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Apple v. Judge Cote: Updated with notes from the hearing

February 4, 2014: 3:52 AM ET

A "weird and fascinating grudge match" had its first day in a higher court.

District Court Judge Denise Cote

District Court Judge Denise Cote

FORTUNE -- No one did a better job setting up the "tangled mess" that a three-judge panel of the U.S. Court of Appeals for the Second Circuit faced Tuesday morning than my Fortune colleague Roger Parloff.

We're in the middle rounds of the e-book antitrust case. The issue Tuesday pitted Apple (AAPL) against District Court Judge Denise Cote, who ruled in July that the company had conspired with publishers to fix the price of e-books. Apple is appealing that ruling. Meanwhile, Judge Cote has appointed a monitor -- former DOJ inspector general Michael Bromwich -- to make sure Apple is prepared to comply with federal antitrust laws.

Apple claimed Bromwich overstepped his authority and wanted him dismissed. Judge Cote refused and wrote a 64-page ruling explaining why. Apple upped the ante, raising constitutional questions of separation of powers and asking for a stay. Further complicating matters: Cote is gearing up to preside over a separate case in which state attorneys general are seeking $840 million in antitrust damages from Apple.

The issue has become a "weird and fascinating grudge match," Parloff wrote, with legal questions so thorny that he expected this appellate court would seek the path of least resistance:

"Though the law and facts are difficult," Parloff concludes, "the court will have a tempting option before it: kicking the can down the road. For all the Sturm und Drang, if the court simply grants the stay, it's extremely hard to pinpoint any perceptible adverse consequences that will come to either the government or American society. A stay would just temporarily prevent Bromwich from acting until a different panel of that court has had a chance to decide whether Apple was properly found liable of antitrust violations to begin with. If it wasn't, then the court will never have to wade into any of the other difficult questions posed by the monitorship.

"On the other hand, if the court were to take that route, that decision, in itself, would be a very bad omen for the monitorship's long-term prospects. If the monitor isn't needed now, why would he be needed later? Whatever the monitorship's constitutional standing, it would seem like unnecessary overkill."

Link: Apple asking appeals court to freeze monitor

Bromwich

Bromwich

UPDATE: I'll leave it to Parloff to report the details when the court's decision comes down -- which should be soon. But my impression from the brisk, 45-minute hearing, was that the court was inclined to split the difference. My notes:

  • Ted Boutrous, representing Apple, didn't get much traction on the separation of powers issue. These judges weren't likely to limit a fellow judge's powers.
  • Nor were they particularly sympathetic to the idea that Apple -- one of the richest companies in the world -- might suffer "irreparable harm" from paying the monitor's fees, no matter how excessive they might seem.
  • But they were clearly troubled by the language of a Judge Cote ruling that seemed to give Bromwich the power to ask for "any" document and interview "any" Apple executive he saw fit. They mentioned Apple chief designer Jony Ive twice, wondering how much of his time Bromwich might demand.
  • And although Finnuala Tessier, representing the U.S. Department of Justice's Antitrust Division, insisted that Bromwich's powers were clearly restricted to making sure Apple developed an adequate antitrust training and compliance program, these judges didn't seem convinced.
  • Would Apple object, Judge Gerard Lynch asked, if the appeals court granted a partial stay that allowed Bromwich to proceed, but under new rules -- drafted by the higher court -- that made explicit what he could and couldn't do?

Apple could hardly object, and that's the way things seemed to be headed when the hearing ended.

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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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