March 15, 2016
We previously wrote about Apple, Inc.’s appeal to the United States Supreme Court in United States v. Apple, Inc., in which the District Court for the Southern District of New York found Apple violated Section 1 of the Sherman Antitrust Act by conspiring with five of the six major publishers to change their ebook contracts with Amazon. Apple and the five publishers decided that all of the publishers would demand Amazon move them to the “agency model,” such that the publishers, and not Amazon, could now control the price of the books. This was the same model the publishers adopted to sell their ebooks on Apple’s iBookstore. The five publishers did not appeal, but Apple appealed first to the Second Circuit, where it lost, and then to the Supreme Court.
The agreements were viewed by some as a move by the publishers to stop Amazon from pricing the books so low on its Kindle store that the publishers could not compete with their own hardcovers available in stores. However, a brief from the International Center for Law and Economics and over a dozen law professors argued that Apple’s actions were good for the development of multi-sided platforms, which facilitate connections between sellers and buyers and need a “critical mass” to survive—think Uber, which only really exists to connect drivers to riders, and needs a critical mass of drivers to supply these rides and riders to take them. Apple’s agreement, the ICLE argued, essentially functioned to get a “critical mass” of publishers on its own platform and would introduce greater competition into the ebook marketplace, where Amazon was the only major player. Specifically, the ICLE argued that the central issue is whether this type of arrangement should be subject to rule of reason review by courts, rather than being something they can declare illegal per se.
Without comment and without dissent, the Supreme Court on Monday, March 7, denied certiorari to Apple. This means the case is over, and the Second Circuit’s ruling—and thus the District Court’s—is left intact. Apple will now owe about $450 million in the form of credits to customers who purchased ebooks from the iBookstore. Notably, the denial of certiorari is not a finding by the Court that Apple committed the crime, only an acknowledgement that it is unconvinced by the arguments that the case implicates a substantial antitrust issue which the Court ought to resolve.
It is not clear what impact this has on the arguments the ICLE advanced. The Supreme Court may have been reacting to Apple’s own arguments that its top-down arrangement helped a newcomer enter a market that was in danger of becoming a monopoly. This was different from the ICLE’s argument about multi-sided markets. For now, it is difficult to disentangle the impact of the Court’s ruling, if any. Are multi-sided markets to be considered per se illegal when competitors reach agreements to create critical mass? Or was Apple’s arrangement illegal, but other possibilities left open?