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updated: 2/11/2014 7:14 AM

Apple loses bid to delay court-ordered e-books antitrust monitor

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Bloomberg News

Apple Inc., which faces as much as $840 million in state and consumer antitrust claims stemming from an electronic books lawsuit, lost its bid to halt oversight by a court-appointed compliance monitor.

A federal appeals court in New York yesterday denied Apple's request that it temporarily block the activities of the monitor, Michael Bromwich, while the company appeals a July order by U.S. District Judge Denise Cote in Manhattan.

The Cupertino, California-based company challenged the monitor, imposed by Cote after she concluded after a non-jury trial in July that Apple schemed with publishers to limit retail price competition and raise e-book prices.

Apple, based in Cupertino, California, said sales of e- books, music, movies and software and services were $12.9 billion in 2012, 8.2 percent of Apple's total revenue. Apple introduced e-books in 2010 to boost the appeal of the newly unveiled iPad tablet as a reading device.

Apple had said Bromwich exceeded the scope of Cote's order by improperly demanding interviews with executives including Chief Executive Officer Tim Cook and board member Al Gore, the former U.S. vice president. Apple also objected to Bromwich's proposed hourly fee of $1,100 an hour.

Assess Program

The appeals court in its ruling yesterday cited the Justice Department's interpretation that Cote's order which the U.S. said allowed Bromwich to assess Apple's antitrust compliance programs, not to investigate whether Apple executives are complying with the law. Bromwich may demand documents and interviews relevant to those duties, the court said, summarizing the government's argument.

"We agree with that interpretation of the district court's order," the appeals court said.

In her ruling, Cote also found Apple liable to 33 states that joined the U.S. Justice Department's suit. Apple faces a second phase of the case before Cote later this year.

While the Justice Department didn't ask for money damages in its case, the state plaintiffs have asked Cote to assess damages at three times the amount of $280 million.

Apple said in a court filing yesterday that state plaintiffs aren't entitled to triple damages in the suit.

The figure was reached after Roger Noll, a retired economics professor at Stanford University, and an expert for the plaintiffs, calculated the amount of overcharges to e-book consumers paid as a result of the price-fixing scheme.

'Disproportionate Punishment'

"Awarding civil penalties in addition to treble damages would raise a host of constitutional and other problems," Theodore Boutrous, a lawyer for Apple, said in the memo. "Awarding civil penalties on top of the hundreds of millions of dollars plaintiffs seek in treble damages would constitute an excessive and disproportionate punishment."

Apple also argued that Cote isn't authorized to award penalties on top of the triple damages as the plaintiffs proposed and that the states are incorrect in arguing that liability follows automatically from a finding of antitrust violations.

In arguing for triple damages, the plaintiffs cite Cote's ruling last year in finding that Apple's conduct led to higher consumer prices for e-books and that consumers suffered in a variety of ways from this scheme to eliminate retail price competition and the raising of e-book prices.

Must Cooperate

The "ruling makes abundantly clear that Apple must now cooperate with the court-appointed monitor," Gina Talamona, a spokeswoman for the Justice Department, said in a statement.

Tom Neumayr, an Apple spokesman, declined to comment on the ruling. Eric Lipman, a lawyer with the Texas Attorney General's office, had no immediate comment yesterday on behalf of the states.

Apple on Feb. 4 asked a three-judge panel of the U.S. Court of Appeals in Manhattan to grant an emergency request to court to halt oversight by Bromwich. The three judges on the panel questioned Boutrous, Apple's lawyer, who said the monitor had misspent the valuable time of executives and board members with his inquiries.

U.S. Circuit Judge Gerard Lynch suggested to Boutrous the judges could craft an order clearly defining Bromwich's role and duties while the appeal is pending.

Boutrous suggested that may not be enough.

"If we tell Mr. Bromwich 'this is what you're not going to do this or that,' he's going to do it anyway?" Lynch responded. "If we specifically order limitations in any way shape or form. If we sculpt the order to incorporate those concessions, if we write it that way, what objection remains?"

"If monitor continues to act -- we appreciate the court doing this," Boutrous said.

"But, you still don't want the monitor," U.S. Circuit Judge Guido Calabresi responded as the courtroom audience erupted in laughter.

The district court case is U.S. v. Apple Inc., 12-cv-02826, The State of Texas v. Penguin Group USA Inc., 12-cv-3394, U.S. District Court, Southern District of New York (Manhattan). The appeals case is U.S. v. Apple Inc. 14-60, U.S. Court of Appeals for the Second Circuit (Manhattan).

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