Fear and Trebling: E-Book Class Action Takes a(nother) Bite out of Apple

by Cozen O'Connor

The legal drama continues for Apple, Inc., as the tech giant recently suffered another in a string of significant legal setbacks in the e-book antitrust saga in the Southern District of New York.  Last month, Judge Denise Cote granted the plaintiffs’ motion for class certification, allowing e-book consumers to proceed as a national class against Apple for the same conduct that Judge Cote has already ruled violated the antitrust laws in a separate case brought by the Justice Department. 

(By way of full disclosure,  in case anyone is watching, this blog post was written, in part, on Michael de Leeuw’s MacBook Pro.  His family, collectively, has an iMac, two MacBooks, three iPads, four iPhones, and a drawer full of old iPods; his first Apple product was Apple II Plus.)

As you may recall, back in July, Apple was found after trial to have violated section 1 of the Sherman Act by conspiring with five major publishing houses (Hachette, HarperCollins, Simon & Schuster, Penguin and Macmillan ) to fix e-book prices through an “agency” model for e-book pricing.  While the class action is a separate case, the plaintiffs have moved for summary judgment on liability based on the collateral estoppel effect from the DOJ case.  If  Judge Cote grants that motion, all that would be left for the plaintiffs would be to prove damages, which could be extensive.

Judge Cote rejected each of Apple’s arguments for why the case was inappropriate for  class action treatment:

(i) each  plaintiffs’ claim in the current case was different because each transaction was unique;

(ii) Apple should, in any event, be entitled to offsets because of the overall benefits conferred by Apple’s entry into the e-book market; and

 (iii) plaintiffs’ experts’ model was unreliable for determining damages.  Based on these arguments, Apple argued that the putative class could not meet the commonality and predominance requirements for class certification.

In rejecting these arguments and stubbing out Apple’s Daubert challenge, Judge Cote extensively analyzed the damage model created by plaintiffs’ expert, Dr. Roger Noll.  In yet another ominous sign for Apple, Judge Cote wrote that “this Court has conducted a ‘rigorous analysis’ of Noll’s model and finds it capable of reliably estimating class members’ damages.”

So to recap, (i) there is a liability opinion waiting in the wings, (ii)  Judge Cote believes the  plaintiffs’ expert’s model is reliable for estimating members’ damages, (iii) that model says that those damages are $280 million, and (iv) there is that whole trebling thing to consider.

Apple is in the process of appealing Judge Cote’s various decisions, including the main July 2013 liability decision in the DOJ case and Judge Cote’s controversial ruling appointing Michael Bromwich as an external monitor to oversee the company’s antitrust compliance.  Apple has asked Judge Cote for a stay of all proceedings until the appeals have been decided by the Second Circuit.  Unfortunately for Apple, she has denied previous requests for a stay in these cases.

We will continue to follow these fascinating cases until we get to the core.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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