Apple 2.0

Covering the business that Steve Jobs built

Fraud, bid-rigging, jail terms and the Apple e-book conspiracy

January 31, 2014: 10:11 AM ET

Barack Obama's top Sherman Act enforcer explains why his division prosecuted Apple.

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Baer at his 2012 confirmation hearings.

FORTUNE -- Bill Baer, head of the DOJ's antitrust division, spoke at some length Thursday night about the e-book case that "put a stop" in his words, "to Apple's anticompetitive conduct."

But before he got to Apple (AAPL), Baer rattled off a list of his division's accomplishments in the five years since President Obama a took office. Among them:

  • Prosecuted price fixing and bid rigging in the car parts business
  • Prosecuted international price-fixing conspiracies in LCD panels
  • Sent executives to jail for fixing U.S.-to-Puerto Rico freight transportation rates
  • Prosecuted conspiracies to defraud cities by manipulating the bidding for tax-exempt bonds
  • Prosecuted the manipulation of the London Interbank Offered Rate (LIBOR) 
  • Launched a joint-task-force investigation into collusion in foreign exchange markets
  • Charged three companies and 70 individuals with bid rigging and fraud at real estate foreclosure auctions
  • Blocked some big mergers: AT&T with T-Mobile, NASDAQ with NYSE Euronet, etc.

In all, Baer boasted, his division in five years had filed 339 criminal cases, charged 109 corporations with criminal antitrust violations and charged 311 individuals with antitrust crimes.

Evidence use by both sides. Click to enlarge.

Both sides used this chart as evidence in U.S.A. v. Apple. Click to enlarge.

Finally, he got to U.S.A. v. Apple -- a civil, mind you, not a criminal case -- which he offered as an example of how his division helps protect the "bottom line of American families" who have "struggled to make ends meet."

"Consider the serious and documented economic harm," he said, "caused by the e-books conspiracy recently orchestrated by Apple Inc. and certain book publishers. On July 10, 2013, Judge Cote issued a 160 page opinion finding that Apple had violated Section 1 of the Sherman Act by conspiring with publishers to raise e- books prices and to end e-books retailers' freedom to compete on price. Judge Cote found that the conspiracy was effective: the publishers' e-books prices increased across the board once the illegal agreements were in place. Overnight, the price of the defendants' bestselling e-books rose from $9.99 to $12.99 or $14.99...

"The evidence of consumers benefiting from post-injunction price competition is equally compelling. Current pricing data shows that since injunctions against Apple and its book publisher co-conspirators were entered, the average price of the top 25 best-selling e-books dropped from around $11 to around $6."

Three things.

  • In the context of LIBOR, real estate bid-rigging and collusion in the foreign exchange markets, does this sound like "serious and documented economic harm"?
  • Is there even one family in America who can't make ends meet because the price of an e-book briefly rose $3 to $5?
  • Even if we accept Baer's explanation for when and why e-book prices fell (at trial, both sides offered the attached chart as evidence), are we supposed to be happy that the average price of books that take years to write, months to publish and millions to market has fallen to $6? 

You could plausibly argue -- as the book publishers do -- that the DOJ gave comfort not to struggling American families, but to Amazon (AMZN). And that in the process it kicked an industry in the throes of disruption while it was down.

Baer did not mention Thursday night that Apple still vigorously denies the charges, has filed notice of appeal, and is fighting him at every turn. But he did make a plug for compliance monitors -- like Michael Bromwich, the one assigned to the Apple case -- in advance of a hearing on Apple's motion to have Bromwich removed. (See Never get between an Apple antitrust monitor and his per diem.)

The hearing is scheduled for Tuesday in a Federal courthouse in New York City. We plan to be there.

LINK: Text of Bill Baer's speech before the New York State Bar Association 1/30/2014

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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