[Federal Register Volume 78, Number 107 (Tuesday, June 4, 2013)]
[Notices]
[Pages 33437-33440]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-13133]


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DEPARTMENT OF JUSTICE

Antitrust Division


United States v. Apple, Inc., et al.; Public Comments and 
Response on Proposed Final Judgment

    Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C. 
16(b)-(h), the United States hereby publishes below the United States' 
Response to Public Comments on the proposed Final Judgment as to 
Defendants Verlagsgruppe Georg von Holtzbrinck GmbH and Holtzbrinck 
Publishers, LLC d/b/a Macmillan in United States v. Apple, Inc., et 
al., Civil Action No. 12-CV-2826 (DLC), which was filed in the United 
States District Court for the Southern District of New York on May 24, 
2013, along with copies of the one comment received by the United 
States.
    Copies of the comment and the response are available for inspection 
at the Department of Justice Antitrust Division, 450 Fifth Street NW., 
Suite 1010, Washington, DC 20530 (telephone: 202-514-2481), on the 
Department of Justice's Web site at http://www.justice.gov/atr/cases/apple/index-2.html, and at the Office of the Clerk of the United States 
District Court for the Southern District of New York, Daniel Patrick 
Moynihan United States Courthouse, 500 Pearl Street, New York, NY 
10007-1312. Copies of any of these

[[Page 33438]]

materials may also be obtained upon request and payment of a copying 
fee.

Patricia A. Brink,
Director of Civil Enforcement.

United States District Court for the Southern District of New York

    UNITED STATES OF AMERICA, Plaintiff, v. APPLE, INC., et al., 
Defendants.

Civil Action No. 12-CV-2826 (DLC) ECF Case

Response by Plaintiff United States to Public Comments on the Proposed 
Final Judgment as to the Macmillan Defendants

    Pursuant to the requirements of the Antitrust Procedures and 
Penalties Act, 15 U.S.C. 16(b)-(h) (``APPA'' or ``Tunney Act''), the 
United States hereby responds to the single public comment received 
regarding the proposed Final Judgment as to Defendants Verlagsgruppe 
Georg von Holtzbrinck GmbH and Holtzbrinck Publishers, LLC d/b/a 
Macmillan (collectively, ``Macmillan''). After careful consideration of 
the comment submitted, the United States continues to believe that the 
proposed Final Judgment as to Macmillan (``proposed Macmillan Final 
Judgment'') will provide an effective and appropriate remedy for the 
antitrust violations alleged in the Complaint.
    The comment submitted to the United States, along with a copy of 
this Response to Comments, are posted publicly at http://www.justice.gov/atr/cases/apple/index-2.html, in accordance with 15 
U.S.C. 16(d) and the Court's May 22, 2013 Order (Docket No. 260). The 
United States will publish this Internet location and this Response to 
Comments in the Federal Register, see 15 U.S.C. 16(d), and will then, 
pursuant to the Court's February 19, 2013 Order (Docket No. 180), move 
for entry of the proposed Macmillan Final Judgment by no later than 
June 13, 2013.

I. Procedural History

    On April 11, 2012, the United States filed a civil antitrust 
Complaint alleging that Apple, Inc. (``Apple'') and five of the six 
largest publishers in the United States (``Publisher Defendants'') 
conspired to raise prices of electronic books (``e-books'') in the 
United States in violation of Section 1 of the Sherman Act, 15 U.S.C. 
1. On the same day, the United States filed a proposed Final Judgment 
(``Original Final Judgment'') as to three of the Publisher Defendants: 
Hachette Book Group, Inc., HarperCollins Publishers L.L.C., and Simon & 
Schuster, Inc. (collectively, ``Original Settling Defendants''). During 
the Tunney Act process concerning the Original Final Judgment, the 
United States received and responded to 868 public comments (Docket No. 
81) (``Original Response to Comments''), and this Court entered the 
Original Final Judgment on September 6, 2012 (Docket No. 119).
    On December 18, 2012, the United States filed a proposed Final 
Judgment as to Penguin. The United States responded on April 5, 2013 to 
the three public comments it received concerning the proposed Penguin 
Final Judgment (``Penguin Response to Comments'') (Docket No. 201), 
moved for entry of the proposed Penguin Final Judgment on April 18, 
2013 (Docket No. 211), and this Court granted the United States' motion 
on May 17, 2013 (Docket No. 257).
    The United States reached a settlement with Macmillan and, on 
February 8, 2013, filed a proposed Final Judgment and a Stipulation 
signed by the United States and Macmillan consenting to the entry of 
the proposed Macmillan Final Judgment after compliance with the 
requirements of the Tunney Act, 15 U.S.C. 16 (Docket No. 174). Pursuant 
to those requirements, the United States filed its Competitive Impact 
Statement (``CIS'') with the Court on February 8, 2013 (Docket No. 
175); the proposed Final Judgment and CIS were published in the Federal 
Register on February 25, 2013, see United States v. Apple, Inc., et 
al., 78 FR 12874; and summaries of the terms of the proposed Final 
Judgment and CIS, together with directions for the submission of 
written comments relating to the proposed Final Judgment, were 
published in the Washington Post and the New York Post for seven 
consecutive days beginning on February 21, 2013 and ending on February 
27, 2013. The sixty-day period for public comment ended on April 28, 
2013. The United States received only one comment, which is described 
below and attached hereto.\1\
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    \1\ The United States has described the allegations in the 
Complaint and summarized the standard of review applicable to Tunney 
Act proceedings in several previous submissions. See, e.g., Original 
Response to Comments (Docket No. 81; 77 FR 44271); Penguin Response 
to Comments (Docket No. 201; 78 FR 22298). This Court also 
articulated the standard of review in its Opinion and Order finding 
that the Original Final Judgment satisfied the requirements of the 
Tunney Act. See United States v. Apple, Inc., 889 F. Supp. 2d 623, 
630-32 (S.D.N.Y. 2012). Bob Kohn, the lone commenter on the proposed 
Macmillan Final Judgment, asserts that United States v. American 
Cyanamid Co., 719 F.2d 558 (2d Cir. 1983), and United States v. 
International Business Machines Corporation, 163 F.3d 737 (2d Cir. 
1998) require the Court to apply a more stringent standard of review 
than the one the Court applied in its evaluation of the Original 
Final Judgment. Those cases, however, involved petitions by the 
parties to terminate consent decrees. See American Cyanamid, 719 
F.2d at 559; IBM, 163 F.3d at 738. Neither evaluated whether a 
proposed final judgment met the Tunney Act's requirements.
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II. The Proposed Macmillan Final Judgment

    The language and relief contained in the proposed Macmillan Final 
Judgment is largely identical to the terms included in the Original 
Final Judgment and the Penguin Final Judgment. As explained in more 
detail in the CIS, the requirements and prohibitions included in the 
proposed Macmillan Final Judgment will eliminate Macmillan's illegal 
conduct, prevent recurrence of the same or similar conduct, and 
establish a robust antitrust compliance program.
    The proposed Macmillan Final Judgment requires that Macmillan 
immediately cease enforcing any terms in its contracts with e-book 
retailers that restrict retailer discounting, see proposed Macmillan 
Final Judgment, Sec. Sec.  IV.A & V.A, and forbids Macmillan until 
December 18, 2014 from entering new contracts that restrict retailers 
from discounting its e-books. See id. Sec.  V.B. These provisions will 
help ensure that new contracts will not be set under the same collusive 
conditions that produced the unlawful Apple agency agreements. The 
proposed Macmillan Final Judgment permits Macmillan, however, in new 
agreements with e-book retailers, to agree to terms that prevent the 
retailer from selling Macmillan's entire catalog of e-books at a 
sustained loss. See id. Sec.  VI.B.
    To prevent a recurrence of the alleged conspiracy, the proposed 
Macmillan Final Judgment prohibits Macmillan from entering into new 
agreements with other publishers under which prices are fixed or 
coordinated, see id. Sec.  V.E, and also forbids communications between 
Macmillan and other publishers about competitively sensitive subjects. 
See id. Sec.  V.F. Banning such communications is critical here, where 
communications among publishing competitors were a common practice and 
led directly to the collusive agreement alleged in the Complaint.
    As outlined in Section VII, Macmillan also must designate an 
Antitrust Compliance Officer, who is required to distribute copies of 
the Macmillan Final Judgment; ensure training related to the Macmillan 
Final Judgment and the antitrust laws; certify compliance with the 
Macmillan Final Judgment; maintain a log of all communications between 
Macmillan and employees of other Publisher Defendants; and conduct an 
annual antitrust compliance audit. This compliance program is necessary 
considering the extensive

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communication among competitors' CEOs that led to the Publisher 
Defendants' conspiracy with Apple.

III. Summary of the Public Comment and the Response of the United 
States

    The United States received only a single comment concerning the 
proposed Macmillan Final Judgment. The comment was submitted by Bob 
Kohn, who also provided similar comments on the Original Final Judgment 
and the Penguin Final Judgment, as well as in a number of submissions 
to the Court in this case.\2\ Mr. Kohn's comments again suggest no 
basis on which this Court should find that entry of the proposed 
Macmillan Final Judgment would not be in the public interest.
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    \2\ See Mem. in Supp. of Mot. of Bob Kohn for Leave to 
Participate as Amicus Curiae (Aug. 13, 2012) (Docket No. 97); Br. of 
Bob Kohn as Amicus Curiae (Sept. 4, 2012) (Docket No. 110); Mem. in 
Supp. of Bob Kohn's Mot. to Stay Final J. Pending Appeal (Sept. 7, 
2012) (Docket No. 117); Mem. . . . In Supp. of Mot. by Bob Kohn for 
Leave to Intervene for the Sole Purpose of Appeal (Sept. 7, 2012) 
(Docket No. 115); Mem. of Law in Reply to Opp'n of the United States 
to Mot. by Bob Kohn for Leave to Intervene for the Sole Purpose of 
Appeal (September 20, 2012) (Docket No. 130); Mem. in Supp. of Mot. 
of Amicus Curiae Bob Kohn to Submit a 5-Page Br. Amicus Curiae 
Solely to Reply to Government's Resp. to Public Comments on the 
Proposed Final J. with the Penguin Defs. (Apr. 29, 2013) (Docket No. 
214-1). On March 26, 2013, the Second Circuit affirmed this Court's 
denial of Mr. Kohn's motion to intervene for purposes of appealing 
the Court's entry of the Original Final Judgment. See Bob Kohn v. 
United States, No. 12-4017 (2d Cir. Mar. 26, 2013).
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    Mr. Kohn once again asserts that the proposed relief as to 
Macmillan cannot be in the public interest because it allows e-book 
retailers to discount Macmillan's e-books. Mr. Kohn believes that 
Macmillan's agency contracts with Amazon and other retailers, which 
blocked such discounting, served the procompetitive purpose of 
addressing predatory pricing or monopolization by Amazon. Kohn Comment 
at 6-7, 13-15. Again, as the United States stated in its Original 
Response to Comments and in its Penguin Response to Comments, and as 
this Court observed in finding that the Original Final Judgment 
satisfied the requirements of the Tunney Act, even if evidence existed 
to support Mr. Kohn's claims concerning Amazon's predatory pricing or 
monopolization, ``this is no excuse for unlawful price-fixing. Congress 
`has not permitted the age-old cry of ruinous competition and 
competitive evils to be a defense to price-fixing conspiracies.' . . . 
The familiar mantra regarding `two wrongs' would seem to offer guidance 
in these circumstances.'' United States v. Apple, Inc., 889 F. Supp. 2d 
623, 642 (S.D.N.Y. 2012) (quoting United States v. Socony-Vacuum Oil 
Co., 310 U.S. 150, 221 (1940)).
    Mr. Kohn, however, argues that his allegations concerning Amazon's 
predatory pricing now deserve a fresh look because he believes the 
United States, in its Penguin Response to Comments, ``has now finally 
conceded that Amazon's e-book prices as a whole were below marginal 
cost.'' Kohn Comment at 11. Mr. Kohn, however, misunderstood the United 
States' statements in its Penguin Response to Comments. The United 
States explained there that the Penguin Final Judgment, like the 
proposed Macmillan Final Judgment, allows the publisher to enter a 
contract with a retailer under which aggregate discounting of the 
publisher's e-books by the retailer is limited to the retailer's 
commissions under the contract. Penguin Response to Comments at 12-13. 
This provision will allow the publisher to ensure that the retailer 
does not sell its entire catalog of e-books at a sustained loss--while 
still allowing the retailer to compete on the price at which it sells 
the publisher's e-books. Contrary to Mr. Kohn's suggestion that this 
provision would permit ``Amazon to resume selling e-books at below 
marginal costs,'' this provision allows the publisher to ensure that 
Amazon remains margin positive on the sale of its catalog of e-books. 
Under such a contract, the retailer's e-book prices overall would be 
above its marginal costs, as Mr. Kohn desires, but also closer to the 
retailer's marginal costs (and thus more ``efficient,'' as Mr. Kohn 
also desires) than would be the case under the contracts publishers 
imposed after establishing their price-fixing conspiracy with Apple, 
which guaranteed a 30 percent commission to the retailer.
    Finally, Mr. Kohn once again asserts that, under the 
``determinative'' materials requirement of 15 U.S.C. 16(b), the United 
States must disclose materials concerning the profitability of Amazon's 
e-book business. Kohn Comment at 21-23. However, information concerning 
Amazon's pricing practices is not only, as discussed above, irrelevant 
to the question of whether Apple and the Publisher Defendants can be 
held liable for conspiring to raise retail prices of and eliminate 
retail price competition for e-books, it also has no bearing on whether 
the proposed Macmillan Final Judgment adequately addresses the harms to 
competition alleged by the United States in the Complaint. As this 
Court previously determined with respect to the Original Final 
Judgment, the United States has provided ``ample factual foundation for 
[its] decisions regarding the proposed Final Judgment.'' Apple, Inc., 
889 F. Supp. 2d at 638-39.

IV. Conclusion

    The United States continues to believe that the proposed Macmillan 
Final Judgment, as drafted, provides an effective and appropriate 
remedy for the antitrust violations alleged in the Complaint and that 
it is therefore in the public interest.
    Pursuant to the Court's February 19, 2013 Order (Docket No. 180), 
the United States will move for entry of the proposed Macmillan Final 
Judgment after this Response to Comments is published in the Federal 
Register (along with the Internet location where Mr. Kohn's comment is 
posted) and by no later than June 13, 2013.
Dated: May 24, 2013.

    Respectfully submitted,

s/Mark W. Ryan
Mark W. Ryan
Lawrence E. Buterman
Stephen T. Fairchild
Attorneys for the United States, United States Department of 
Justice, Antitrust Division, 450 Fifth Street NW., Suite 4000, 
Washington, DC 20530. (202) 532-4753. [email protected].

Certificate of Service

    I, Stephen T. Fairchild, hereby certify that on May 24, 2013, I 
caused a copy of the Response of Plaintiff United States to Public 
Comments on the Proposed Final Judgment as to the Macmillan Defendants 
to be served by the Electronic Case Filing System, which included the 
individuals listed below.
    For Apple:

Daniel S. Floyd, Gibson, Dunn & Crutcher LLP, 333 S. Grand Avenue, 
Suite 4600, Los Angeles, CA 90070, (213) 229-7148, 
[email protected].

    For Macmillan and Verlagsgruppe Georg Von Holtzbrinck GMBH:

Joel M. Mitnick, Sidley Austin LLP, 787 Seventh Avenue, New York, NY 
10019, (212) 839-5300, [email protected].

    For Penguin U.S.A. and the Penguin Group:

Daniel F. McInnis, Akin Gump Strauss Hauer & Feld, LLP, 1333 New 
Hampshire Avenue NW., Washington, DC 20036, (202) 887-4000, 
[email protected].

    For Hachette:

Walter B. Stuart, IV, Freshfields Bruckhaus Deringer LLP, 601 Lexington 
Avenue, New York, NY 10022, (212) 277-4000, 
[email protected].

    For HarperCollins:


[[Page 33440]]


Paul Madison Eckles, Skadden, Arps, Slate, Meagher & Flom, Four Times 
Square, 42nd Floor, New York, NY 10036, (212) 735-2578, 
[email protected].

    For Simon & Schuster:

Yehudah Lev Buchweitz, Weil, Gotshal & Manges LLP (NYC), 767 Fifth 
Avenue, 25th Fl., New York, NY 10153, (212) 310-8000 x8256, 
[email protected].

    Additionally, courtesy copies of this Response to Comments have 
been provided to the following:
    For the State of Connecticut:

W. Joseph Nielsen, Assistant Attorney General, Antitrust Division, 
Office of the Attorney General, 55 Elm Street, Hartford, CT 06106, 
(860) 808-5040, [email protected].

    For the State of Texas:

Gabriel R. Gervey, Assistant Attorney General, Antitrust Division, 
Office of the Attorney General of Texas, 300 W. 15th Street, Austin, 
Texas 78701, (512) 463-1262, [email protected].

    For the Private Plaintiffs:

Jeff D. Friedman, Hagens Berman, 715 Hearst Ave., Suite 202, Berkeley, 
CA 94710, (510) 725-3000, [email protected].

s/Stephen T. Fairchild
Stephen T. Fairchild
Attorney for the United States, United States Department of Justice, 
Antitrust Division, 450 Fifth Street NW., Suite 4000, Washington, DC 
20530, (202) 532-4925, [email protected].
[FR Doc. 2013-13133 Filed 6-3-13; 8:45 am]
BILLING CODE 4410-11-P