MANHATTAN (CN) - Unwilling to endorse "market vigilantism," the divided Second Circuit refused Tuesday to excuse Apple's e-book price-hiking conspiracy based on Amazon's 90 percent hold of the market.
It has been nearly two years since U.S. District Judge Denise Cote found Apple culpable under the Sherman Act for conspiring with five publishers to fix the retail prices of newly released and bestselling e-books, a new market Amazon was dominating at the time.
"Through their conspiracy they forced Amazon (and other resellers) to relinquish retail pricing authority and then they raised retail e-book prices," Cote wrote in a 159-page opinion that capped off a nearly three-week bench trial in 2013. "Those higher prices were not the result of regular market forces but of a scheme in which Apple was a full participant."
Cote's findings largely tracked the allegations of the underlying complaint filed by the U.S. Department of Justice and 33 states.
While publishers Simon & Schuster, Macmillan, Penguin, Hachette and HarperCollins settled the government's claims for $166 million, Apple selected a bench trial that led to its being saddled with a court-appointed monitor on watch for antitrust compliance.
After hearing Apple's appeal of the decision and the injunction, a divided three-judge panel of the Second Circuit saw no reason Tuesday to disturb Cote's "amply supported and well-reasoned" opinion.
"We also conclude that the district court's injunction is lawful and consistent with preventing future anticompetitive harms," the 117-page majority opinion by Judge Debra Ann Livingston states.
Judge Raymond Lohier joined in most of the decision but appeared to sympathize with Apple's motivations in a separate concurring opinion that laid some of the blame for its behavior at the feet of the settling publishers.
"I recognize that the publisher defendants, who used Apple both as powerful leverage against Amazon and to keep each other in collusive check, may appear to be more culpable than Apple," Lohier wrote. "And there is also some surface appeal to Apple's argument that the e-book market, in light of Amazon's virtually uncontested dominance, needed more competition. But more corporate bullying is not an appropriate antidote to corporate bullying."
Chief Circuit Judge Dennis Jacobs began his scathing dissent by noting he had "no quarrel" with Cote's "conscientious findings," but he believed that the same findings showed Apple's conduct to be "unambiguously and overwhelmingly procompetitive."
"Apple was a major potential competitor in a market dominated by a 90 percent monopoly, and was justifiably unwilling to enter a market on terms that would assure a loss on sales or exact a toll on its reputation," the 38-page dissent states. "In that connection, the district court erroneously deemed the monopolist's $9.99 price as categorically good for competition because it was lower than cost, and because e-book prices rose after the monopoly was broken."
Jacobs noted that Apple's conduct lowered Amazon's market dominance to 60 percent.
Judge Livingston countered that the dissent's "startling conclusion" 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 e-book prices would rise to a level that it, and the publisher defendants, had jointly agreed upon," she wrote.
Livingston and Lohier agreed that this amounted to a "per se" violation of the Sherman Act.
Their majority opinion also leaves in place the role of attorney Michael Bromwich as Apple's court-appointed monitor.
Apple failed to disqualify the lawyer last month for allegedly being too cozy with its adversaries at the Department of Justice.
Bromwich also billed a $1,265-per-hour fee, plus $1,025 per hour for an antitrust lawyer on his team - figures the company found excessive.
Echoing Apple's complaints about the monitor, Jacob wrote that the injunction "blurs the lines of the adversary system does no good for the reputation of the courts."
"In my view, the injunction warps the role of a neutral, court-appointed referee into that of an adversary party, with predictable consequences," the dissent states. "The monitor is an arm of the district court, and owes loyalty in that direction only. But the injunction redirects the loyalty of the monitor to Apple's chief adversary in the litigation, the Department of Justice.
Bill Baer, the assistant attorney general for the Justice Department's antitrust division, said he was "gratified" by the ruling.
"The decision confirms that it is unlawful for a company to knowingly participate in a price-fixing conspiracy, whatever its specific role in the conspiracy or reason for joining it," he said in a statement.
New York Attorney General Eric Schneiderman called the ruling a "major step toward recovering $400 million that Apple illegally overcharged e-book readers."
"The court's decision shows that even the biggest, most powerful companies in the world must play by the same rules as everyone else," Schneiderman said in a statement.
Apple did not return a request for comment.
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