1 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEWYORK ---------------------------------------- UNITED STATES OF AMERICA, Plaintiff, -v- APPLE INC., et al., Defendants. ----------------------------------------  THE STATE OF TEXAS, et al., Plaintiffs, -v- PENQUIN GROUP (USA) INC., et al., Defendants. ---------------------------------------- X : : : : : : : : : : X : : : : : : : : : : X 12 Civ. 2826 (DLC) OPINION & ORDER 12 Civ. 3394 (DLC) APPEARANCES: For plaintiff the United States: Mark W. Ryan Lawrence E. Buterman Daniel McCuaig Stephen T. Fairchild Nathan P. Sutton Carrie Syme Bill Jones United States Department of Justice Antitrust Division 450 Fifth Street, N.W., Suite 4000 Washington, DC 20530

 

 2 For plaintiff States: For State of Texas, Liaison Counsel for Plaintiff States Gabriel Gervey Eric Lipman David Ashton Office of the Attorney General of Texas P.O. Box 12548 Austin, TX 78711 For State of Connecticut, Liaison Counsel for Plaintiff States W. Joseph Nielsen Gary M. Becker Office of the Attorney General of Connecticut 55 ElmStreet Hartford, CT 06106 For defendant Apple Inc.: Orin Snyder Lisa H. Rubin Gibson, Dunn & Crutcher, LLP 200 Park Avenue, 47th Floor New York, NY 10166 Daniel S. Floyd, Pro hac vice Daniel G. Swanson, Pro hac vice Gibson, Dunn & Crutcher, LLP 333 South Grand Ave. Los Angeles, CA 90071 Cynthia Richman Gibson, Dunn & Crutcher, LLP 1050 Connecticut Avenue, N.W. Washington, DC 20036 Howard E. Heiss O’Melveny & Myers LLP 7 Times Square New York, NY 10036

 

 3  Table of Contents PROCEDURAL HISTORY.......................................... 5

 

SUMMARY OF FINDINGS......................................... 9

 

BACKGROUND................................................. 13

 

A.

 

Development of the E-book Market .................... 14

 

B.

 

Publishers’ Discontent with the $9.99 Price Point ... 15

 

C.

 

 January 2009-December 2009: Publisher Defendants Pursue Strategies to Combat Amazon Pricing ............... 16

 

D.

 

Apple’s Development of iBooks ....................... 26

 

E.

 

December 15 to 16, 2009: Apple’s First New York Meetings with Publishers ................................. 30

 

F.

 

Apple Switches Gears and Presents An Agency Model with 30%Commission ...................................... 37

 

G.

 

Apple’s TermSheet: All E-tailers to Agency and Pricing Caps ............................................. 45

 

H.

 

Creation of the MFN Clause .......................... 47

 

I.

 

 January 11: Apple Distributes Draft Agency Agreements 50

 

1.

 

MFN Negotiations ................................... 52

 

2.

 

30 Percent Commission Negotiations ................. 58

 

3.

 

Price Tier Negotiations ............................ 59

 

 J.

 

 January 18-27: Publishers Initiate Agency Negotiations with Amazon ................................. 66

 

K.

 

 January 21-26: Execution of Agreements ............. 73

 

L.

 

 January 27: The Launch of the iPad and iBookstore .. 85

 

M.

 

 January 28 to 31: The Publisher Defendants Force Amazon to Adopt the Agency Distribution Model ............ 86

 

N.

 

 The Five Amazon Agency Agreements ................... 90

 

O.

 

Prices after Agency ................................. 94

 

P.

 

RandomHouse Adopts an Agency Model ................. 99

 

Q.

 

 The Publisher Defendants Require Google to Adopt an Agency Model ............................................ 101

 

R.

 

Concluding Observations ............................ 102

 

DISCUSSION................................................ 104

 

A.

 

Legal Standard ..................................... 104

 

B.

 

Analysis of the Evidence ........................... 113

 

APPLE’S ARGUMENTS......................................... 122

 

A.

 

 The Monsanto Decision and Apple’s Independent Business Interests ............................................... 125

 

B.

 

Apple’s Intent ..................................... 135

 

C.

 

Windowing .......................................... 140

 

D.

 

Characterization of the Evidence ................... 142

 

1.

 

Initial Meetings with the Publishers .............. 144

 

2.

 

Conspiracy by Telepathy ........................... 146

 

3.

 

Steve Jobs’s Statements ........................... 149

 

4.

 

 The Publishers Raised Prices, Not Apple ........... 150