Antitrust and Unfair Competition Law

Competition: Fall 2015, Vol 24, No. 2


By Ryan McCauley1

The Second Circuit’s recent decision in United States v. Apple, Inc. (the "Opinion"),2 like Judge Denise Cote’s decision and judgment in the district court, paints a scintillating conspiracy story of Apple and five of the nation’s largest book publishers ganging up to take on Amazon and, as the majority argues, raising consumer prices. There are numerous factual aspects of the district court’s judgment that Apple will undoubtedly continue to dispute in its recently announced appeal to the Supreme Court, but the real policy question is whether relatively short term concerted action that is designed to facilitate entry into a monopolized market should be illegal per se, particularly where the monopolist is likely undertaking a preemptory price cutting regime to prevent entry.3

One of my antitrust professors offered what I find to be a helpful analogy when thinking about per se rules and the "rule of reason" standard in the antitrust realm: he analogized that a per se rule is like a numerical speed limit while the "rule of reason" was comparable to the state of Montana’s widely publicized former "reasonable and prudent" standard for judging whether a driver was speeding.4 Per se rules are incredibly efficient for our legal system—there is very little analysis when it comes to the question of whether a driver exceeded a numeric speed limit—but the necessary trade-off is that cases deserving deeper analysis are quickly categorized along a bright line and justice is meted out roughly without respect to unique circumstances. To their credit, per se rules provide certainty and deter conduct that falls on the wrong side of the bright line. At the other end of the spectrum, rule of reason analyses take account of each cases’ unique aspects and, therefore, result in more accurate judgments, but require a significant dedication of parties’ and judicial resources. That antitrust law has long employed, depending on the circumstances, either per se or rule of reason analyses to efficiently adjudicate cases is one of the most interesting aspects of this body of law. But as economic thinking about certain types of conduct has grown more sophisticated and nuanced, the natural evolution for our legal regime has been to reduce the types of conduct judged illegal per se to only those types that are clearly anticompetitive.5

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We are now sixteen years past Justice Souter’s famous invocation of "an enquiry meet for the case" when endorsing the use of the rule of reason to analyze horizontal agreements among a trade group6 and almost a decade past Justice Kennedy’s declaration that vertical price fixing requires a rule of reason review.7 Those decisions built on more than a century of experience, which though uneven, has arrived at the consensus that few agreements are easily categorized as so pernicious or damaging to consumer welfare that they should be labeled per se illegal. The Apple case brings the question of the right test to the last significant circumstance where the per se rule has been essentially unquestioned: concerted conduct. The answer for the typical cartel scenario is that the per se rule bars concerted action among horizontal competitors because it is presumed to be designed to attain monopoly power. But the twists in this case—the largest being the presence of an overwhelming monopolist in the relevant retail market—is important. To put the question slightly differently, should there be a per se prohibition on concerted action that involves a non-integrated retailer agreeing on a new business model with upstream distributors in an attempt to enter a monopolized retail market? Is that a resort to socalled "marketplace vigilantism" as the Second Circuit majority saw it,8 or is that a competitor finding an efficient and innovative path into the marketplace?

Some will cast this as a question of whether any conduct should continue to be adjudged per se, rather than by the searching rule of reason analysis or even some middle-ground "quick look" analysis. But the question is actually much narrower: Is concerted action so obviously detrimental when used to take on a monopolist exercising monopoly power? If not, the district court and Second Circuit have erred and this case should be retried applying some variant of a rule of reason analysis. That does not mean that Apple and the publishers are off the hook—the result may well be the same after that analysis is genuinely undertaken—but it does mean that the trial court needs to look at the full set of facts in this unique case.9

This comment addresses three concepts stemming from the Second Circuit’s Opinion. First, how does the Supreme Court’s evolving jurisprudence, most recently the Leegin decision, guide this case? Second, the Opinion effectively articulates the anticompetitive rationales attendant to concerted action and, in keeping with a per se analysis, dismissed any potential procompetitive rationales. Are there really no procompetitive rationales in this circumstance? Third, and following from the first two, does a per se rule have a place when analyzing concerted action against a monopolist?

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A. Leegin’s Reverberations

The majority and dissenting opinions at the Second Circuit each invoke Leegin, which reversed a century-long per se ban on vertical price fixing, to support their arguments that Apple should or should not be tried under a per se regime. In the eight years since it was handed down, Leegin has been widely regarded as the near-final word on the Supreme Court’s evolution about the application of per se rules in antitrust. The earliest case, Dr. Miles Medical Co. v. John D. Park & Sons Co.,10 effectively held that vertical price restraints—minimum resale price maintenance ("RPM") agreements—were per se illegal.11 For the remainder of the Twentieth Century, the Supreme Court, Congress and the states wrote a lurching novel which vacillated between high and low points for vertical agreements.12 Bolstered by the economic rationales supporting the valuable, but often intangible, services that producers seek for retailers to provide to their ultimate customers, Leegin overturned the per se rule against RPM and declared that vertical pricing agreements must be evaluated using a rule of reason analysis. The Supreme Court left it to the lower courts to fashion the appropriate analysis under the circumstances.13

1. The Economic Rationale for Analyzing Vertical Agreements Between Producers and Retailers By the Rule of Reason.

The basic purpose of vertical agreements among producers and retailers is to forsake intra-brand competition among retailers (e.g., Target and Walmart) in favor of more aggressive inter-brand competition among rival producers (e.g., Colgate and Crest). One way to visualize the relationship between retailers and manufacturers is to view retailers as a means to distribute finished products from manufacturers into the hands of consumers.14 This analogy, though imperfect, is a good starting point for considering pro-competitive benefits that flow from vertical agreements between producers and retailers: Retail distribution is an input that adds value to manufacturers’ goods by delivering them to consumers.15 In theory, the value added by a retailer should reflect the value that the manufacturer places in a particular distributional scheme.16 If the costs to transport and promote the products are low and the profit margins charged by retailers are low, then the product price will reflect these lower costs of distribution. Producers compete on numerous levels, but price competition is undoubtedly important. Thus, lower retail mark-ups (and lower prices generally) will result in more sales for producers. In contrast, if the costs of distribution are high and the retailers charge large mark-ups on each good sold, the higher prices will reduce the quantity of goods sold and cause the manufacturer’s total revenue to shrink.17 As a result, manufacturers rationally desire to deliver their goods via the least expensive distribution channel.

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But if manufacturers want cheap distribution, why would they set minimum resale prices, and more importantly for the legal question, why would the courts allow manufacturers to eliminate intra-brand price competition among retailers? The basic answer is that manufacturers compete for sales on many factors besides price. A major competitive factor is distribution—be it by the internet or in-store sales. By guaranteeing retailers a particular margin on every sale, producers gain some control over the retailers as a means of distribution. In return for those guaranteed profits, manufacturers can require retailers to offer particular services. And beyond this idea of direct control over retailers (dictating how a retailer will display a product, how it will market that product, or which services the retailer must provide), the manufacturers establish indirect control by creating an incentive for retailers to push their products instead of competitors’ goods. So, if manufacturers believe that increasing their retailers’ margins will cause more units to be sold, then the manufacturers would choose to be less competitive on price in order to be more competitive in point-of-sale services that add value to the purchased product. RPM accomplishes its goal of increased services related to distribution by eliminating intra-brand price competition through a price floor. From an economic perspective, the theory behind RPM is that there is a "bargain" being struck—consumers pay higher prices for increased services related to a particular brand, all the while there remains price competition between brands.18

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2. What Does Leegin Tell Us About Apple?

All of this discussion about vertical price fixing is important background to understand what is really happening in distributional chains. The big question, however, is how does Leegin really apply to the Apple case? There are at least five considerations to keep in mind about Leegin.

To start, the right understanding of Apple, Amazon, and the book publishers’ roles in the market are important. Apple and Amazon are both fairly described as e-book retailers. Though they obviously use an entirely different medium, they are not markedly different than retailers who sell hard copy books, like Walmart, Target or Barnes & Noble. As noted above, the real producers in this mix are authors. And, without intending to diminish their role, each publisher is a sort of middleman. The publishers undoubtedly provide value in the form of editing, promoting and distributing books, but they do not generate the basic content and are not what one thinks of when describing a "brand." To the extent there are brands in the broader book market, they are the authors who are publicly recognized. As the world witnessed this summer, authors like Harper Lee, rather than publishers like HarperCollins, are the brands that sell books.19 Certain bestselling authors work exclusively with particular publishers, and publishers’ marketing efforts certainly matter a great deal to books’ success, but there is not inter-brand competition of the same type that we typically perceive among manufacturers of other consumer goods. So at this basic level, the e-book market is likely distinct from the types of product markets that the Court had in mind in Leegin.

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But that is not to say that Leegin is not instructive for the Apple case. To the contrary, the procompetitive rationales for vertical agreements identified in Leegin should carry significant weight in this case. First, Leegin instructs that non-price competition is important. That does not diminish considerations about price effects caused by some conduct, but is important to assess both when attempting to determine the whether a vertical agreement is anticompetitive. For example, many loyal Apple users undoubtedly prefer having a single integrated platform with their music libraries, data and ebooks (and a single retailer with their credit card information), and are willing to pay a premium for such "one-stop shopping." Loyal Amazon consumers may feel exactly the same way about Amazon. Consumers may also perceive that one company’s speeds for downloading content are faster or that their downloads are less buggy. Whatever the reason, provided that there are reasonable competitive alternatives, consumers vote with their feet after weighing price and non-price (i.e., service-related) options together. Leegin instructs that the legal analysis must do the same and take non-price aspects into consideration.

Second, and relatedly, more viable retail options for consumers is a benefit in itself: Vertical price agreements "also ha[ve] the potential to give consumers more options so that they can choose among low-price, low-service brands; high-price, high-service brands; and brands that fall in between."20 To say this differently, the distinctions in service provided by Apple, Amazon and other e-book retailers is important to consumers.21

Third, the agency model agreed upon by Apple and the publishers, which the publishers then sought to enter with Amazon, sounds a lot like a conventional RPM scheme where upstream participants in the supply chain have the ability to reasonably set price floors and pay a percentage "commission" to retailers. Indeed, on this point, the publishers’ agreements with Apple are presumably an easier question because they instituted only price ceilings, not floors.22 The nuances and distinctions of the agency model as proposed in Apple’s contracts have to be teased out, but as a general matter, the publishers were gaining pricing power that is akin to the pricing power that other upstream distributors or producers have in competitive markets.

Finally, Judge Jacobs makes a persuasive argument from the plain language of Leegin that all vertical agreements are to be analyzed by the rule of reason, even those that are ostensibly intended to facilitate collusion among horizontal competitors upstream in the distribution channel.23 Because the harm that so concerns antitrust is collusion among horizontal competitors rather than between non-competing intermediaries and retailers, Judge Jacobs argues that even a so-called "hub and spoke" conspiracy must be analyzed under the rule of reason as it concerns any vertically-aligned participant.24 Notwithstanding the language cited by Judge Jacobs, I am not so thoroughly convinced that the Supreme Court ruled out the idea that a vertical participant that facilitates a horizontal price fixing conspiracy may be tried using the per se rule. But as I explain below, from my perspective, Amazon’s undisputed monopoly and market power are what should exempt this case from a per se analysis.

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B. Pro-Competitive Benefits from Apple’s Vertical Agreements and Entry into the EBook Market.

In concluding that Apple’s conduct should be judged illegal per se, the district court and Second Circuit each concluded that there are no significant potential procompetitive benefits to Apple’s vertical agreements that allowed its entry into the market. As noted above, the district court and majority Opinion spend a great deal of time chronicling the alleged collusion narrative that Apple continues to dispute.25 As Judge Jacobs did in his dissent, this narrative can be spun in a different, far less nefarious manner. But the real pitfall of the district court’s and majority’s analysis is its failure to seriously assess the procompetitive effects of having a significant new entrant in the market. There are at least two points that the Supreme Court will need to consider should it grant certiorari.

First, it is important to appreciate exactly what the district court and majority considered as the scope of their analysis. As the majority Opinion states, "[t]he district court did not analyze the state of competition between ebook retailers" because "the relevant market in this case is ‘the trade e-books market, not the e-reader market or the e-books system market.’"26 Notwithstanding any agreement on this point among the parties, it is not clear to me that Apple’s entry to the e-book market can be distinguished from its entry to these other "markets," particularly at the then-nascent stage of e-books, or whether these other markets actually existed independent of the e-books market at the time. Establishing the relevant market is typically a complex analysis itself and an examination of other closely intertwined markets is often central to a rule of reason review. But understanding that interconnectivity is imperative to reaching the right answer. Moreover, the e-books market at the time was dominated by Amazon (holding some 90% of the market) selling its own Kindle with limited competition from Barnes & Noble.27 Other than tablets and "e-readers," there was no other medium through which to access e-books. Given that, to divorce the e-books markets from these other markets, is to say effectively that potential pro- and anticompetitive effects are judged without respect to a retailer’s actual means of distribution. That is simply too narrow a stricture for a complex case like this one.

Second, there are several potentially significant procompetitive effects stemming from Apple’s entry to the market. The first is the real prospect of consumer choice and strong competition that Apple offered. While the traditional barriers to entry are presumably fairly low in the e-books market (one could argue that any savvy techie could quickly write a killer e-books app), the players in the broader publishing market are well established and the means of distribution for ebooks were extremely limited. As a well-capitalized entrant with a platform for distributing ebooks, Apple presented the prospect of quickly providing real competition to challenge Amazon’s monopoly for the long run. Moreover, as an initial observation, Apple is predominantly a computer company. Its entry to the ebooks market was only incidental to its entry into the tablet computing market with the launch of the iPad and, as established by the record in this case, the ebooks component was not critical to Apple’s decision to enter the tablet market.28 Apple had a new product, saw its potential as an e-book reader and also observed that a complimentary market—the e-books market—was potentially lucrative.29 E-books, however, are not a core business for Apple and likely never will be. That suggests that accounting for what is happening in complimentary/intertwined markets is all the more justified here.

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The next potentially significant procompetitive effect of Apple’s entry is the likelihood of non-price competition between Amazon and Apple and resulting customer service improvements. Other than doing just well enough to keep new entrants out, a monopolist has little incentive to provide expensive customer service that can add significant value for consumers. In particular, Apple touts a user "experience" that focuses on customer service and reliability.30 While it is always difficult to quantify this, it cannot be ignored that a significant new entrant’s presence in the marketplace would very likely lead to an improving customer experience across the market. As noted above, this user experience includes the ability for consumers to pay a premium to have all of their electronic lives—their email, work documents, photos, music libraries and their reading material—in one location. Price-conscious consumers may not be willing to pay more for this sort of thing, and Amazon or other retailers may cater specifically to those consumers, but as other studies have shown, many of Apple’s very loyal consumers are not particularly price conscious, suggesting that they place significant value in the services Apple provides.

C. Is a Per Se Analysis Appropriate to Evaluate Concerted Action to Challenge a Retail Monopoly?

This last question is largely answered by the prior two sections, but there are two last areas that deserve attention. The first is whether the district court and majority’s assessment of overwhelming anticompetitive effects is accurate. The second is whether allowing concerted action to challenge a monopolist is really anticompetitive, or as Judge Jacobs suggests, the sort of "self-help (which used to be a virtue)."31

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First, the district court and majority each placed a great deal of emphasis on the shift in models within the e-book industry and what they attributed to be corresponding increases in e-book prices. The timing certainly provides circumstantial evidence that the move to the agency model and Apple’s entry to the market corresponded with an increase in e-book prices. However, the correlation and causation are not clear, particularly given the existence of significant intervening forces. As Judge Jacobs notes, the most significant of these is the fact that Amazon was previously artificially depressing the retail price of e-books by selling bestselling books significantly below cost.32 Whenever Amazon stopped that practice, prices would inevitably rise.

Similarly, while Apple believed that the "agency" model and protections like a "most favored nation" provision in its contracts with the publishers were important for it to enter the market on a level playing field with Amazon, that did not guarantee a shift away from the "wholesale" model that Amazon favored at the time. Indeed, a majority of book publishers (52%), including the largest single publisher (Random House), did not agree to Apple’s proposed agency model.33 This strongly suggests that the influence of the publishers’ cartel at the intermediate level did not rise to the level of monopoly power.34 Given its own monopoly position at the retail level, it is hard to imagine that Amazon’s back was entirely against the wall.35 And at the very least, the market power of the publishers’ cartel requires analysis.

Last on this topic of the agency model, it is not clear that its adoption is intrinsically anticompetitive. As noted above, the agency model it is not much different than many other relationships (including RPM) between producers/intermediaries and retailers.36 The best evidence of this is what has happened recently in the ebooks market. Several of the publishers agreed not to enter into agreements of this type for fixed periods as part of their settlements with the DOJ, but at the expiration of those injunctions, each of those publishers and Amazon promptly agreed on agency model pricing.37 The DOJ has not intervened, suggesting that it finds no problem with the agency model itself, despite a reported increase in e-book prices and corresponding decrease in sales.38 In short, there are real anticompetitive risks, but those risks in this case, as measured against potential procompetitive benefits, are not so clear as to justify the application of a per se rule.

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Second, it is important to acknowledge that this really is the exceptional case of concerted action. The harm of concerted action is that a cartel’s members will jointly exercise monopoly power to the detriment of consumer welfare. In this case, Amazon was (and arguably still is) a monopolist at the retail level. There was (is) not a monopoly at the publishers’ intermediate level and the cartel among five of the major publishers joined only a significant minority of the overall market share at that level. At the retail level, Apple presented a real threat to break into Amazon’s 90% market share, but there is no serious suggestion that it was going to displace Amazon as a monopolist at the retail level. Additionally, Apple’s model imposed price caps (not price floors) on e-book prices. Thus, if authors and publishers desired to compete more aggressively on price, they certainly had the option to do so, and because there is real competition at the publishers’ level, "it can be safely assumed that if competition sharpens, prices will take care of themselves."39 Given all this, it is not clear that anticompetitive harms necessarily followed from Apple’s knowledge or tacit consent for the publishers’ imperfect cartel. As noted above, e-book prices have risen in the past 18 months with a broader agency model. Price increases are always strong circumstantial evidence of a loss of consumer welfare, but this market is too dynamic and, on this record, there are simply too many unknowns to definitively conclude that Apple’s conduct was illegal per se.40 That is precisely the circumstance where we should be applying the rule of reason.41

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1. The views expressed here are my own and not the views of the firm I am associated with or my clients. I have personal and professional ties to both Apple and Amazon, where both friends and former colleagues work. My closest tie, however, is to Apple because it is my wife’s employer. With that disclosure, I should also note that my views are not informed by these personal relationships.

2. 791 F.3d 290 (2nd Cir. 2015).

3. Apple, 791 F.3d at 341-42 (Jacobs, J. dissenting) (describing extent of Amazon’s monopoly). As both the majority and dissent make clear, Amazon is not on trial here. That said, it is impossible to analyze Apple’s conduct without recognizing the outsized impact that Amazon (with its undisputed monopoly power and 90% of the market share). Nevertheless, it is important to note that Amazon has not had the opportunity to defend its own conduct in the e-book market. See Id. at 341-42.

4. My law school antitrust professors are Dr. Steven Salop and Mark Popofsky. This particular analogy was offered by Professor Popofsky.

5. Ironically, the evolution has gone the other direction when it comes to speed limits. Early in the days of driving, numerous states had speed standards similar to Montana’s but moved to numeric limits for ease of enforcement. Indeed, Montana followed suit and enacted a numerical limit after its "reasonable and prudent" standard was struck down by its state supreme court as unconstitutionally vague—a type of challenge to the rule of reason not yet seriously considered in the modern antitrust regime. See Jim Robbins, Montana’s Speed Limit of ?? M.P.H. Is Overturned as Too Vague, N.Y. Times, Dec. 25, 1998.

6. California Dental Ass’n v. FTC, 526 U.S. 756, 781 (1999).

7. Leegin Creative Leather Products, Inc. v. PSKS, Inc., 127 S. Ct. 2705, 551 U.S. 877 (2007).

8. Apple, 791 F.3d at 297-298, 332.

9. In a single paragraph constituting dicta, the district court stated that it also analyzed the Apple case under an alternative rule of reason assessment and stated that it reached the same conclusion that Apple was liable for a price fixing conspiracy whether tested under a per se or rule of reason analysis. Writing the majority opinion, Judge Livingston agreed with the district court’s tactic of bulletproofing its decision by asserting that Apple would be liable in all events, but Judge Lohier declined to join that conclusion (and Judge Jacobs dissented entirely). See Apple, 791 F.3d at 339-40 (Lohier, J., concurring), 341-42 (Jacobs, J., dissenting), 348-49 (Jacobs, J.) ("Once a court finds that a party acted unreasonably per se in a set of transactions, an epiphany is required for the court to conclude that the same party acted reasonably doing the same acts in the same role at the same time. The influence arising from the district court’s per se accusation of wrongdoing infected all analysis that followed. Once Apple was deemed to have joined a conspiracy that was illegal per se, its goal, motive, and conduct seemingly needed (and got) no additional scrutiny—legal or moral or economic.").

10. 220 U.S. 373 (1911).

11. RPM is sometimes used broadly to refer to vertically imposed price floors as well as price ceilings. Leegin was concerned with minimum RPM—i.e., price floors below which retailers could not offer a manufacturer’s product for sale. The Supreme Court ruled a decade earlier that maximum RPM (price ceilings) would be analyzed using the rule of reason. State Oil Co. v. Khan, 522 U.S. 3, 18-19 (1997).

12. See U.S. v. Colgate & Co, 250 U.S. 300, 307 (1919) (allowing "unilateral" RPM—an illusory denial of the agreement element of a Sherman Act claim when manufacturers made statements that they would not sell to price-cutting retailers (therefore acting only unilaterally and without any agreement)); Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977) (distinction between price and non-price vertical agreements that allowed for a rule of reason analysis in non-price (e.g., territorial) agreements); and Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752, 764 (1984) (cabining the per se rule of illegality for RPM by effectively elevating the burden of proof concerning an RPM agreement). Despite the Court’s decision in Leegin, there are still twists in treatment of RPM as several states have adopted laws or regulations banning or curtailing its use by producers.

13. In the words of Justice Kennedy, writing for the majority in Leegin:

The rule of reason is designed and used to eliminate anticompetitive transactions from the market. This standard principle applies to vertical price restraints. A party alleging injury from a vertical agreement setting minimum resale prices will have, as a general matter, the information and resources available to show the existence of the agreement and its scope of operation. As courts gain experience considering the effects of these restraints by applying the rule of reason over the course of decisions, they can establish the litigation structure to ensure the rule operates to eliminate anticompetitive restraints from the market and to provide more guidance to businesses. Courts can, for example, devise rules over time for offering proof, or even presumptions where justified, to make the rule of reason a fair and efficient way to prohibit anticompetitive restraints and to promote procompetitive ones.
127 S. Ct. at 2720.

14. For purposes of broadly illustrating the basic vertical relationship between the firm that actually produces goods and the second firm which uses some means of distribution to deliver those goods to ultimate consumers, I refer to the former as the "manufacturer" or "producer" and the latter as the "retailer." However, as described below, the Apple case is more complicated. Amazon and Apple can fairly be described as retailers of one sort or another, but the true producers are authors, not publishing houses, which add value by editing and marketing the authors’ books, but are probably best described as an intermediate distributor. The publishers are arguably not essential—Amazon has attempted to disrupt the publishing chain with its direct publishing service, named Kindle Direct Publishing, which "allows authors to bypass traditional publishers and instead deal directly with Amazon[.]" John D. Sutter, Self-published e-book author: ‘Most of my months are six-figure months,’ CNN.coM (Sept. 7, 2012), Amazon reported that, at one point in 2012, 27 of its top 100 selling e-books were published solely through this program. Id.

It should also be noted that there is a completely different way to perceive retailers vis-a-vis consumers and producers: rather than being the sales agents and distribution channels of producers, retailers could be thought of as the "purchasing agents" of consumers. See Pamela Jones Harbour, Commissioner of the Federal Trade Comm’n, Opening Remarks at 9 (Feb. 17, 2009), available at Given the widely acknowledged brand loyalty owing to both Apple and Amazon, it is entirely plausible that ebook consumers view these companies as their "purchasing agents." See, e.g., Scott Goodson, Is Brand Loyalty the Core to Apple’s Success?, (Nov. 27, 2011 6:50 PM),

15. Thomas A. Lambert, Dr. Miles Is Dead. Now What?: Structuring A Rule of Reason for Evaluating Minimum Resale Price Maintenance, Univ. of Missouri Sch. of Law Legal Studies Research Paper No. 2008-25 at 10, available at, citing R.H. Coase, The Nature of the Firm, 4 Economica 386 (1937).

16. Id. at 10-12.

17. Id.

18. This rationale is sensible, but the interests of the retailer and manufacturer are not aligned at this point. While retailers are likely to jump at an opportunity for a higher margin in return for improved point-of-sale services, they are very fearful of free-riding. That is, retailers are worried that consumers will utilize their expanded services and then go across the street or to another web address to buy the same product at a lower price from a discount store that does not offer comparable services. RPM provides a solution to this free-riding problem: By setting a minimum resale price, intra-brand price competition is eliminated. With RPM, retailers compete based on nonprice factors like point-of-sale service, post-sale support, home delivery and alike. Manufacturers desiring all of those additional distribution-related services use RPM as a tool to incentivize their retailers and solve the free-riding problem. There are several potential solutions to address this free-rider problem: (1) charge consumers small fees for enhanced retail services, (2) allow manufacturers to implement non-price vertical restraints (e.g., territorial restrictions or mandatory retail service standards imposed by manufacturers), or (3) allow manufacturers to use RPM. See Lambert, supra note 15 at 13-14. The first of these would be counterintuitive for most American consumers; for example, the idea of paying for customer service at an Apple store would upset most consumers. The second concept—usually territorial restrictions—is actually worse for consumers than RPM. It has the effect of eliminating not only intra-brand price competition but also removing the incentive for those retailers with exclusive territories from competing based on the level of service.

19. The unique nature of the book marketplace has long been recognized. As reported in the Wall Street Journal, one publishing executive described it this way: "This is a title-driven business . . . If you have a good book, price isn’t an issue." Jeffrey A. Trachtenberg, E-Book Prices Rise, and Sales Suffer, The Wall Street Journal, at B1, B4 (Sept. 4, 2015).

20. Leegin, 127 S. Ct. at 2715.

21. Generally, vertical agreements are also a vehicle to protect new entrants to a marketplace. For example, RPM prevents discounting and provides retailers with a guaranteed profit margin. As a result, retailers may be more likely to take the risk of placing an unknown good from a smaller producer in their inventory because they will not fear that other retailers will slash prices and force them to sell at a loss. While this rationale is secondary to improving efficiency and is less salient as it concerns e-books where unmoved inventories do not present the same risk to retailers, the Supreme Court universally recognized this pro-competitive rationale for RPM in Leegin, 127 S. Ct. at 2731 (Breyer, J., dissenting) ("[I]f forced to decide now, at most I might agree that the per se rule should be slightly modified to allow an exception for the more easily identifiable and temporary condition of ‘new entry.’").

22. See State Oil, 522 U.S. at 18-19.

23. Apple, 791 F.3d at 347-348 (Jacobs, J., dissenting).

24. Id.

25. One particular facet that stood out to me is that Apple never tried to conceal its discussions with the publishers. Unlike most alleged cartels, these agreements’ terms were known by Amazon and reported on publicly. See, e.g. , Apple, 791 F.3d at 306-07.

26. Apple, 791 F.3d at 312 (quoting the district court judgment and noting that this was agreed upon by the parties).

27. Id. at 299, 301.

28. See id. at 301 (noting that "the iPad would go to market with or without the iBookstore").

29. As an innovative but inexperienced entrant to a monopolized market, Apple is exactly the type of disruptive "maverick" that is usually lauded. See Apple, 791 F.3d at 349 (Jacobs, J., dissenting).

30. A simple Google search turns up numerous news and analyst reports saying something along the lines of "these companies must innovate—particularly on the user experience—to compete with Apple." Forrester Research Report, "Apple’s iPhone Changes the Stakes, Not the Game"; see also Ben Bajarin, "Why Only Apple Can Promise a Better Experience to Customers Every Year," Time. com (June 12, 2012), available at

31. Apple, 791 F.3d at 349 (Jacobs, J., dissenting).

32. Id. Amazon’s practice of "loss-leading" with bestsellers was the simplest way for Amazon to erect a barrier to entry. Id. at 342, n.2. At the same time that it erected this barrier, it is not clear that Amazon, like other retailers who employ similar tactics, did not profit from its lossleading strategy. A complete analysis would require an assessment of whether the prices of books that Amazon did not discount were relatively overpriced and the impact of that conduct on consumer welfare.

33. Id. at 310 & n.13.

34. To be sure, the group of five publishers had leverage and the lack of monopoly power does not mean that the group may not have acted anticompetitively, but it casts doubt on the conclusion that this group’s move to an agency model necessarily raised consumer prices.

35. Amazon is also not known to back down without a fight in the e-books market generally. See David Streitfeld & Melissa Eddy, As Publishers Fight Amazon, Books Vanish, N.Y. Times, May 23, 2014.

36. See discussion, supra at p. 81.

37. See Trachtenberg, supra note 19, at B1.

38. Id.

39. 791 F.3d at 351 (Jacobs, J., dissenting).

40. Judges Jacobs and Livingston each conduct thoughtful rule of reason analyses. I argue, however, that there is insufficient information on the current record to conduct the type of rule of reason analysis that this complex case requires. I agree with Judge Jacobs that, having determined that the per se rule applied, the district court’s very brief mention of an alternative rule of reason analysis is insufficient to sustain the current judgment.

41. See, e.g., California Dental, 526 U.S. at 781.

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