Apple vs. Judge Cote: The appellate court split the difference

February 10, 2014: 6:24 PM ET

The judge gets to keep her watchdog. But he's on a tight leash -- as Apple had demanded.

Jidge Koh

Judge Cote

FORTUNE -- It took less than a week for a three-judge panel to issue a ruling in what Fortune's Roger Parloff calls "the weird and fascinating grudge match" between Apple (AAPL) and a U.S. District Court Judge.

The particular issue in this case -- the first of many expected to reach a higher court -- was whether an antitrust watchdog appointed by Judge Denise Cote had the right to request "any" document and interview "any" Apple executive to make sure the company had stopped playing fast and loose with federal antitrust laws.

As expected, the U.S. Court of Appeals for the Second Circuit sidestepped the sticky constitutional traps Apple's legal team had tried to lay and found a path right down the middle.

  • It allowed Michael Bromwich -- Judge Cote's appointee -- to keep monitoring Apple
  • But it also restricted his activities -- as Apple had demanded -- to making sure the company was developing an antitrust compliance training program

The ruling is mercifully brief  -- just five paragraphs, attached below. The key passage:

Counsel for the [Department of Justice] ... explicitly stated that the district court's order should be interpreted narrowly. According to the government, the injunction allowed the monitor to assess the appropriateness of the compliance programs adopted by Apple and the means used to communicate those programs to its personnel. As the government explained at oral argument, the injunction "ensur[es] not just that [Apple] ha[s] an anti-trust compliance program in place but [that Apple's] employees particularly, senior executives and board members are being instructed on what those compliance policies mean and how they work." The government conceded that the injunction would not allow the monitor to investigate whether such personnel were in fact complying with the antitrust or other laws.

Thus, according to appellees, the monitor was empowered to demand only documents relevant to his authorized responsibility as so defined, and to interview Apple directors, officers, and employees only on subjects relevant to that responsibility. We agree with that interpretation of the district court's order. In addition, we take counsel's statement as a formal representation that appellees also accept that interpretation, and that the monitor will conduct his activities within the bounds of that order, absent further action by the district court or by the panel that will in due course hear the merits of the appeal.

Both sides got to claim victory.

"We are pleased with the court's decision," said a DOJ spokesperson. "Today's ruling makes abundantly clear that Apple must now cooperate with the court-appointed monitor. The appellate court's ruling reaffirms the department's and district court's decision that a monitor is necessary to oversee Apple's antitrust compliance policies, procedures and training to help ensure that Apple does not engage in future price fixing and that U.S. consumers never have to pay the price of their illegal conduct again."

Apple would not comment, but they too seemed pleased.  The Judge didn't get her wrist slapped, as they might have wished. But the company's complaints about the monitor's activities seemed vindicated. Implicit in the ruling is the higher court's judgment that much of what Bromwich had demanded of Apple's executives and board members was beyond the scope of his -- or Judge Cote's -- authority.

The issue of Bromwich's fees -- more than $1,000 an hour, to be paid by Apple for as long as it takes -- did not come up.

LINK: Stay Order.

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