Apple 2.0

Covering the business that Steve Jobs built

Apple's e-book appeal: Toss out the verdict, or give us a new judge

February 26, 2014: 8:07 AM ET

Judge Cote's ruling, Apple says, mistook an "aikido move" for an antitrust conspiracy.

Judge Cote

Judge Denise Cote

FORTUNE --Apple (AAPL) pulled no punches in the 65-page brief it filed Tuesday, asking a higher court to overturn the controversial results of last year's e-book antitrust trial and placing blame for the outcome squarely on the shoulders of the judge who heard the case.

In Apple's view, U.S. District Judge Denise Cote was not only wrong about the law when she ruled that the company orchestrated a conspiracy with publishers to fix the price of e-books, she was wrong about the facts as well.

The key issue of law is the same one that was raised at trial: That the antitrust rules that restrain the actions of direct competitors are not the same as those governing the actions of a vertical player -- as Apple was in its dealings with the publishers.

The key issue of fact has to do with the judge's timeline of the case.

"Apple's entry into the conspiracy had to start somewhere," Judge Cote wrote in her July 2013 decision, "and the evidence is that it started at those initial [Dec. 2009] meetings in New York City with the Publishers" when the company "made a conscious commitment" to join a pre-existing conspiracy to violate the Sherman Antitrust Act.

"This finding forms the bedrock of the court's entire decision and is demonstrably wrong," Apple told the U.S. Court of Appeals, Second Circuit. "The undisputed record reflects that Apple had no prior dealings in the publishing industry and that everything it knew it had gleaned from public sources—like reports in The New York Times and The Wall Street Journal—none of which reported on a conspiracy."

Apple knew before those initial meetings that the publishers were frustrated with Amazon (AMZN), which at the time controlled nearly 90% of the e-book market. They hated that Amazon was selling their most popular titles for $9.99 -- below cost -- and were afraid of getting squeezed out of what little profit they still had. The judge herself recognized that Amazon's dominant position "strengthened [Apple's] hand in proposing [a] new business model to the Publishers."

"Apple seized the moment and brilliantly played its hand," she wrote.

Steve Jobs later called this an "aikido move," referring to a Japanese martial arts maneuver that uses the power of a stronger opponent against itself.

"Such a move is not unlawful—it is the essence of competition," Apple asserted Tuesday. "There is no evidence, and the district court did not find, that Apple had knowledge of the phone calls, meetings, and dinners among the publishers featured so prominently in the court's ruling."

"The district court's judgment and injunction should be reversed, and judgment should be entered for Apple," the brief concludes. "In the alternative, a new trial before a different district judge should be granted."
A spokesperson for the government said it would file its response in May.

LINK: APPELLANT APPLE INC.'S OPENING BRIEF

Join the Conversation
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.

Email | @philiped | RSS
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.