On December 15th, Apple and the United States continued their heavyweight battle with a round of oral argument in the Court of Appeals for the Second Circuit. It’s been a while since this feud started so I’ll briefly recap the claims of the combatants.  The DOJ wrote in its Second Circuit brief, “In late 2009 and early 2010, Apple orchestrated and participated in a conspiracy with five major book publishers to take control of retail pricing for electronic books (e-books) and to raise prices to agreed-upon levels. The conspiracy was successful: retail e-book prices for the vast majority of the Publisher-Defendants’ new releases and bestsellers rose from $9.99 to $12.99 or $14.99. Consumers paid almost 20% more, on average, for all of the Publisher-Defendants’ e-books.”  Apple offered a “no good deed goes unpunished” defense, contending that it did not join any conspiracy and, in fact, offered a pro-competitive, innovative alternate to the monopolistic stranglehold that Amazon.com had on the e-book market.

The DOJ prevailed in the trial court with Judge Denise Cote finding that Apple had helped orchestrate a horizontal, per se Sherman Act price-fixing violation by book publishers to raise prices. The district court found that “with Apple’s active encouragement and assistance, the Publisher Defendants agreed to work together to eliminate retail price competition and raise e-book prices, and again with Apple’s knowing and active participation, they brought their scheme to fruition.”

A very good summary of the battle on appeal can be found in a Publisher’s Weekly article here.

One of the issues on appeal was the sufficiency of the evidence: Did the district court make erroneous findings in concluding that Apple helped orchestrate a price-fixing cartel? I’m not going to predict the Court of Appeals’ answer to that question. It is, however, fairly difficult to overturn a district court’s findings of fact, especially when Judge Cote found the evidence “overwhelming,” and many of Apple’s key witnesses “unbelievable.” But I do want to comment on one aspect of the case that has puzzled me.

The DOJ charged Apple as a member of the e-book price-fixing cartel even though Apple was not an e-book publisher. Apple had a vertical relationship with the e-book publishers. Thus, the briefs and arguments in the case are sprinkled with references to the Toys “R” Us, Inc., v. FTC, 221 F.3d 928, 936 (7th Cir. 2000) decision and “hub and spoke” conspiracies. I’ve always wondered whether it was a mistake to charge Apple with being a member of a horizontal price-fixing cartel. If charges were merited at all, I would have charged Apple with aiding and abetting a price-fixing cartel. I base this on an experience I had when prosecuting a significant cartel case while I was with the Antitrust Division.

I led the prosecution of the international graphite electrodes cartel. It was an extremely effective cartel, raising prices over 70% in a five-year period.   Graphite electrode manufacturers had tried before (like the e-book publishers) to reach a price-fixing agreement but could not—principally because the CEO of the U.S. company had a prescient fear of going to jail. But after Mitsubishi bought a 50% interest in the U.S. company, Mitsubishi employees helped organize the cartel through various means, including their connections with the Japanese graphite electrode producers. While Mitsubishi did not manufacture graphite electrodes, it did profit from the collusive price increases. While all other cartel members pleaded guilty, Mitsubishi went to trial.

We did not charge Mitsubishi with a Sherman Act violation because it did not manufacture graphite electrodes. In our view the simplest and most accurate way to explain to a jury why Mitsubishi was liable was to charge Mitsubishi assisted the cartel. We did not want to explain, even though it may have been relatively easy to do, why a company that did not make graphite electrodes was charged with fixing the price of graphite electrodes. Mitsubishi attended no price-fixing meetings and had no input into fixing the price of graphite electrodes. So, we charged Mitsubishi only with aiding and abetting. In legal theory, this is no different that being charged with a substantive offense. But in telling the story to a jury about why a non-manufacturer could be guilty of conspiring to fix prices of a product it did not make, we thought aiding and abetting was the more understandable and persuasive story. The indictment read, in part:

MEANS AND METHODS OF AIDING AND ABETTING THE CONSPIRACY

4. Defendant Mitsubishi Corporation aided, abetted, counseled, induced and procured the aforesaid conspiracy by, among other things:

a.  counseling, inducing, and encouraging UCAR to meet with competitors and to agree to fix, maintain and stabilize prices of graphite electrodes;

b.  arranging, facilitating or otherwise providing assistance for conspiratorial meetings and communications between UCAR and competitors, including Showa Denko, Tokai, SEC and Nippon;

c.  selling graphite electrodes on behalf of Showa Denko, Tokai and SEC, at prices it knew to be fixed pursuant to the conspiracy; and

d.  concealing the existence of the conspiracy from customers and others to allow the continuation of the conspiracy.

United States v. Mitsubishi Corporation, Crim. No. 033 (E.D. Pa. 2000).  Our proposed jury charge on “Aiding and Abetting: Elements of the Offense” can be found here.

Below is, in part, how the court charged the jury on aiding and abetting:

The Mitsubishi Corporation is charged with aiding and abetting an illegal conspiracy among manufacturers to fix the prices and allocate the volume of graphite electrodes. The government has not charged Mitsubishi with actually being a member of the conspiracy. However, the government has charged Mitsubishi with aiding and abetting that conspiracy in violation of federal law. Therefore, in order to find Mitsubishi guilty, you must find that Mitsubishi Corporation aided and abetted the conspiracy that’s charged here to fix the prices of the graphite electrodes.

Keep in mind again that Mitsubishi is not charged with being a member of the conspiracy, but rather aiding and abetting. Thus, you must find beyond a reasonable doubt that at least one agent or employee of Mitsubishi who acted within the scope of his employment or apparent authority and for the benefit of Mitsubishi acted with the intent to assist the conspiracy. (emphasis added).

Before the trial, there was some chatter that we had made a mistake by introducing intent into what could have been a per se case. But we thought that if we couldn’t prove that Mitsubishi intended to assist the cartel, we were going to lose under any theory. It was a worthwhile trade-off to make clear that we were not charging Mitsubishi with being a member of the cartel.

Bottom Line

The bottom line in U.S. v. Apple is that the DOJ prevailed in the district court and you can’t do any better than winning. So, perhaps an “aiding and abetting” charge was not a good idea in the Apple case.  And, U.S. v Apple was not tried to a jury.  But I felt the government’s story may have been easier to understand and perhaps more persuasive (including in the court of public opinion) if Apple had been charged with aiding and abetting; in other words Apple helped get the horizontal competitors together and had a stake in their agreement.   A good story needs attractive facts, but even powerful facts can lose their shine if not displayed in a good story.

Thanks for reading.

PS.  To those that do not know this, the Antitrust Division has an outstanding website.   I refer to it very often.