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Those who don't settle with the DOJ are often broken up for face stiffer consequences

Apple, Inc. (AAPL) was found guilty in July by U.S. District Judge Denise Cote of the U.S. District Court for the Southern District of New York of costing customers "millions of dollars" by entering into secret deals with eBook publishers and offering to reward them for blacklisting Apple's competitor Amazon.com, Inc. (AMZN). However, Apple remains resolute and defiant in its most recent briefing rejecting arguments from the U.S. Department of Justice (DOJ) who are trying to convince it to accept a settlement offer.

I. Judge Reject's Apple's "Hypocritical" Demands

While some aspects of the DOJ's proposed settlement -- such as allowing competitors to offer link to direct content sales portals which Apple does not receive a cut from -- represent a fundamental assaults on Apple's "walled garden" model, Apple's decision not to settle is somewhat surprising given the potential severity that a trial could have for it, both in terms of image and in  the possibility of even more severe punishments.

Judge Cote had ordered both parties to submit letter briefs to the court discussing their goals in reaching a settlement.

Apple iPad
Apple rejected a proposed DOJ settlement after a judge found it guilty of e-book antitrust violations.  [Image Source: Telegraph]

The DOJ in a court brief argued that Apple should accept most of its terms and scoffed at Apple's proposal to allow it to "police itself".  The DOJ lawyers comment:
 
[G]iven Apple’s unwillingness to appreciate that its conduct violated the antitrustlaws and harmed consumers, it is difficult to understand how leaving it to the company to solely police itself going forward will remedy its antitrust violations and deter future ones.

Request for E-book Letter by Mikey Campbell



Apple's legal team --- which the DOJ says is not interested in playing by the rules, but is rather hired to "[enhance] its capabilities in defending litigation against antitrust violations" -- fires back arguing:

[The plaintiffs] did not submit a focused letter.  Instead they filed a 12-page broadside masquerading as a brief repeating their prior arguments and largely ignoring this Court's core guidance.  They also attached 72 pages of documents -- many simply pulled off the internet, and none in the trial record.  The brief did not express the Court's concerns, but rather is a transparent effort to again attack the credibility of Apple and its counsel, and obtain an injunction wildly out of proportion to the issues and evidence in this case, in order to punish Apple for defending itself at trial.
...
The parties have been litigating long enough to understand what it means to file letters setting forth their positions.There is simply no excuse for plaintiffs' disregard of the Court's order, and their inclusion of non-record material on issues not adjudicated by this Court in this case.

DOJ Proposal Brief by Mikey Campbell



But Apple itself commits the same offense that it accused the DOJ of -- villainizing its rival in the brief and repeating its own arguments.  For example it writes:

Apple feels compelled to reiterate that its commitment to legal compliance, including antitrust compliance, is unconditional, and steadfast... Apple's [self-policing] compliance training... is intended to address legal obligations... Apple's defense of the case... should not be a basis to impose external monitoring.

In other words, Apple attacks the DOJ for repeating its arguments, yet repeats its own arguments in many places in its own brief.  Perhaps for that reason Judge Cote rejected Apple's "demand" that the DOJ submit a new "more focused" brief.

II. More Severe Punishments Could Await Apple at Trial

With the parties set to meet again on Tuesday, it appears that Apple is treading on dangerous ground.  The company has already struggled to defend itself in the case.  Apple's internet software and services chief, Eddy Cue, who masterminded the e-book deals, admitted that his company was responsible for raising e-book prices.  He appeared to concede that his company's deals later drove up e-book prices from the former de facto rate of $10 to $15.  Asked if Apple (or Amazon) customers complained about the higher prices, he commented, "They may or may not have, I can't recall."

And Judge Cote has largely sided with the DOJ lawyers even as Apple has tried the same failing tactics over and over again in an effort to escape punishment.

[Image Source: CNET]
 
Many argue the DOJ brings antitrust actions far too rarely, and when it does bring them it seldom does so without strong and conclusive evidence.  For that reason, most companies who are ruled likely guilty during preliminary hearings decline to go to trial.  Indeed Apple's publishing partners who once allegedly conspired with it to damage Amazon have all agreed to DOJ settlements.

In 1999 the DOJ met another stubborn tech superpower -- Microsoft Corp. (MSFT).  Microsoft agreed to settle (eventually) after being found guilty in a Judge's statement of fact, but after struggling in an appeal offered to do otherwise.  Microsoft's settlement similarly was viewed as onerous within the company, but was viewed as modest at best by outside observers.

But ultimately Microsoft's decision to settle was driven heavily by the fear that the DOJ would use its ultimate power to exact a "death penalty" of sorts, breaking up the abusive company into smaller corporate subunits.  That's precisely what the DOJ did in its case against U.S. vs. AT&T.

AT&T glass
AT&T was broken up in the 1980s after it refused to settle with the DOJ.
[Image Source: Reuters/Shannon Stapleton]

While a DOJ breakup of Apple seems unlikely given the Obama administration's cozy relationship with the Cupertino company (late company co-founder and CEO Steven P. Jobs was President Obama's technology campaign director back in 2011), cash rich Apple could certainly be smacked with large fines or other more dangerous punishments, should it continue to refuse to cooperate and take the case to court.

Sources: Apple Insider, DOJ Brief, Apple Brief





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