Opinion

Alison Frankel

Previewing e-books defense: No price-fixing, no harm to readers

Alison Frankel
Apr 16, 2012 21:35 UTC

Has there ever been a price-fixing case in which the alleged conspirators agreed to take less money for their product and simultaneously up their production and boost competition? The answer to that question may determine the success of the Justice Department‘s e-books antitrust suit against Apple and the two publishers that have not agreed to settle DOJ’s civil charges.

On Friday, Apple and three publishers filed reply briefs in their effort to win dismissal of the private antitrust class action that parallels the Antitrust Division’s case. Those filings, coming two days after the government brought suit, offer good hints at how defense lawyers for Apple and the publishers will counter the Justice Department’s allegations. (Interestingly, Hachette and Harper Collins — the two publishers that have reached a tentative $52 million settlement with 16 state Attorneys General — did not sign the joint publishers’ motion, which suggests that they may argue their AG deal resolves the class action plaintiffs’ damages claims.)

The essence of the government’s case (as well as the private class action) is that the publishers regarded Apple’s entry into the e-books market as a chance to break Amazon’s 90-percent monopoly. As part of that effort, the publishers allegedly conspired with Apple to change the e-books model from the wholesale pricing Amazon insisted upon to so-called “agency pricing,” in which publishers set prices and Apple received a commission for every e-book it sold. Both the class action and the government suit assert that Apple and the publishers engaged in what’s known as “per se” price-fixing, which means that plaintiffs must only prove there was a conspiracy to restrain competition and raise prices. The Justice Department and private plaintiffs claim the proof of the conspiracy is the rise in e-book prices after the publishers all signed agency-pricing deals with Apple, from $9.99 to $12.99 or $14.99 for new titles.

But the publishers have long argued that the price-fixing evidence doesn’t add up, since they actually make less money per book through Apple’s agency model than through wholesale pricing, in which they sold books directly to Amazon and received a percentage of that sale price. Before Amazon’s e-book reader, the Kindle, faced competition from the iPad and Barnes & Noble’s Nook, the publishers assert, Amazon regarded e-books as a loss leader to drive Kindle sales, so it was willing to pay relatively high prices to publishers. Nevertheless, according to the 24-page brief filed Friday by Penguin, Macmillan, and Simon & Schuster, the publishers were all so concerned about Amazon’s stranglehold on the e-books industry — and the risks that monopoly posed for sales of both e-books and traditional books — that they independently signed on with Apple. Independent decisions, even in parallel, don’t constitute price-fixing, the publishers contend.

The publishers’ motion to dismiss the class action relied heavily on the U.S. Supreme Court’s 2007 ruling, Bell Atlantic v. Twombly, which held that antitrust plaintiffs must show specific, detailed evidence of a conspiracy. That may be a less appealing defense against the Justice Department’s complaint, which includes the sort of specific allegations of meetings and e-mails that Twombly demands. Instead, when Apple and the publishers move to dismiss the government’s suit, I’ll expect to see an argument Apple raised in the 20-page brief its lawyers at Gibson, Dunn & Crutcher filed Friday in the class action. Apple asserted that the e-book case should be considered under the “rule of reason” standard articulated in the U.S. Supreme Court’s 2007 ruling Leegin Creative Leather v. PSKS. Under the rule of reason, as opposed to a per se price-fixing case, the plaintiffs have to prove the alleged conspiracy impacted the market.

‘Astounding’ Seattle TRO ruling could remake smartphone wars

Alison Frankel
Apr 13, 2012 19:11 UTC

With a single ruling this week, U.S. District Judge James Robart of Seattle federal court may have fundamentally altered the balance of power between Motorola Mobility and the leading opponents of Motorola’s soon-to-be-parent Google, Microsoft and Apple.

In another indication that the smartphone war is shifting away from individual infringement suits, Robart granted Microsoft’s motion for a temporary restraining order, which effectively bars Motorola from acting to enforce whatever relief it’s granted in an ongoing German patent case. In that case, before a court in Mannheim, Motorola has claimed Microsoft Windows and Xbox products infringe German patents that are part of Motorola’s standard-essential portfolio. The Seattle judge, according to this transcript of the order he issued in open court, agreed with Microsoft that the German patents are already at issue in Microsoft’s case before him, which accuses Motorola of breaching its obligation to offer standard-essential patents on fair and reasonable licensing terms.

Robart granted the TRO under the Anti-Suit Act, which is intended to restrict forum-shopping and harassing litigation. That’s how Microsoft and its counsel at Sidley Austin described Motorola’s German suit. According to Microsoft, Motorola first tried to extract exorbitant licensing fees for a portfolio of about 100 worldwide standard-essential patents. Then, after Microsoft filed a Seattle federal-court suit asserting that Motorola’s licensing demand was a breach of its contract with a European standard-setting body, Motorola sued Microsoft in Germany for infringing German patents that were part of the portfolio at issue in Seattle.

Why isn’t DOJ seeking money damages in e-books price-fixing case?

Alison Frankel
Apr 12, 2012 13:38 UTC

The newly-filed Justice Department complaint against Apple and five major publishers is an incalculable boon to Hagens Berman Sobol Shapiro and Cohen Milstein Sellers & Toll, the firms that won the intense competition to lead the multidistrict e-books antitrust class action. There hasn’t yet been discovery in the class action, which the defendants have moved to dismiss or send to arbitration, so the specific details in the Antitrust Division’s complaint, including emails and meetings between Apple and publishing executives, are powerful evidence of the conspiracy the class action alleges. The Justice Deparment’s same-day settlement with Hachette Books, Simon & Shuster, and Harper Collins also increases the likelihood that those publishers will also move to resolve the class action and improves the class’s case against Apple and the remaining publishers, Macmillan and Penguin.

There’s another gift to the private lawyers in the DOJ case as well: The Justice Department is not asking for any money damages of its own. Its complaint seeks only a decree that the defendants engaged in an unlawful price-fixing conspiracy, an injunction against such collusive conduct, and costs. The Antitrust Division — which filed its case in Manhattan federal court as a related proceeding to the multidistrict litigation — seems to be leaving money damages entirely in the hands of Hagens Berman and Cohen Milstein.

Steve Berman of Hagens Berman told me in an email that it’s not unusual for the Justice Department “to leave damages to private lawyers.” He also said there had been no discussions between class counsel and the DOJ on what sort of damages the Justice Department would seek. But his firm’s official statement makes clear that the private lawyers also noticed the distinction between what they want and what the Antitrust Division is after:

Apple and Microsoft v. Google: patent war shifts to antitrust

Alison Frankel
Apr 4, 2012 19:27 UTC

In a really smart piece last month, my Reuters pal Dan Levine wrote that Steve Jobs’ promise to kill Google’s Android operating system has not been fulfilled. Instead, wrote Levine and co-author Poornima Gupta, Apple’s patent war against Android users Motorola, Samsung, and HTC had become “a costly global war of attrition.” Both sides have won skirmishes, but no battle has been decisive. The Reuters story quoted Judge Richard Posner of the 7th Circuit Court of Appeals, who is overseeing a Motorola case in U.S. District Court in Chicago. “You’re not going to shut down the smartphone,” Posner told Apple’s lawyer. “[And] they’re not going to shut down the iPhone.”

The exact same thing could be said of Microsoft’s patent war with Google and its Android acolytes. When the smartphone patent infringement cases launched in 2009 and 2010, maybe it was feasible that one or two of the big three could kill off another of them. But since then, with Apple and Microsoft teaming up to buy Nortel patents and Google countering with its purchase of Motorola Mobility, this war has become a standoff that can only be resolved with cross-licensing deals.

That’s why antitrust arguments — as opposed to patent infringement claims — have been creeping into the spotlight over the last few months. On Tuesday, the European Union announced that it has opened antitrust investigations of Motorola’s demands for licensing fees on standard-setting patents, following complaints by both Microsoft and Apple. (Google’s Android partners, of course, have lobbed similar allegations of patent extortion at Microsoft.) The goal of such claims is to drive down the cost of licensing one another’s patents. In other words, if you can’t beat ‘em, pay as little as possible to join ‘em.

Why Judge Koh nixed Apple bid to bar Samsung phones and tablets

Alison Frankel
Dec 6, 2011 13:58 UTC

The standard for U.S. judges to grant a preliminary injunction is notoriously high. Plaintiffs have to show that they’re likely to succeed on the merits; that they’ll suffer irreparable harm if the injunction isn’t granted; that the injunction is in the public interest; and that the balance of fairness supports awarding the bar. In patent cases, the analysis of likely success on the merits offers two outs for defendants: they can show that the plaintiffs’ patent probably isn’t valid or that they didn’t infringe it. In other words, there’s a long list of reasons for a judge to refuse to grant a preliminary injunction (which is one reason why so many patent holders also seek injunctions overseas).

In the most consequential injunction case of the moment — Apple’s attempt to bar sales of three Samsung smartphones and Samsung’s new Galaxy tablet — U.S. District Judge Lucy Koh of San Jose federal court picked reasons from all over the no-injunction menu as she refused late Friday to grant the injunction. (Here’s the Reuters story from Dan Levine.) There’s no real theme running through Koh’s decision, which analyzes each asserted patent and each allegedly infringing product. That’s frustrating for anyone hoping to find a broader meaning for smartphone litigation in her ruling, but it gives Apple and Samsung a pretty clear indication of how they’re likely to fare as the merits case moves forward.

Apple asserted that two Samsung phones — the Galaxy 4G and Infuse 4G — infringe two Apple design patents. Based on the precedent established by the U.S. Court of Appeals for the Federal Circuit in a case called Egyptian Goddess v. Swisa, Koh applied an “ordinary observer” test to evaluate infringement. She concluded that although it is “a close question,” an ordinary observer would likely find Samsung’s Galaxy and Infuse phones infringe Apple’s patent on a flat, black, rectangular smartphone with a translucent face. She found that under the Durling v. Spectrum Furniture test for obviousness, Samsung was likely to succeed in challenging one of Apple’s smartphone design patents as invalid — but she found Samsung had not raised substantial questions about the validity of the other patent.

2011: A Samsung litigation odyssey

Alison Frankel
Aug 24, 2011 23:36 UTC

As all the world knows, Samsung is engaged in a do-or-die international patent battle with Apple. On Wednesday alone, Samsung saw a court in the Netherlands enjoin it from infringing an Apple smartphone patent; planned for an injunction hearing in Germany, where a court enjoined the Samsung Galaxy Tab, then lifted the preliminary injunction; and went before Judge Lucy Koh in San Jose federal court, where Apple is demanding yet another injunction barring Samsung devices.

But all that bet-the-company stuff doesn’t mean there’s no place for fun. In an August 23 declaration that set the tech world snickering, Samsung’s lawyers at Quinn Emanuel Urquhart & Sullivan asserted that Apple’s extremely broad design patents on the iPad were anticipated by (among other pop culture reference points) Stanley Kubrick’s 1969 movie 2001: A Space Odyssey. Quinn even helpfully provided a link to a YouTube clip of the crew of the Kubrick spaceship Discovery using thin rectangular devices that look curiously like iPads. (A similar Star Trek clip suggests Captain Picard also used an iPad before Apple invented it.)

The argument isn’t quite as wacky as you might think. Just recently, lawyers for Yves Saint Laurent told Manhattan federal judge Victor Marrero that Christian Louboutin can’t trademark red soles because Dorothy had red shoes in The Wizard of Oz; Judge Marrero cited Dorothy’s “famous ruby slippers” on the first page of his opinion knocking out Louboutin’s trademark. Trademarks have squishier standards than patents, but if it worked for Yves, maybe it’ll work for Samsung as well.

Nortel IP sale will help Google win OK for Motorola bid

Alison Frankel
Aug 18, 2011 22:43 UTC

Remember the Cold War military doctrine of Mutually Assured Destruction? The idea was that if the United States and the Soviet Union both knew the enemy had enough weapons to wipe the entire country off the map, neither would actually use those weapons. Mutually Assured Destruction got the entire world through the age of fallout shelters and Barry Goldwater. So the doctrine should be powerful enough to get Google, Apple and Microsoft past Justice Department antitrust regulators.

It’s a given that Google’s $12.5 billion Motorola bid is going to be scrutinized for its antitrust implications. Google’s law firm on the deal, Cleary Gottlieb Steen & Hamilton, has conceded that point; the firm announced that David Gelfand – who previously escorted Google unscathed through antitrust reviews of its DoubleClick and AdMob acquisitions — will be antitrust counsel on the Motorola bid. The $4.5 billion acquisition of Nortel’s intellectual property by a consortium led by Microsoft and Apple is already under review by the DOJ’s antitrust division. I’m betting that each patent plays will have an easier time passing regulatory muster because of the other.

Before I get to why, there’s the issue of which agency will be investigating the Google deal. Both the Federal Trade Commission and the Justice Department have the power to conduct premerger antitrust reviews. They’ve both looked at Google acquisitions in the past: the FTC green-lighted the 2007 DoubleClick and 2010 AdMob deals; the DOJ rejected Google’s proposed advertising partnership with Yahoo in 2008 and approved, with some modifications, its deal with ITA Software in 2011. The FTC is also reportedly conducting a widespread antitrust investigation of Google’s search engine business. But I have it on good authority that the Justice Department will be handling the Motorola review, partly because DOJ has historically overseen competition in the telephone industry and is already reviewing the AT&T merger with T-Mobile and the Nortel IP sale.

Tale of two defendants: HTC, Nokia fates diverged in Apple case

Alison Frankel
Jul 18, 2011 22:51 UTC

Back in March 2010, Apple filed separate suits at the U.S. International Trade Commission against Nokia and HTC, accusing both cellphone makers of infringing Apple’s smartphone patents. In April, the ITC staff recommended that the patents Apple had asserted against both Nokia and HTC should be tested in a consolidated case. Nokia and HTC supported the proposal. Apple’s lawyers at Kirkland & Ellis complained that the partial consolidation would aid Nokia and HTC by creating “complexity and delay,” but the lawyers didn’t fight hard against it because they didn’t want the case — which had the potential to knock iPhone competitors out of the U.S. market — to get bogged down.

The consolidation had clear advantages for the defendants and disadvantages for Apple. Nokia and HTC could mount a joint challenge to the validity of the Apple patents, pooling ideas and resources. Meanwhile, on the infringement side of the case, Apple’s Kirkland lawyers had a doubled workload to master the technology in phones made by both Nokia and HTC.

When the case was tried before ITC administrative law judge Carl Charneski in April and May, Nokia and HTC both had A-list defense counsel: Alston & Bird for Nokia; Keker & Van Nest and Quinn Emanuel Urquhart & Sullivan for HTC. (Quinn, remember, regularly represents Google; HTC phones run on Google’s Android platform.) The three defense firms worked together, incorporating one another’s briefs and presenting joint expert witnesses to opine on the validity of the Apple patents.

  •