There’s a very unusual sentence near the beginning of the letter that class action lawyer Steve Berman of Hagens Berman Sobol Shapiro sent Monday to U.S. District Judge Denise Cote of Manhattan. Cote is presiding over the consolidated antitrust litigation in which the Justice Department, 33 U.S. states and territories and a class of book purchasers have accused Apple of conspiring with publishers to fix e-book prices. A year ago, after a bench trial of the Justice Department’s case, Cote found Apple liable for violating federal antitrust law. Since then, the company has been pursuing an appeal of the liability decision at the 2nd U.S. Circuit Court of Appeals while continuing to battle with the states and private plaintiffs in Cote’s courtroom.
Berman’s letter on Monday informed the judge that Apple has agreed to a binding settlement with the consumer class and the states. But there’s a catch, he wrote: “Any payment to be made by Apple under the settlement agreement will be contingent on the outcome of that appeal.”
What? The whole point of settlements is to eliminate uncertainty for both sides. Yet according to Berman’s letter, this deal hinges on the uncertain outcome of Apple’s appeal to the 2nd Circuit. That didn’t make any sense to me. Almost all of the leverage in this case right now belongs to the class and the state AGs. Apple’s liability under federal antitrust law has already been established in the Justice trial, and Cote ruled earlier this month that her liability opinion also puts Apple on the hook under the laws of the 24 states that are seeking penalties. The only issue to be decided at the second e-books trial, which was scheduled to begin on Aug. 25, was how much Apple would have to pay — and the consumers and state AGs had experts who said Apple owed them as much as $840 million, even before the trebling available under federal antitrust law.
Apple’s only bargaining chip was the possibility that its lawyers at Gibson, Dunn & Crutcher would win the company’s appeal of Cote’s liability decision from the Justice case. So why, I wondered, would the state AGs and Berman — one of the most experienced antitrust class action lawyers in the country — agree to a deal that appears to undercut their bargaining power and inflate Apple’s leverage?
I don’t think they did. I have a feeling that when the states and Hagens Berman file their memo of understanding with Apple, sometime in the next 30 days, we’re going to see a new kind of settlement structure — one that’s tailored to the peculiar circumstances of this case, in which money damages claims by the states and class action plaintiffs live or die with Apple’s appeal in the separate, but intertwined, Justice proceeding.