in the complaint.

Procedurally — and substantively — all that matters to Apple's Answer is that first sentence: the denial of all allegations of ¶ 6. What I find interesting is how the remainder of the screed both misstates the legal principles at issue and ignores the substance of the paragraph, leaving the kind of gap between the specific denials and the general denial that says perhaps more about the strength and substance of the denial than was intended.⁹

• The absence of participation in a formal agreement is not a legal denial of collusion to reach such an agreement... and the complaint does not allege that an actual agreement was reached concerning "other retailers" in any event. It alleges an "effort to end retail price competition by coordinating their transition to an agency model across all retailers" — that is, that this lawsuit was filed before the entire scheme was successfully implemented.
• An Answer is the wrong place entirely to object that a statement is "hearsay"... and, sadly, this particular objection neither denies the truthfulness or accuracy of the statement nor notes that, since the speaker is deceased and the report of the speaker's statement bears considerable indicia of reliability, the hearsay would be admissible evidence anyway.
• Further, that "hearsay" statement is highly relevant because, if accepted as evidence, it could lead a jury to believe that Apple was aware of the publishers' intent to collude and raise consumer prices. It is far from "irrelevant;" it is, instead, an admission against interest, because it implies that the "agency model" works if, and only if, it is fairly standard — that is, it implies knowledge that collusion is a necessary element of the "agency model".
• It's rather fascinating that this answer invokes "agent" and "principal" without noting several critical aspects of agency law: That the agent has a duty of loyalty to the principal; that the agent is charged with constructive knowledge of the principal's purpose in engaging in a transaction, and thereby "facilitates" the principal's purpose (whether or not lawful, and whether or not consistent with neo-Austrian economic theory); that discussions between the agent and principal concerning "the pricing decisions of the principal" mean that when an agent becomes aware of an improper purpose of the principal,¹⁰ the agent is liable as if it was a principal. It is rather revealing that the publishers themselves, in all of the rhetoric they've engaged in from the start over the RPMA, have carefully avoided referring to themselves as "principals"!
• It's rather interesting that the last sentence of this paragraph tries, rather ineptly, to bring the "Amazon is the real bad guy here" argument back in by "denying" something that was never alleged. This is a rather pathetic attempt to rewrite the story of Apple's knowing vertical participation as a necessary element in implementing a horizontal conspiracy among the publishers as a denial that Apple was itself engaged in a horizontal conspiracy without vertical elements. It also throws the publishers under the steamroller by implicitly admitting that, if the government can demonstrate horizontal collusion among the publishers (see note 10), the antitrust case has been made and it's then just a matter of fashioning an appropriate remedy.

Perhaps the most enlightening portion of Apple's Answer, though, appears at the end. Paragraphs 97 through 99 each deny that the per se rule of antitrust law applies "to [Apple]'s conduct," and assert that the Rule of Reason applies instead.¹¹ As noted previously, that's wrong as a matter of law: If any aspect of an antitrust conspiracy under the Sherman Act is a per se violation, all necessary elements to implement that conspiracy are also judged as per se violations. Apple's objection to the market definition probably has some validity to it, but this would be a Pyrrhic victory: Just about any alternative would be worse, and would probably draw Apple in as an active participant in the "conspiracy" (rather than a "mere agent"). It's also interesting that Apple denies in its Answer to ¶ 104 that "any of the requested relief is properly awarded"... explicitly including the Government's demand to strike MFN clauses that inherently eliminate price competition (¶ 104(d) of the Complaint).

Overall, this Answer gets a C. Not a C#, or a C++. It reflects the real problem with being in a conspiracy: The self-interest of the individual conspirators often leads them to betray each other. It is entirely possible that, after years of litigation, Apple will be able to limit some of the monetary remedies as they apply directly to Apple (although, in an interdependent retail supply system, anything it saves there will be eaten up in lost profits). However, if Apple is only an "agent", it will only do as well as its "principal(s)"... and is breaching its duty of loyalty to its principal(s)¹² with the specific nature of its Answer.

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9. This is an excellent example of a lawsuit as a storytelling contest. It's rather ironic that, in a lawsuit that primarily (or at least perceptively) concerns trade fiction perhaps more than anything else, the BigLaw attorneys representing Apple seem so deaf to the storytelling issues, and in particular to the story between the lines, while simultaneously engaging in a long (procedurally improper) epistle at the opening of their Answer. It is not, however, surprising: Antitrust law and litigation tend to attract lawyers with political science, business/management, and economics degrees. Admittedly, there aren't a lot of us with backgrounds in literature (and particularly in politically oriented literature and literary theory) who also have the quantitative-methods backgrounds to play with intellectual property and antitrust law... but that's an explanation, not an excuse.
10. Here is a point on which procedure boxes Apple in a bit. For the purposes of its own Answer, Apple must assume the truth of every allegation in the complaint for which it has no knowledge when considering the specific allegations. For example, ¶ 8 of the Complaint alleges that once Apple was on board, the publishers uniformly imposed the same terms on other retailers and thereby eliminated price competition; ¶ 8 of Apple's Answer denies knowledge of that (which, given AmazonFail 3.21, is a rather noncredible denial). This is why one must read a Complaint (and an Answer) as a whole, and not paragraph by paragraph: Apple's inability to directly deny, instead of deny on the basis of lack of knowledge, means that it is charged with knowledge of the publishers' conspiracy (if later proven).

    Those of us with relatively long memories and a taste for obscure side issues may recall the only real, effective antitrust efforts engaged in by the DoJ during the Reagan Administration: Consent decrees obtained over military component and parts pricesetting. The very defense being raised by Apple was roundly rejected by the courts in the few instances that this went through litigation. One must remember that knowingly benefitting from price collusion is, all by itself, an antitrust violation... a concept that Apple's Answer leaves very much between the lines.

11. This is a practical, rather than a legal, defense. In practice, a well-funded defendant can delay and obfuscate any case based on the Rule of Reason sufficiently to get to the next change in which party controls the White House and Department of Justice — and that matters regardless of whether the Government is a party in the suit. Further, in practice (and with the current membership of the Supreme Court) Rule of Reason cases get much more restricted remedies when they are successful... even though the law, when read cold, does not require such restrictions.

    Frankly, the MFN components of the RPMA come dangerously close to creating an indirect horizontal conspiracy at the retailer level anyway. That, however, is a matter for discovery... and a few law journal articles in the aftermath.

12. See, e.g., Rest. (3d) Agency § 8.01 ("An agent has a fiduciary duty to act loyally for the principal's benefit in all matters connected with the agency relationship."); cf., e.g., id. §§ 5.04, 7.01. That is, if Apple claims it is a "mere agent", it has breached its duties to its principal(s) by throwing them under the bus with its Answer... because the Answer and the Complaint are "matters connected with the agency relationship."

Yet More Wormy Answers in Wormyfruit

... this time, from the publishers who are defending against the DoJ's lawsuit, instead of settling. There are actually three answers to consider: Penguin's, and two from different aspects of von Holtzbrinck/Macmillan USA. I'll start by looking at Penguin's answer, because the analysis of that answer is going to look somewhat familiar after analyzing Apple's.

Just as did Apple's Answer, Penguin starts out by misconstruing the facts stated in the complaint, and then piles on misstatements of both legal and economic doctrine.

Penguin did not conspire to fix the prices of eBooks with other publishers or with Apple. Penguin, at the invitation of Apple, independently negotiated and ultimately entered into a vertical distribution agreement with Apple. Penguin did so, as the Complaint must concede, because Apple wanted to open an online bookstore and it needed access to eBooks in order to do so—and not just Penguin’s eBook titles, but enough breadth and variety of titles from different publishers in order to have a bookstore where consumers would want to shop....

The form of the vertical relationship—agency—made independent business sense to Penguin. The agency distribution model has existed for far longer than the federal antitrust laws and has specifically been found by the U.S. Supreme Court to be a legitimate way to do business. The agency distribution model—like vertical distribution agreements generally—has incontrovertible pro-competitive aspects. It also cannot be discounted that Apple’s entry and the adoption of the agency model demolished what was widely recognized in the book industry as a “barrier to entry”—Amazon’s business practice of selling certain new release eBooks below-cost for certain periods of time—and prevented Amazon from cementing itself as a monopolist that would continue to dominate the sale of eBooks and eReaders.

A vertical distribution agreement is presumptively pro-competitive. New entry is presumptively pro-competitive. Broader distribution is presumptively pro-competitive. Lower barriers to entry are presumptively pro-competitive. Yet the Government intentionally ignores these facts with regard to Penguin’s decision to distribute its eBooks through Apple and instead sides with a monopolist.

US v Apple, Inc., et al., No. 12cv2826 (S.D.N.Y.) (Doc. 57, 29 May 2012) (PDF) at 1–2 (ellipses supplied, emphasis in original).

• If the negotiations with Apple were "independent," how did the terms end up identical with the other publishers?
• Vertical distribution agreements are neither procompetitive nor anticompetitive in isolation... except when they are part of an dysfunctional marketplace.¹³
• Note that this preamble simply denies "collusion" without engaging in any other aspect of horizontal antitrust violations.
• Last for now, note yet another justification for lawbreaking in the face of other alleged lawbreaking. Curiously, the rhetoric is inconsistent; either Amazon was "prevented... from cementing itself as a monopolist" or "the Government... sides with a monopolist."

Just as it did with Apple, the rhetoric in responding to ¶ 6 reveals more between the lines than it actually denies. Penguin's denial reads:

Penguin denies the allegations contained in paragraph 6. Retail price competition has not ended nor for that matter has competition among agents ended either. Penguin, as the direct seller under the agency model, competes at the retail level. As for the agents, Apple competes against Amazon, both at the device level (eReader) and with regard to the strength of their respective eBook stores. Penguin is without knowledge of Steve Jobs’ business strategy, and on that basis denies those allegations.

Have you spotted the missing denial here? The Government alleged a horizontal conspiracy among publishers — and this would be the place to deny it specifically, if one was going to say more than "denied." This paragraph is full of grand statements of what is not without denying by more than implication (the allegation that Penguin "competes at the retail level") that the RPMA would necessarily work if, and only if, those horizontal competitors Penguin views as its peers — that is, the other publisher-defendants — also had virtually identical terms not just with Apple, but with other retailers, too.¹⁴

The key point that Apple could get away with eliding, and Penguin definitely cannot, is the actual horizontal conspiracy allegation. That doesn't mean it won't try, though.¹⁵ The logic problem here is that Penguin, as only one of several (alleged) conspirators, simply does not have the direct, personal knowledge to deny enough of most of the allegations to truly refute the government's case... and does not deny enough of some of the allegations that it does have sufficient knowledge to deny to evade liability as a participant in a conspiracy. Paragraph 61's response to allegations that Apple kept each publisher informed of how the negotiations with other RPMA participants were going is rather enlightening.

Penguin generally denies the allegations contained in paragraph 61 but admits that Apple made it clear to Penguin that Apple, for its own reasons, did not want to have materially different agreements with its book publisher partners. Penguin further denies that Apple informed Penguin of the status of its negotiations with other publishers, other than telling Penguin at times that it had agreed to terms with some number of unidentified other publishers. Penguin is without knowledge as to the allegations regarding any other entity contained in paragraph 61 and therefore denies them.

(emphasis added) I wonder whether those reasons might have included, say, antitrust violations known to or inferred by Penguin USA's management?

And on, and on, for seventy-four pages. At least sometimes, though, counsel was satisfied with a bare "denied"... or it would have been even longer. It's too bad adequate proofreading — for an Answer that whinges repeatedly about the government's misunderstanding of the publishing industry — was not a higher priority.

Things get even more interesting with Macmillan USA and its closely held German parent... but that'll have to wait a couple of days.

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13. For example, during the last Democratic administration, an Assistant Attorney General in the Antitrust Division explained that:

    But what if the promise is not efficiency-enhancing? What if, for example, the efficiency-enhancing benefits from the prevention of free-riding are less than the benefits that the distributor could realize from distributing products manufactured by others? If the value created by transactions with other manufacturers would exceed the value generated by the efficiency-enhancing benefits of the exclusive dealing agreement, one would expect the market (and thus the distributor) to reject the exclusionary promise and to choose the other, more efficient transactions instead.

    Unfortunately, this does not mean that the market will always choose the most efficient vertical arrangement, nor does it mean that anticompetitive exclusionary agreements can never happen. But it does mean that exclusionary agreements that are less efficient than the alternatives can happen only in one of two circumstances. The first is mistake, which the market presumably will correct.

    The second, and more important, circumstance is this: If the manufacturer expects to gain or preserve market power by the exclusion of its rivals, it can endeavor to induce the distributors to go along with the exclusionary scheme by sharing with them a portion of the anticipated supracompetitive profits. The sharing of supracompetitive profits could take the form simply of a high price paid for distribution services, or it could be part of the consideration paid to the distributors in more subtle or complex commercial arrangements.

    A. Douglas Melamed, Exclusionary Vertical Agreements (address to American Bar Ass'n, 02 Apr 1998, Washington, DC). The same reasoning applies to nonexclusionary vertical agreements that seek not to exclude a competitor, but to restructure a dysfunctional market. Accord, Guidelines on Vertical Restraints, Eu. Com. 2000/C291/01 (13 Oct 2000).

14. Cf. the responses to ¶¶ 61, 76–79 (imposing the RPMA on other vendors under the rubric of the most-favored-nation clause).
15. Cf. the responses to ¶¶ 39–45, which seem curiously unknowledgeable about what Penguin USA's own CEO knew/did at various "industry dinners."

The Privilege to Act Against Monopolies

Earlier this week, Judge Denise Cote of the United States District Court for the Southern District of New York gave the judiciary (and the legal profession as a whole) a lesson in opinion-writing with her decision on liability in the Apple e-book antitrust matter. As Professor Grimmelmann noted, "The U.S. v. Apple opinion is a masterpiece of narrative: it has a story to tell and it weaves the evidence together to tell it." The interesting — indeed, essential — story, though, is not the obvious one. Just like 1984 is much more than a depiction of a surveillance state, the story Judge Cote tells is about much more than the impropriety of the misleadingly misnamed "agency model". However, determining what that story is requires actually reading the bloody opinion — a task at which much of the media (and especially the revisionist "analysis" offered by the WSJ) arrogantly and ignorantly failed to even attempt.

The first narrative aspect of Judge Cote's 160-page opinion is that it is — as is increasingly the default in publishing these days — the first in a series. It does not state the consequences against Apple: It only confirms that there will be consequences against Apple (and, indirectly, confirms the consequences against the settling publisher-defendants). The opinion does not pretend to be the last word on the controversy; indeed, it even explicitly states that there will be further proceedings before Judge Cote. Apple's promise to appeal is (procedurally) premature, as Judge Cote's opinion is not a final and appealable judgment.¹

That said, the finding on liability is rather routine. The summary of the factual findings is well over half of the opinion. The analysis of the basis for liability is, frankly, basic regurgitation of blackletter antitrust law from the early weeks of a basic antitrust-law course; it is almost entirely uncontroversial among any but the most extreme ideologues-masquerading-as-economists. The non-routine aspects of the opinion are less than ten percent of its length and concern two formal defenses to liability raised by Apple: "independent business interests" (125–35) and "dangerous precedent" (155–58). The former defense is deceptively simple: That Apple was entitled to engage in ordinary business activities to advance its own interests — in this case, establishing a substantial (and hopefully dominant, although Apple has carefully avoided emphasizing that it doesn't want to compete with Amazon so much as replace it) position in the expanding market for e-books.² Of course, this assumes that the ordinary business activities in question were, in fact, lawful… and the evidence demonstrated that they were not.

The latter defense is a bit more difficult to explain, although Judge Cote cuts rather directly to its core in rejecting it, and it is worth quoting her in full:

Finally, Apple warns that a ruling against Apple would set a dangerous precedent. It predicts that a finding that it violated the antitrust laws will deter entry into concentrated markets and punish innovation. It contends that its conduct was pro-competitive and created a healthier market. Censuring Apple for entering a tumultuous new market, in Apple’s view, will have a “chilling and confounding… effect not only on commerce but specifically on content markets throughout this country.”

It is certainly true that our nation’s antitrust laws should be applied with care. Courts must be sensitive to the unique features of any market and the ambiguities of commercial conduct to avoid chilling lawful competition. Providing new entrants with the ability to access markets has long been a mainstay of our economy and any court should be wary of discouraging such access or interfering with the natural evolution of markets. As the Second Circuit observed, “[a]ntitrust law is not intended to be as available as an over-the-counter cold remedy, because were its heavy power brought into play too readily it would not safeguard competition, but destroy it.”

It is not entirely clear to what Apple is alluding, however, when it describes its pro-competitive behavior and creation of healthy competition. If it is alluding to the Launch of the iPad, a revolutionary device that has encouraged innovation and competition, then its conduct can fairly be described as pro-competitive. But, this case has been only incidentally about the iPad. The iBookstore was not an essential feature of the iPad, and the iPad Launch would have occurred without any iBookstore. It was the pre-existing, remarkable features of the iPad that made the iBookstore an obvious addition to the device.

If Apple is alluding to the fact that Amazon’s Kindle bookstore was the dominant e-retailer for books in 2009, and that the arrival of the iBookstore created another e-retailer, that is true. But, as this Opinion explains, Apple demanded, as a precondition of its entry into the market, that it would not have to compete with Amazon on price. Thus, from the consumer’s perspective — a not unimportant perspective in the field of antitrust — the arrival of the iBookstore brought less price competition and higher prices.

If Apple is suggesting that Amazon was engaging in illegal, monopolistic practices, and that Apple’s combination with the Publisher Defendants to deprive a monopolist of some of its market power is pro-competitive and healthy for our economy, it is wrong. This trial has not been the occasion to decide whether Amazon’s choice to sell NYT Bestsellers or other New Releases as loss leaders was an unfair trade practice or in any other way a violation of law. If it was, however, the remedy for illegal conduct is a complaint lodged with the proper law enforcement offices or a civil suit or both. Another company’s alleged violation of antitrust laws is not an excuse for engaging in your own violations of law. Nor is suspicion that that may be occurring a defense to the claims litigated at this trial.

If Apple is suggesting that an adverse ruling necessarily implies that agency agreements, pricing tiers with caps, MFN clauses, or simultaneous negotiations with suppliers are improper, it is wrong. As explained above, the Plaintiffs have not argued and this Court has not found that any of these or other such components of Apple’s entry into the market were wrongful, either alone or in combination. What was wrongful was the use of those components to facilitate a conspiracy with the Publisher Defendants.

It is doubtful that Apple is suggesting that the only way it could have entered the e-book market was to agree with the Publisher Defendants to raise e-book prices. Apple, often through expert negotiations conducted by Cue, has entered many new content markets. It did not attempt to argue or show at trial that the price of admission to new markets must be or is participation in illegal price-fixing schemes.

While a Court must take seriously a prediction that its decision will harm our nation’s economy, particularly when made by skilled counsel on behalf of an esteemed company, it is difficult to see how competition will be stifled by the ruling in this Opinion. This Opinion’s findings arise from the specific events that unfolded in the trade e-book market as 2009 became 2010. It does not seek to paint with a broader brush.

In the end, it is essential to remember that the antitrust laws were enacted for “the protection of competition, not competitors.” The question in this case has always been a narrow one: whether Apple participated in a price-fixing scheme in violation of this country’s antitrust laws. Apple is liable here for facilitating and encouraging the Publisher Defendants’ collective, illegal restraint of trade. Through their conspiracy they forced Amazon (and other resellers) to relinquish retail pricing authority and then they raised retail e-book prices. Those higher prices were not the result of regular market forces but of a scheme in which Apple was a full participant.

Slip op. at 155–58 (boldface emphasis added, citations and footnotes omitted, typography corrected).

It's that boldfaced passage that exposes what is really at issue in this case: The rule of law. The position taken by Apple (and by the publishers) is that they are entitled to use any means necessary — explicitly including antitrust violations — in furtherance of their own economic advantage. That is, Apple is asserting that private actors, including competitors, have full privilege to assume the powers ordinarily reserved to the government by antitrust law in confronting what those private actors perceive as "abuse of a dominant market position." This is the economic equivalent of destroying the village in order to save it, because the very subject matter at issue — artistic and cultural expression — requires both government and private-actor protection to thrive. Ironically, though, this particular dispute is also an inevitable consequence of the rise of neoconservative ideology beginning in the late 1970s, because the private actors (through their actions, if not their words) have given government enforcement of antitrust law an emphatic vote of no confidence, and taken the law into their own hands. The Reagan-era evisceration of both the government culture of serious antitrust scrutiny and of antitrust law itself is exposing the wisdom hiding behind another conservative's aphorism that democracy is the very worst form of government… except for all the others. The almost-explicit assumption Mr Churchill made is that government is necessary; nongovernmental accretions of power are no more trustworthy, in the end, than are governmental accretions of power. Anyone who grew up in a company town (such as 1960s Seattle) understands that!

In the end, then, Judge Cote held that a competitor (or prospective competitor) has two choices in dealing with perceived antitrust violations: Report them to the government, expecting the government to actually do something; or be a better, lawful, competitor oneself. Violating competition law in the name of enhancing competition, however, is not an acceptable option — at least not in her courtroom. The privilege to act against monopolies belongs to the government and the market as a whole, not to individual market participants.

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1. Yes, it is theoretically possible that the Second Circuit Court of Appeals could choose to hear an interlocutory appeal on the liability order under 28 U.S.C. § 1292(b)… but if, and only if, the order

   involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation, he shall so state in writing in such order. The Court of Appeals which would have jurisdiction of an appeal of such action may thereupon, in its discretion, permit an appeal to be taken from such order, if application is made to it within ten days after the entry of the order: Provided, however, That application for an appeal hereunder shall not stay proceedings in the district court unless the district judge or the Court of Appeals or a judge thereof shall so order.

   (emphasis added) Judge Cote's opinion, however, is so strongly based on factual findings — and, in particular, credibility findings — that there is no controlling question of law for which she has not ensured that any ground for difference of opinion is either insubstantial… or covered in the alternative. For example, her analysis of the per se nature of Apple's antitrust violation is backstopped with analysis reaching the same conclusion under the irrational "Rule of Reason." In short, the promises to appeal are public posturing of no legal significance; but then, I've come to expect that from both the parties and the lawyers involved on the defense side in this matter.

2. Ironically, this entire lawsuit has avoided confronting a different antitrust problem: Tying arrangements. It's not just that Apple wanted to sell e-books to the public (or, conversely, that Amazon wanted to sell e-books to the public); it's that each vendor wants to sell hardware-and-account-tied access to electronic texts. This bears more than a little resemblance to the "you must use Xerox™ paper and Xerox™ toner that you buy from Xerox™ (or a captive dealer) in your Xerox™ photocopier" requirements of the 1970s that were rejected as antitrust violations themselves. The purported refutation is VHS v. Betamax... but that involved actual physical incompatibility (just try shoving a VHS tape in a Betamax machine and see what happens, even if you put that tape into a Betamax cassette!) at a level substantially deeper than mere packaging of the identical content. It's not a particularly easy question, but the fact that both Apple and Amazon have only popularized data formats developed by others seriously undercuts any claims that it's truly new, independently innovative technology that is at issue… and not use of technological locks not related to the underlying uses to inhibit otherwise-legitimate competition.
3. The disturbing subtext that Judge Cote specifically mentions, but for good and sufficient rhetorical reasons moves past rather quickly, is the protection of competition versus protection of competitors problem of Brown Shoe. Had she engaged with this issue, the trial would necessarily have required intervention by individual authors, because publishers are inherently both monopolists and monopsonists₀ in an area in which one part of the supply chain (the authors) has been granted a statutory and legitimate monopoly called "copyright." Too, this would be an intractable political problem for a very simple reason: Publishers are a lot more central to a free society than buggy-whip manufacturers ever were.

Applewood-Smoked Link Sausages

This platter is going to meander a bit and reach a huge rope sausage not divided into convenient bite-sized chunks.

• I'm no fan of the "nail theory" of anything complex ("For the want of a nail, the kingdom was lost"... and, therefore, the nail is the single most important thing in history), such as the dominance of Europe in producing the present world culture/civilization/whatever. Nonetheless, sometimes it's fascinating to consider complex interplays that revolve around single, discernable changes; adult lactose tolerance as a causal factor in European civilization is a good example.
• Civilization doesn't come just out of a milk bottle; it also comes out of madness, or at least conditions commonly referred to as "madness."
• On the other hand, it doesn't take descent into the depths of depression (or ascent into the low-oxygen heights of mania) to act and speak entirely irrationally regarding the arts... especially when there's outsider money involved.
• Ultimately, this is why democracy is having such a difficult time putting down roots in noncolonial Africa and Asia (not that it's easy in the ex-colonies... or for that matter the ex-Soviet Union!). It's a huge advance for a social grouping — and the arts are, if nothing else, a reflection of a social grouping's attitudes — to tolerate dissent. That's not enough for democracy to flourish, though; one must embrace dissent; one must be fascinated — not repulsed — by monsters; one must consider that, in the bowels of {insert religious icon here}, one might be wrong.
• Nonetheless, I refuse to discard my children, even when I'm done with them. Believe me, that made that cross-country move last year rather difficult...
• Here's another example of what's wrong with inherited wealth: Masterworks sequestered away by social parasites.
• Is the Internet a replacement for the awl bidness? There's a more-than-merely-credible argument that it already has, at least in the US. Even the Department of Justice's politically-hamstrung Antitrust Division proposes treating the Apple of 2013 like the Standard Oil of 1942 (and it's no coincidence that points to a wartime crackdown), implicitly acknowledging the importance of "information economy" practices to the overall economy. (Not to mention that it prevents the rise of another potential counterweight to the Koch brothers, whose fortune is founded in old-school energy monopolies, but that's a cynical view for another time.)
• Duelling briefs on remedies in the Wormyfruit litigation reflect another aspect of information-as-a-source-of-monopoly as a cultural problem, not just an economic one. The government's suggestion (PDF) includes a long-term monitor to keep the gangrene at Apple from spreading. Apple, in opposition, continues to proclaim its innocence (PDF) in a way that just reinforces my conclusion that the "defense" it presented at trial was always aimed at the remedy and not at liability.

  And none of it matters in the end. It is probably beyond the power of the court to order the firing and permanent barring from the industry of the individual wrongdoers and their closest allies at Apple (not to mention that it depends upon defining "the industry" in the first place). The radical structural remedy of divestiture of content from hardware is a non-starter after the failure of the AT&T breakup to sustain itself against financier and politician pressures... not to mention the failure of the Microsoft action to change that bit of overreaching. The DoJ's proposal doesn't go far enough to actually both fix the problem and prevent recurrence (even at/with Apple alone), and the Apple "proposal" is for the wagging of a finger under the nose.

  One must debride this wound before any healing can begin, let alone long-term rehabilitation. (I do not prescribe a course of leeches: We already have more than enough of them in the arts, including — in most instances — both the publishers and the entire respective distribution systems.) In this instance, that means permanently removing certain empire-builders from the potential empire. If Mr Jobs were still alive, that would include him; it definitely includes Mr Cue, Mr Saul... and some of their counterparts at the publishers. But that's not something that antitrust law allows, because antitrust law isn't concerned with the impulse toward building empires; it is concerned with the actual effects of empires, with little attention to potential effects or to the inimical effects of building the empires in the first place. This is, perhaps, inevitable from a legal theory that largely evolved in nations with long traditions of "landed fortunes" as the foundation of social leadership. It is also, perhaps, inevitable in a society that accepts Lord Acton's aphorism about power itself corrupting... which is demonstrably, historically wrong; it is the striving for power that corrupts, not power itself (if it was power itself, we would have no myths concerning "benevolent dictators" to draw upon).

  I'm much more sympathetic to the DoJ position as being consistent with the judge's findings of fact and conclusions of law than I am with Apple's. Apple continues to deny responsibility despite Jude Cote's finding — albeit without using the "L" word — that most of the executives from most of the companies involved lied about the price-fixing conspiracy. That, by itself, deserves fairly harsh sanctions... if only as deterrence against others, for some hopeful value of "deterrence." The key point is that there are no good guys here.

  [W]hile the two-year prohibition against Publisher Defendant interference with retail price competition was intended to serve "as a means to ensure a cooling-off period and allow movement in the marketplace away from collusive conditions," there is reason to believe the Publisher Defendants may be positioning themselves to pick things back up where they left off as soon as their two-year clocks run. The e-book distribution contracts that the Publisher Defendants have entered into under their consent decrees are disappointingly similar to one another. And, multiple Publisher Defendant CEOs have come to court and offered non-credible testimony on Apple’s behalf, with one even claiming that he was proud of his actions, both at the time he took them and still today. Ensuring that Apple can discount e-books and compete on retail price will make it more difficult for the Publisher Defendants to prohibit other retailers from doing so, and will help to ensure that the ongoing effective relief consumers are currently enjoying under the Publisher Defendant consent decrees does not prove entirely ephemeral.

  DoJ Brief (Doc. 329) at 6 (citations and footnote omitted; emphasis added). "Conscious parallelism" my ass — those publishers do not have similar cost structures, business structures, product lines (except in the fact of "e-books"), or much of anything else that would drive similarity in e-book distribution contracts without at least implicit collusion, helped along by the revolving-door nature of executive positions among the publishers.

  Apple's response is, to say the least, inconsistent with the factual record.

  Similarly, prohibiting Apple from negotiating certain terms that are available to its competitors, such as retail price MFNs with non-defendant publishers, or restrictions on their own ability to set prices and offer discounts after the publisher consent decrees expire, would place Apple at a competitive disadvantage by limiting its flexibility to choose a business model. These provisions seek to punish Apple and harm competition rather than correct any wrongdoing or benefit consumers.

  Plaintiffs’ proposal that Apple’s commercial approach to existing e-book apps be frozen in amber for 10 years also is unrelated to any violation found by the Court and is not necessary to “forestall future violations” of the antitrust laws. There are a host of legitimate reasons why Apple, in operating the App Store, might seek over time to alter terms or even seek to migrate e-book apps to the iBookstore. There is no connection between Apple’s treatment of then-existing e-book apps and the actual antitrust violation that the Court found, and the Court should therefore reject the proposed injunction.

  Apple Resp. (Doc. 330) at 16–17 (citations and footnote omitted). Curiously, Apple's piece repeatedly cites to Mr Cue's testimony as justification for its positions, ignoring the court's factual finding that he was not a credible witness... which sounds a lot more like the politics of medieval/Renaissance Europe than it does of representative democracy — the Earl's eldest son remains the Earl's eldest son, regardless of his misconduct short of treason, and we must therefore treat him with the respect due his station.

• It's just too bad the DoJ is unwilling to apply the scrutiny it has afforded e-book distribution to television distribution. A pox on all of them. A pox previously not isolated by the CDC and thus outside the scope of available vaccines on all of them. <SARCASM> I'm so glad that my present cable provider — one I'm seriously thinking of switching away from due to its own incompetence and bad practices — isn't involved in this particular fight, but will only take advantage of it for its own nefarious purposes. </SARCASM>

The Sound of One Shoe Dropping

The DOJ has pulled the trigger and filed an antitrust lawsuit regarding e-book pricing against Apple and a number of major New York-based commercial trade publishers. U.S. v. Apple, Inc., et al., No. [20]12cv2826 (S.D.N.Y. 11 Apr 2012) (PDF). It's about bloody time... and the suit means both much less and much more than it's being spun as.

First, consider some of the procedural and prudential limits on this lawsuit that make it a less-than-complete solution to any of the problems that led to it. It does not include Amazon or any other e-book vendor; it does not include other major trade publishers, such as Wiley (all those For Dummies books), nor nontrade publishers; it does not concern any price-fixing arrangement other than the price offered to consumers for electronic trade books, nor any other competition-restricting arrangements directly related to those prices; it does not concern the relationship of e-book pricing to printed book pricing or distribution methods; it does not concern non-trade books, whatever they might be (see below). These are all critical and important exclusions. Some of them are wise; some of them are stupid, but required by precedent; and some of them... are just stupid.

Second, this concerns a per se violation of § 1 of the Sherman Act (codified at 15 U.S.C. § 1), so market definition is much less of an issue than it would otherwise be. It's not relevant to prove liability — but it is necessary to fashion a remedy. Here, I am much less than satisfied with the government's complaint (¶¶ 99–104) and cursory analysis. Admittedly, the statement in the complaint is all that is necessary at this stage of the litigation, but the inconsistent rhetoric in that passage indicates that the drafters of the complaint did not give sufficient consideration to what they were doing... and do not understand trade publishing, as all they did was substitute one set of technical terms for another. Nowhere in the complaint is there any sense of what "trade publishing" means either in a general sense or otherwise. This will be a critical battle later, as the place of e-books in and related to print trade publishing is going to be a major limitation on the action. Consider whether each (or any) of the following are "trade e-books.... for sale to consumers" (¶ 99):

• A movie tie-in edition of a previously published novel, with or without extra material from the author and/or third parties... or, perhaps, a code entitling the purchaser to a discount on a DVD of the movie
• A self-published self-help book aimed at those with a narrow range of conditions, circumstances, or objectives that is picked up by one of the commercial publishers and entered into that publisher's catalog... but is virtually never made available (in print form) through any general trade vendor except Apple and/or Amazon, but instead only through specialist vendors
• A fictional work of "literary merit" in copyright that is incidentally sold in stores, but the vast majority of sales for which are as college-level required books for specific courses, and when sold to consumers of their own free choice is usually special-ordered
• An early work in a series or other multiwork contract that is being kept "in print" only through a strained interpretation of the underlying contract by the commercial trade publisher so as to prevent the author from effectively moving to a different publisher, and that shows no commercially reasonable level of sales to consumers (or, perhaps, any sales at all to consumers at any price)

Then there's the sale issue, too; and how this lawsuit potentially relates to HarperCollins's attempts to extort vastly higher prices from libraries and limit the number of times a given "copy" can be loaned.

Third, most of the attention (such as it is) that is being paid to this complaint focuses solely upon the conspiracy itself. That's the "policy wonk" end of the lawsuit. The difference between a litigator and a policy wonk is that the litigator doesn't jump from point A to point B without travelling through the parts in the middle. Much of that journey is procedural, and concerns availability of evidence and standards of proof. Those are of concern to policy wonks, but usually are peripheral... and their evalution is usually archly ideological and/or partisan and/or self-interested. The real action in this suit is in the requested remedies.

To remedy these illegal acts, the United States requests that the Court:

a.  Adjudge and decree that Defendants entered into an unlawful contract, combination, or conspiracy in unreasonable restraint of interstate trade and commerce in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1;

b.  Enjoin the Defendants, their officers, agents, servants, employees and attorneys and their successors and all other persons acting or claiming to act in active concert or participation with one or more of them, from continuing, maintaining, or renewing in any manner, directly or indirectly, the conduct alleged herein or from engaging in any other conduct, combination, conspiracy, agreement, understanding, plan, program, or other arrangement having the same effect as the alleged violation or that otherwise violates Section 1 of the Sherman Act, 15 U.S.C. § 1, through fixing the method and manner in which they sell e-books, or otherwise agreeing to set the price or release date for e-books, or collective negotiation of e-book agreements, or otherwise collectively restraining retail price competition for e-books;

c.  Prohibit the collusive setting of price tiers that can de facto fix prices;

d.  Declare null and void the Apple Agency Agreements and any agreement between a Publisher Defendant and an e-book retailer that restricts, limits, or impedes the e-book retailer's ability to set, alter, or reduce the retail price of any e-book or to offer price or other promotions to encourage consumers to purchase any e-book, or contains a retail price MFN;

e.  Reform the agreements between Apple and Publisher Defendants to strike the retail price MFN clauses as void and unenforceable; and

f.  Award to Plaintiff its costs of this action and such other and further relief as may be appropriate and as the Court may deem just and proper.

Complaint ¶ 104 (emphasis added). Now you can see why the publishers themselves were sued, and not just Apple for inducing the behavior. The policy wonks are going to claim that because Amazon is not being sued, the suit doesn't concern Amazon. They're wrong, as the bolded text in subparagaph d indicates. Earlier in the complaint, we learn this (ok, you learn this; I've been bitching about it from day one):

The proposed e-book distribution agreement mainly incorporated the principles Apple set out in its e-mail messages of January 4 through January 6 [2010], with two notable changes. First, Apple demanded that the Publisher Defendants provide Apple their complete e-book catalogs and that they not delay the electronic release of any title behind its print release. Second, and more important, Apple replaced the express requirement that each publisher adopt the agency model with each of its retailers with an unusual most favored nation ("MFN") pricing provision. That provision was not structured like a standard MFN in favor of a retailer, ensuring Apple that it would receive the best available wholesale price. Nor did the MFN ensure Apple that the Publisher Defendants would not set a higher retail price on the iBookstore than they set on other websites where they controlled retail prices. Instead, the MFN here required each publisher to guarantee that it would lower the retail price of each e-book in Apple's iBookstore to match the lowest price offered by any other retailer, even if the Publisher Defendant did not control that other retailer's ultimate consumer price. That is, instead of an MFN designed to protect Apple's ability to compete, this MFN was designed to protect Apple from having to compete on price at all, while still maintaining Apple's 30 percent margin.

Complaint ¶ 65. That's where Amazon's practices get drawn in... because Amazon has been demanding the same MFN of publishers for quite some time.

Fourth, this lawsuit does nothing for the monopsony problem — the collusive setting of e-book royalty rates being the unusually large tip of the iceberg. A complete solution to the problem of e-book pricing also requires attention to how e-books are produced and costed out on both internal cost-sales (aka p&l) sheets and in the formal accounting that is not reported to the SEC by over half of these vendors, since they're not US public companies. In this respect, I'm disappointed, if not surprised at all; there just isn't an awful lot of precedent on the monopsony problem as it concerns antitrust, and the DOJ has historically been loathe to extend its reach on economic activities without at least some precedent achieved by private litigants. It shouldn't be, but it is; it is substantially less likely to lead to active government intervention in a market if the government takes proactive steps to ensure that market is a fair one in the first place. And if the market is not a fair one, all of those pollyannish neoconservative/libertarian theories that the market will solve all problems are just pretending that a kangaroo court with no attorneys allowed for defendants accused of stealing sheep from the lord represents true justice.

Frankly, this lawsuit is the inevitable result of the relaxation of merger attention during the Reagan administration. It is, to put it another way, another data point demonstrating the incorrectness of the Chicago and Austrian schools of economics as they relate to market power, antitrust, and economics. Because those schools of economics entirely discount personal empire-building (for some value of both "personal" and "empire-building") as motivations for the actions of economic actors, they simply cannot — and do not — engage with the real economic world. The misuse of extreme interpretations of Chicago/Austrian economics in recasting antitrust policy (not to mention in reshaping the judiciary) in the 1980s has come home to roost for a very simple reason: If commercial trade publishing were not overconcentrated, it (probably) would require an explicit, knowing, "evil intent" conspiracy and agreement among publishers to set prices in this manner, as Mr Sargent's screed seems to simultaneously deny existed and would require as the only kind of "conspiracy" prohibited by the Sherman Act. (Of course, both of those premises are wrong, both in fact and in law... and certainly they must be rejected on the face of the complaint.)

Worms

The decision today by Justice Mann in Apple Corp. Ltd. v. Apple Computer, Inc., [2006] EWHC 996 (Ch) (08 May 2006) is an interesting melange of trademark law, unfair competition law, contract law… and civil procedure. My sense of the decision is that the burdens of proof ended up determining the winner more than did the dubious merit of the respective positions.

Apple Corp. is the publisher/markholder for Beatles recordings, and long predates Apple Computer. If you don't believe me, pull out an LP of Let It Be and… ok, I'm giving away my age again. In any event, the mark used by Apple Corp. (which, for clarity, I'll refer to as "Beatles") is a sliced-open green apple, presumably of the Granny Smith variety or similar. The mark later adopted by Apple Computer is the notorious silhouette, probably of a Macintosh or Empire/Rome, with a bite taken out on the right side. In the spirit of cooperation common to the entertainment industry, Beatles objected to Apple's logo. After protracted negotiations and litigation, the companies signed an agreement in 1991. Justice Mann quotes that agreement as intending to slice apples as follows:

Whereas, the context in which this Agreement arises is the parties' desire to reserve for Apple Corp's field of use for its trademarks, the record business, the Beatles, Apple Corp's catalog and artists and related material all as set forth in section 1.3 herein and to reserve for Apple Computer's field of use for its trademarks, the computer, data processing and telecommunications business as set forth in section 1.2 herein and to co-ordinate the use of their respective trademarks in such fields of use as set forth in section 4 herein.

Id. ¶ 6. The problem is that, in 1991, the parties did not (and reasonably could not) anticipate the possibility of iTunes.

I preface my conclusions on the proper construction of the TMA with two points. First, I am aware that I must be careful to keep the TMA in its correct place in the chronology and the development of technology and to construe it accordingly. The use of the internet, and the ready availability of all sorts of downloads, was not part of the technological scene at the time, and I cannot approach the question of construction as though the particular activity now conducted by Computer (and other digital suppliers) was in the parties' minds at the time. It is true that it remains necessary to consider how the words of the agreement apply to the more technologically advanced age which has supervened. This is done in the context of statute and statutory instruments (for example, the classification of computer files as "documents") and should be done for this contract. However, I must be careful not to transpose modern circumstances back to 1991 where that would be inappropriate. Second, it is not my function to draw definitive boundary lines so as to fix the operation of the TMA for all time. I have to rule on whether specified acts were breaches of the TMA. This will inevitably result in some clarification of the demarcation between permitted and non-permitted activities (or at least I hope it will) but it will not necessarily definitively mark all boundaries for all future purposes.

Id. ¶ 66 (reference to counsel omitted).

Justice Mann's decision points out that, unlike copyrights, trademarks are limited to comparable uses. One example that I like — primarily because it has some local application a couple of counties away — is "Ford." A dairy farm could call itself "Ford Dairy" if located in Ford County or on the historically named Ford Farm or if owned by a family named Ford, without infringing on Ford Motor Company's word mark. It would be dicier for the farm to adopt a cursive "Ford" inside a horizontal ellipse as a graphical mark, but that's another story.

Although Justice Mann does not say so explicitly, there is a strong civil procedure aspect to this lawsuit. In nontechnical terms, the party claiming infringement in a trademark matter must show not only the fact of copying (or inappropriate reference), but that the copying in question falls within the mark's scope in the stream of commerce and that reasonable end-users might be confused by that use. Conversely, the burden of the party claiming infringement in a copyright matter stops with showing the fact of copying (or inappropriate reference); the defendant has the burden of showing fair use — which is the logical equivalent of the second burden in trademark litigation — and the third burden just doesn't exist in a copyright action.

This difference in burdens is one of the main reasons that protecting and reusing character and setting in fictional works have received so much less attention under trademarklike analysis than under copyright analysis: The holder tactically focuses on the cause of action for which it must prove less, forcing the alleged infringer to focus on the cause of action alleged. Justice Mann's decision does a nice job of showing how the scope of a mark is limited not just by the parties' 1991 agreement, but by general principles of trademark law (id. ¶¶ 85–110). Proponents of the distinction between satire and parody in American fair-use analysis should think carefully about Justice Mann's presentation. As I've probably made clear by now, I'm not one of those proponents; if anything is the epitome of what the First Amendment implies should constitute fair use, it's satire — as Larry Flynt and Jerry Falwell's place in the history of American libel law should tell us — and, for that matter, the fate of John Peter Zenger. Although that's not precisely relevant to this particular barrel of Apples — however wormy and rotten both of them may be — it's nonetheless an interesting correlation.

Now if only Fiona Apple had moved to intervene…

I Don't Like Mondays

These link sausages are guaranteed to be free of being and nothingness.

• Later this week, Apple is probably (at present, in rumor only) going to announce a new version of the iPad. Across the pond at the Grauniad, Charlie Booker describes the attitude problem behind Apple products:

  They make you feel good, Apple products. The little touches: the rounded corners, the strokeable screens, the satisfying clunk as you fold the Macbook shut – it's serene. Untroubled. Like being on Valium.

  Until, that is, you try to do something Apple doesn't want you to do. At which point you realise your shiny chum isn't on your side. It doesn't even understand sides. Only Apple: always Apple.

  This attitude is what I've been complaining about for decades now. If you don't do exactly what Steve Jobs does exactly the way he does it — and, in particular, if you believe in the necessity of documenting your sources in your writing instead of relying on inept and misleading graphics — Apple products are not for you. Neither are Apple products for you if you like to tinker under the hood or have a choice in meaningful accessories and/or content to use on those Apple products.

     I guess I am an Apple hater — not for the tech advances, but for the business practices and enforced conformity. It's sort of ironic to contrast the wild chaos and nonconformity of the Windows world with the 1984-like imagery of the notorious Super Bowl commercial (imagery which, as a sometime Orwell scholar, I find incompatible with the overall sense of quietness in the novel, but that's an argument for another time).

  Speaking of which, I don't own a dedicated e-reader. And I won't even consider doing so — despite their undoubted potential utility — until there's one that:

  • Handles the academic and law-practice/source standard for electronic documents (PDF files) in native mode; and
  • Uses, as its preferred file format, an open standard (I'm not really that picky on which one); and
  • Allows a manual, switched (not software-based) rejection of "syncing," for both wired and wireless connections (and, by the way, allows one to turn off wireless connectivity and power-draining); and
  • Maintains some sense of fidelity on page numbers; and
  • Uses standard SD cards up to 16gb with hot-swapping and no proprietary software required for creating/indexing/recognizing/transferring data; and
  • Runs on one or two standard AAA user-replaceable batteries for at least 100 hours of actual use with at least 21 days of standby in addition (hot-swappable, too); and
  • Has a non-glare screen of at least 22cm by 15cm at reasonable resolution (color optional, but would be nice if it doesn't cut into battery life); and
  • Is not tied to any "bookshelf" system that allows a third party to know what content is on the device, let alone delete or force storage of it, and ignores all purported territorial restrictions; and
  • Has built-in DRM-defeating measures giving the finger to Chapter 12 so that I can have multiple copies of the same damned work on multiple machines, not that I'm going to be reading them on multiple machines simultaneously; and
  • Costs in two figures or less, with no required subscriptions of any kind.

  That way, I won't feel like I'm renting from Skynet.

• Yeah, the Oscars are over. The awards ceremony was boring, but more importantly it was too damned soon. This year bears a disturbing resemblance to 1979, with the Academy using a warm-but-not-yet-hot-button-social-issue film (of more-than-usual worth for the type) to make up for past improprieties, at the expense — in all but one category — of superior performances/efforts/works. Colin Firth is a marvelous actor, and turned in a nuanced performance... but that, really, is about it for The King's Speech, at least in comparison to some of the competition. I don't think that in five years' time we'll be forgetting about The King's Speech in the same way that we did about Kramer v. Kramer by 1985, but it's not all that inapt a comparison.

  These Academy Awards needed Ricky Gervais or Jon Stewart to mock more of the bullshit. Unfortunately, the egos out there are far too fragile for that!

• Neil Gaiman offers the definitive refutation of the "information wants to be free" nonsense concerning copyright violations on the 'net:

  "No, that's pizza," I want to tell them. "Pizza wants to be free. Concentrate on liberating pizza from evil pizzerias. Information, on the other hand, really hates being free, and is never happier than when manacled to a wall, like Kirk and Spock in some piece of late 70s bondage-oriented slash fiction."

  (italics in original) My more prosaic rejoinder — "Entertainment is more than just information, and entertainers want to be paid" — pales in comparison to bondage-oriented slash fiction. Actually, it probably pales at the very concept of bondage-oriented slash fiction; it's not exactly a prude, but it does have some limits (and some taste).

• The off-screen antics of Charlie Sheen are far funnier than the show; I've never managed to make it more than ten minutes into an episode the few times I've tried. Some of them, anyway. Sadly, that goes for his antiintellectual boss, too: In claiming that "Lorre" (and, by implication, every other sitcom showrunner) tends toward tyranny, Sheen is not too far off target. Now contrast this (and the relatively strong actors' union) with the incipient labor unrest of public employees and the purported justification for union-busting there, and elsewhere in the entertainment industry, and one can see what the real meme is. In the eyes of those who have substantial financial capital, only financial capital has the right to organize — not workers, and certainly not (potential) voters.

  Ya know, given the leap from Charlie Sheen to election reform, that preceding paragraph looks a lot like either a stereotypical conspiracy theory or a severe caffeine deficiency following a sleepless night. And there's probably something to that, although the caffeine deficiency may well be impairing my analytical skills... but that doesn't make the statement of the underlying attitude any less accurate despite its hyperbole.

Link Sausages With Arsenic Sauce

I think the Grinch is in a better mood than I am this morningafternoon.

• From the department of "Really? I Never Would Have Guessed!": The WaPo has a major investigative report on growth of the intelligence community since 9/11... and has the temerity to somehow act surprised. This has been happening for hundreds of years. To name just a few obvious examples, consider the growth patterns of the Cheka following every labor protest in nineteenth-century Russia; the growth in Walsingham's secret services in England after every threat to Elizabeth I; and on, and on, and on. The surprise would have been if there had not been a (verifiable) increase of between 40% and 60% in personnel strength of the official agencies, with a corresponding explosion in private contractors, after an "intelligence failure" like 9/11; after all, that's what happened after Sputnik.

  Note that I'm not saying it's justified, or nothing to worry about. I'm only saying it's expected. The more-worrisome aspect is this: What are people going to do with their skills and expectations if/when somebody starts shrinking this monster? At least if excessive "spying" is being done by the government, it's more subject to legal control! Besides, the problem with 9/11 was at least as much an analysis deficit as an intelligence-gathering deficit, and we've done nothing to improve that (in fact, we've arguably made it worse).

• There's a fascinating blog-debate going on at ArtsJournal right now on "Creative Rights and Artists", focusing (at least initially!) on the relationship between the creative and the business aspects of the arts in the internet age. Sadly, too many of the participants have axes to grind, and there isn't a great deal of questioning of received wisdom (example: there's not one word concerning the antitrust implications of media consolidation, let alone how those antitrust implications compare to the inability of artists to unionize in response).
• Professor Goldman points out why ya gotta timely register yer copyrights with our hillbillyish registration system that represents the epitome of regulatory capture: If you wait, you might lose your most effective remedies. Leaving aside that this is not consistent with either the Berne Convention or the 1996 WIPO treaty, it also demonstrates that the Copyright Office is little more than a self-perpetuating bureaucracy... because a copyright certificate is not proof of present ownership of the rights. Unlike, say, a car, a purchaser is not obligated to report a change in ownership to the Copyright Office for recordation... and neither is a recorded document more than hearsay as to any actual change in the ownership of a right.

  Contrast that problem to filmmakers' rights in the European Union, and you'll begin to see that what US copyright law grants in substance it tends to take away in procedure (except, that is, if you're not a starving artist, but the rich patron thereof) — especially when improperly imposing work-for-hire agreements.

• And now, from an Apple-hostile tech-savvy guy who has soldering burns from building computers before there even was an Apple, a sarcastic comment on the iPhone 4 antenna problem. (Those of you who worship Steve Jobs can go get another cup of coffee now.) Bluntly, this reflects over thirty years of a fundamental problem: Steve Jobs can learn only from the obvious mistakes that others make, but is incapable of learning from his own mistakes. Apple has never figured out that one of the major barriers to adoption of its products and memes over time has been its mandating of standards inconsistent with existing standards; to name a few, the 140kb 5.25" floppy, the spiral-formatted 3.5" floppy (with no hardware eject button), the single-button mouse, QuickTime, and on and on and on. Conversely, every improvement that one can really point to has resulted from taking advantage of somebody else's mistakes; the 8088 (instead of 8086) fiasco, which led directly to the "graphic friendliness" of early Macintoshes because Apple chose to use a processor that had a full-width bus, is just one example.

  In this instance, the mistake that Apple is making — and has been a hallmark of the iPhone from the beginning — is emphasizing design (by arrogant SOBs with no visual difficulties) over function. Yes, Apple products have tended to be "more attractive" (if you're not a steampunk fan) than corresponding *nix and Windoze products; sometimes that design has actually led to better usability. I can't deny that the iPod Shuffle has significantly better usability than my non-Apple-equivalent Philips MP3 player of otherwise similar capability. But in this instance, the design came first, requiring a kludge with the antenna in the first place. What does it really say when your product works better out of the box with duct tape, Steve?

  Whether this is a true inability to learn or mere ego is beside the point; the effect is the same. And it's one of the reasons that there are no Apple products in this household. You can pry my command line from my cold, dead keyboard... and then I'll just reboot back to the command line anyway, so give up. Hell, I'm typing this on a straight-text processor with no WYSIWYG features other than line-wrapping, and my margins aren't even set like the blawg's are — and I don't have to remove my fingers from the keyboard to do anything.

Applesauce

Apple has lost its appeal of the antitrust judgment against it in the Wormyfruit e-book pricing lawsuit. The money quote (literally):

More fundamentally, the dissent’s theory — that the presence of a strong competitor justifies a horizontal price-fixing conspiracy — endorses a concept of marketplace vigilantism that is wholly foreign to the antitrust laws. By organizing a price-fixing conspiracy, Apple found an easy path to opening its iBookstore, but it did so by ensuring that market-wide ebook prices would rise to a level that it, and the Publisher Defendants, had jointly agreed upon. Plainly, competition is not served by permitting a market entrant to eliminate price competition as a condition of entry, and it is cold comfort to consumers that they gained a new ebook retailer at the expense of passing control over all ebook prices to a cartel of book publishers — publishers who, with Apple’s help, collectively agreed on a new pricing model precisely to raise the price of ebooks and thus protect their profit margins and their very existence in the marketplace in the face of the admittedly strong headwinds created by the new technology.

US v. Apple, No. [20]13–3741 (PDF) (2d Cir. 30 Jun 2015), slip op. at 9–10 (emphasis in original). There's a lot more to plow through — the opinion, concurrence, and dissent add up to over 150 pages — but the bottom line is that the liability and injunctive relief were affirmed in whole (indeed, the concurring opinion is even more dismissive of Apple's "defenses").

I feel vindicated on two grounds. Not only is this the rationale for antitrust lawsuits in the first place, but the court rested its judgment on facts found by the judge after a trial — and that's almost impossible to overturn. I thoroughly expect Apple to call for en banc consideration (especially since there was a dissent), but I do not expect a different result en banc... or on any appeal to the Supreme Court.

When the facts are against you, argue the law. When the law and the facts are against you, make applesauce... of a variety hopefully tastier than that decried by Justice Scalia last week.

Son of Article 88 Link Sausage Platter

Just put the <SARCASM> tag on everything on this platter — but it's also full of serious points, which may perhaps be best appreciated with a shot of bitters (Angostura is probably the most widely available).

• You really know that things are bad in political discourse when the White House sounds substantially less credible than a convicted perjurer (who, at least this time, brought documentation to back up his sworn testimony and offers more). If there's any contempt here, it's the contempt endemic in those who have power who believe that they're entitled to both power in the sense of being "representatives" and power in the sense of "autocracy." And that's regardless of purported ideology or party affiliation.

  After all, the mythical computer that always lies gets defeated every time, even in the worst-written dreck. The hard part is distinguishing the true bits in a habitual liar's sworn testimony. It's not that there are none; it's that believing them in isolation from anything else is difficult, especially when those accusing them most vociferously of lying sound like they've never heard of Proverbs 28:1 by fleeing from showing their tax returns, which would tend to refute some of the lies coming from that liar.

  What this fiasco says about legal ethics and the efficacy of bar discipline is left as an exercise in frustration. And I'm explicitly referring to professional misconduct during the hearing by more than one member of the bar (which no longer includes Mr Cohen…).

• More shocking, shocking news out of H'wood: Nobody in LA can spell "conflict of interest" if given the first dozen letters. There's another potential writer's strike looming, this time because the (largely coopted, but that's for another time) Writer's Guild is demanding that talent agents refrain from being on both sides, especially in the same transaction. The agents' trade association, however, wants signs that the Guild is willing to "compromise" on a basic principle of ethics. Many industry "insiders" claim that the entire system of H'wood would collapse if social-climbing rentseekers couldn't shift from role to role, even in the same transaction when their clients' interests are in making producers pay the talent more but their personal interests are in making producers (themselves) pay talent less — let alone the temptation to do so in general, which even a profession with as many loopholes in its ethics rules as the law forbids (at least without a knowing waiver) (and see also the next three rules thereafter). And H'wood falling apart would be a bad thing after this round of Oscars?

  This is precisely why unionization is all too often not just helpful, but necessary. Of course, because the WGA needs to continue working with these hypocritical assholes, it can't actually call them hypocritical assholes. At least not in public. Non-screenplay authors don't have the same insulation (or unionization rights!), so they can't call all too many book packaging operations out for even worse misconduct. In short, unions in the arts (and, for that matter, in public service, ranging from teachers and nurses and cops to disability-claim processors) aren't so much about the facial-rate-of-pay issues as about the outright abuse and fraud issues… but the only leverage available for the latter is giving unions power over the former, in a system in which "capital accretion" is the only purpose of damned near anything and venture capitalists will buy out or otherwise take control of the exceptions.

• Meanwhile, Apple's COO says trust him, Apple isn't elitist. Nope: A company that obstinately refuses to conform to any standard it can possibly hope to evade for the last few decades — the one-button mouse, the lack of filename extensions, spiral floppy disk formatting, refusal to provide service manuals to non-employees, nonsegmented addressing (and that's just the 1980s); we'll avoid, for the moment, the non-user-removable/replaceable battery (which is also a security issue), the utterly nonstandard connectors. the missing connectors that force users who want to use a headset with their phones, as implicitly required by the laws of a couple of dozen states for drivers, to pay an order of magnitude more for a substantially less-capable headset — isn't elitist at all. Neither is it elistist because it disables transfer of purchased iTunes content to a new machine (even a new Apple machine) without paying for a more-bells-and-whistles-but-actually-less-capable software "update" and a subscription fee for access to material that is not stored in the cloud, but locally. Neither is it elitist because it continues to refuse to comply with data-storage formats and standards, such as the completely unnecessary workaround required to embed fonts in epubs to make them readable on Apple devices and saleable through Apple "stores." Neither is it elitist because it charges an exhorbitantly premium price for often-inferior and source-locked hardware.

  I've seen more accommodation and flexibility from cable-TV providers!

  Nope. That's not elitist at all. In this sense, I believe Mr Williams… because it's almost all an obvious and almost inevitable consequence of corporate dumbism, not elitism. Consider the legendary hostility of Apple hardware and software to people who — unlike the late Mr Jobs — got decent grades in eighth-grade typing, and have since gone on to write long documents all by themselves (instead of assembling parts other people have provided) and edit them and revise them extensively into a coherent whole that does not rely upon cheap and often irrelevant eye-candy (elitism would include a help system linking directly to Tufte, if "good and clear communication" is "elitist"). Or who can independently operate their index and middle fingers (same underlying issue, I suspect) and therefore demand a two-button mouse, just like in the 1970s at Xerox's lab just down the road from Cupertino… and other 1970s military applications that used trackballs. Or who select things to do by other than pointing at items on a list someone else has created at the factory without detailed knowledge of what actually needs to be done. Or who think that fine points of design that are to the taste of high-level, highly-paid managers with little or no experience working in resource-restrictive environments definitively determine the functions directly available to people in the field without extensive customization that gets trashed with every upgrade.

  Apple isn't alone in this. It's merely one of the worst offenders; in that, it's up against some pretty stiff competition. Just try comparing the user interface of current versions of either Microsoft Office or even LibreOffice to functions actually used in writing more than a two-page letter or crappy-graphic-laden sales flyer… let alone an academic paper, a legal document (especially on lined pleading paper!), or even as plain-vanilla-formatted an effort as the draft of a novel. But it's not elitism: It's contempt. OK, I guess that is a form of elitism. Never mind.

• This one has been fermenting for a month, so it's rather kimche-like. Shame on you, Grauniad books editor and interviewees, for your shortsightedness concerning short fiction. The closest any of the fifty stories on the list come to speculative fiction — you know, the stuff that appears in books and magazines with dragons and rocketships and occasionally a single, staring eye on the cover, even when it's as unrelated to any of these tokens as "The Ones Who Walk Away From Omelas" and "Repent, Harlequin! Said the Ticktockman" — is one piece from Angela Carter, and perhaps (but only perhaps) one nineteenth-century story from Edgar Allan Poe that is "speculative" only in that it presents a horror-like internalized view of quasi-Judaic guilt. If it was good enough for Borges (whose notable absence from the list can perhaps be excused by the "written in English" trope, which has problems of its own!) and Saramago (ditto) and Voltaire (ditto, ok, last time I'm giving them this monolinguist excuse, even if the list does include Chekhov-and-I-don't-mean-the-Star-Trek-one) and Le Guin and Ellison and Wells — not to mention any of several much superior pieces by Angela Carter to the one on the list — the best short speculative fiction is good enough for more than 2% of this list. The less said about the other blind spots on this list, the better.

  I specifically expect better from Hilary Mantel… except that the article itself is misleadingly cast with her name first when only a single one of the stories is her selection. The real "villain" here is Chris Power, responsible for half the list. In the end, this is the elistist entry on this platter (as noted, the Apple item is just contempt).

• Last, a more hopeful item, but it still has some contempt for (aspiring) officials in it. Chicago is going to choose a black woman as its next mayor, after the Democratic primary rejected a Daley. Good {unbelievably foul and offensive string of expletives deleted} riddance. At least for the present: I strongly doubt that family is capable of learning a damned thing, let alone that "family connections do not entitle one to office in a representative democracy." And, as that article neglects, it appears that liberal white voters played an important role, due to low voter turnout which was even lower among black voters.

  Neither of these women is immune from connection to Chicago machine politics; politics in Chicago really is a dirty game dominated by dirty players. But at least one of them appears to have had a bath recently, before diving back into the mud puddle. And both of them are demographically distinct from Chicago's past "leadership," although they're still going to be stuck dealing with a City Council (and County Council, of which one of the two candidates is a member) that is ardently nonrepresentative and a national synonym to this day for "corruption" — deservedly so.

Slipping on a Few Antitrust Banana Peels

If you're not already very familiar with both trade-publishing practices and customs, and the basics of antitrust doctrine, you should read yesterday's entry first. I cannot be responsible if your head spins right off your neck if you don't. (I cannot be responsible if your head spins right off your neck if you do, either, but that's a different doctrine entirely.)
 

Once we're all talking about the same thing, we need to consider one more logical foundation before diving into this particular set of facts in search of antitrust issues: Potential remedies, and their effectiveness against the harm. In an antitrust action, damages are automatically trebled... but are calculated based on the difference between profits/revenues in a hypothetical perfect market (or, at least, the state of the market before the violations proven began) and the actual profits/revenues obtained during the period of violation. Let's say that the "average" price of an e-book was $8 before whatever antitrust violation gets proven began, with a downward trend toward $7.50, and that it's $8.50 now, with an upward trend toward $9 independent of inflation. Damages would therefore be 3 * (8.5–8) or $1.50 per e-book sold as a result of the proven violation — that is, per book sold under the RPMA. Plus attorney's fees. Plus an injunction saying "don't do it any more or we'll get really angry!" Plus, if the violation is tied directly to improper use of nontransactional power to change the market structure (usually, but not only, mergers), divestiture of some of the entities to create competition — like the AT&T divestiture, or the proposed separation of Microsoft into an OS company and an applications company.

The key thing to remember here is that an antitrust remedy can be imposed only against parties found to be participating in the violation. That is why the inquiry isn't limited just to Apple, or just to Amazon, but also includes the publishers... because, after all, there are other e-book vendors out there who could be improperly harmed by being forced to comply with a new "standard."¹

Now, turning to the actual antitrust theory, there are three possible theories that could be put forth as part of an antitrust complaint. In order of increasing difficulty of proof:

• Collusive pricefixing. This need not require a smoking gun, but merely adequate evidence of an agreement to act in concert to restrict free choice in the defined market. The quotations that have been thrown around from the Steve Jobs bio might be part of that evidence; so, too, might the timing of actions immediately after a meeting, and so on. Of course, a smoking gun memo (or high-level defector from a party testifying to what happened at a meeting that was carefully not confirmed by a memo) would also constitute such evidence, and perhaps the best kind — but not the only kind — of such evidence.

  Collusion ain't allowed under antitrust law — it's a per se violation. If there is adequate evidence of collusion regarding price or quantity, or adequate evidence of some other kind of collusion restricting consumer choice in the defined market, then one can skip everything else and go right to the remedy.

• Overconcentration in the market achieved through anticompetitive means. This is usually something that arises in merger considerations; recently, for example, the rejection of AT&T's attempted purchase of the US operations of T-mobile² comes to mind. It is not, however, restricted to mergers, as the 1970s breakup of AT&T demonstrates. This gets particularly tricky when the overconcentration results, either directly or indirectly, from an "innovative" management initiative or a changing market. Here, the market definition is particularly critical. For example, one reaches a different result under an overconcentration theory if the market definition considers "all potential e-book buyers" than if one considers "all potential e-book buyers for the iPad and compatible platforms." Apple will want to claim the universe as the market, because then it won't have excessive power... while the publishers may well want the opposite, because they'll claim that any wrongful conduct of theirs was coerced by Apple's dominance (which, by the way, would also limit the applicability of any remedy to the Apple Store, and would not keep the publishers from turning around and imposing the same terms on other vendors precisely because that would be a different markt).

  Overconcentration is judged under the entirely irrational Rule of Reason, which focuses on whether activity "unreasonably" restricts competition. The Rule of Reason is especially Alice-in-Wonderlandish in this context, though, because by its nature it cannot be applied to monopsony conduct.

• Noncollusive pricefixing in restraint of trade. One recent example of this is airlines' efforts to charge "bag fees" as a way of enhancing revenue without having to clearly raise prices. Isn't it fascinating how, despite the disparate routes and aircraft and everything else, the bag fees have converged at the same amounts? Even without a formal (or even informal) agreement among the airlines, this might constitute an unlawful restraint of trade. The problem is proof: This almost always comes down to duelling experts and extraordinarily expensive and protracted discovery.

  The e-book situation is a good example of noncollusive pricefixing in restraint of trade, but particularly so at the monopsonist publisher end. Isn't it fascinating how rapidly the major publishers converged on "25% of net" as the author's share for e-book licensing... and refuse, except in extreme outlier instances, to compete on price? The real question is whether there is an adequate antitrust relationship between this aspect of e-book pricing and the RPMA. Again, this may well come down to duelling experts; based on what I know, there is a strong linkage, but it's right on the edge of one that makes this part of the same case or controversy.

  Noncollusive pricefixing, like overconcentration, is judged under the Rule of Reason. The complication is that the nature of proof required is much more difficult than the nature of proof required for determining overconcentration.

It's too early to really predict where things are going with this particular matter, but that's never stopped any pundit from pulling out the ol' crystal ball, so it's not going to stop me! In my judgment, this is going to come down to a tactical battle in which the DoJ officials are going to try to avoid choosing among theories for as long as possible. There is a more than faint hope that there is, in fact, substantial smoking gun evidence of collusive pricefixing. The evidence of overconcentration is probably there for the taking, even though it's inconsistent with the merger guidelines, because Apple's history of price leadership is pretty well established through iTunes and the demise of the Zune. The noncollusive pricefixing evidence is much clearer at the author-compensation end than at the consumer end, largely because there are so many red herrings available to both the publishers and to Apple to deny any effective market uniformity. Perhaps the most important of these red herrings is the nonfungibility of books: A Stephen King novel is not fungible with a Thomas Harris novel, or a Scott Turow novel. Thus, price similarities are not definitive for books, because (under longstanding antitrust doctrine) the focus is on complete substitution and perfect competition — which, by definition, cannot happen for nonfungibles.

In the objective, law-school-casebook sense, this particular dispute is not a close call: The RPMA (and associated imposition of uniform terms on authors) violates antitrust law, and requires a remedy that may well include divesting Apple's razor blades from its handles (that is, the "app store" from the hardware sales). That won't deal with the Amazon problem directly, but will indirectly... if the publishers are explicitly and directly bound by a parallel remedy. We're not in Law-School-Casebookistan, though, so this is not going to be a quick, easy, or inexpensive dispute. And you know who gets to pay for it, don't you?

That's all for now, but I'll certainly have more to say as things develop.

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1. Just a short note on standards: It's not necessarily an antitrust violation for competitors to consult to set a standard. For example, it's not a violation for all the competing computing-related companies to consult in setting the standard language definition for HTML5, or for the competing members of the automotive industry to consult via the Society of Automotive Engineers in setting the standards for what constitutes a particular grade of motor oil. The key exception to this exception, though, is that neither price nor quantity are proper subjects of that consultation. One example of the effect of this is those annoying ETrade-baby commercials... because ETrade, a discount broker, could not exist if the DoJ had not smacked the securities industry for establishing standard commissions in the 1970s, which at that time barred the existence of "discounts" and discount brokers.
2. It seems like the same bad actors keep popping up in the footnotes, don't they? Unfortunately, there has not been a lot of research done on factors leading to antitrust recidivism, but I will note that it seems peculiarly prevalent (anecdotally) in industries/markets founded on intellectual property, particularly long after the expiration of patents or other underlying rights. This probably has a relationship of some kind to the endowment effect, but it's a tenuous relationship at best... because endowment is a personal/individual instance, and top management changes over time. Or it's supposed to, anyway.