Why did Apple go to trial?

Why did Apple go to trial?

Look, going to trial is never easy. It takes a lot of money, and a lot of time. You never have a guaranteed outcome.

Going to trial against the Department of Justice? That’s even harder.

That’s why a lot of people settle, when given the choice. In the current Department of Justice action about the Agency Model for pricing e-books, all five publisher defendants chose not to go to trial…they settled instead.

The publishers have money. They spent so much money fighting before they settled that it affected their financials when they did quarterly reports. They had expertise.

They settled.

Apple?

They made the choice not to settle, and to go to trial.

Why?

Well, there are a few possibilities.

1. They thought they’d win

If you look at the

Opening Statement from the DoJ

it seems obvious that there was a coordinated effort to take actions which would result in higher e-book prices.

Apple has said that those comments highlighted by the DoJ are just small snippets out of many, many e-mails and taken out of context.

Taken out of context would be if somebody said, “You know, it’s not like we are trying to fix the prices…” and quoted it just as “We are trying to fix the prices.” You generally see the entire communication in that slide deck, at least in the case of e-mails, so you know what the context is.

You also can’t defend it by saying that the vast majority of e-mails don’t show a conspiracy. That would be like a bank robber saying, “Gee, Your Honor, I walked by that bank on 364 days last year and didn’t rob it, so I must be innocent.” ;) They only have to show you saying something illegal one time…it doesn’t matter how many times you said legal things.

The issue here is conspiracy…so they don’t even have to prove that what you did worked. If two people agree to commit an illegal act, that’s a conspiracy…even if they don’t succeed in committing it.

However…

Apple may win. The facts are not the same as the law, as pointed out in this

Fortune article by Philip Elmer-DeWitt

I was once on a jury. When we first voted, it was eleven to one in favor of the State. The one person pointed out, correctly, that while we all pretty much knew the State was right, they hadn’t proven it, as was their legal obligation. We ended up with a unanimous verdict…the way the one “dissenting” vote had originally gone (it’s okay for me to talk about this at this point).

Even if it is obvious that what the DoJ alleges is true, that doesn’t mean that the judge will rule that way. The obligation is on the DoJ to prove it.

Will people be upset if Apple wins? Yes, I think that would be true for people who are following the case (a small percentage of the population, but not as small a percentage of serious readers), but it probably wouldn’t surprise a lot of lawyers. It’s hard to win an anti-trust case like this.

Apple could certainly be hurt by winning. There are a lot of things that could come out in this trial that could hurt their reputation…arguably, their most valuable asset. Oh, their rep certainly gets attacked in other ways…but if the public perceived it as Apple having been willing to hurt consumers to hurt Amazon (one interpretation), that’s bad.

2. They thought they’d lose…but it would be worth it

Just as Apple could lose by winning, they could win by losing. Suppose that, during the trial, bad things come out about Amazon. Apple could have figured that they could lose in a way that makes it look like Amazon and the Federal Government are working together, and are out to get Apple…a company that makes consumer-friendly products and “thinks different” (as an aside, I squirm every time I see that…shouldn’t that be, “Think differently?” Okay, okay, I can come up with interpretations where their construction works “What color should the wall be? Think blue” but it still bugs me). ;)

Losing, especially since nobody is going to jail and this trial won’t result in pay-outs as I understand it (a suit by the States Attorneys General could), won’t be that big a hit if they can manipulate the PR (Public Relations) so they come out shining like…an apple. :)

3. It’s the principle of the thing

While some people think Apple is fighting because the company believes it hasn’t done anything wrong, that doesn’t seem that likely to me. After all, they settled over basically the same thing with the European Union. The settlement would likely have included that they didn’t have to admit any wrongdoing, just change their practices.

4. It’s ego

Apple can generally outlast and outpay most adversaries…and they think they can outwit them (to paraphrase Survivor). They may have actually thought that the DoJ would back off. They may also just not want to be seen publicly to have “given in”. That’s a definite perceptual risk with a settlement.  It might be that they would rather fight and risk defeat than look like they were pushed into changing their position. There’s a lot of legal stuff going on with Apple, and that’s likely to always be the case. They might not want other people to think they’ll fold when pushed…make it clear that it is going to take a lot of resources, and they are going to hold their heads high through the whole thing.

Those seem to me to be the main possible motivations.

We’ve started to see the witnesses, including David Shanks, Chief Executive of Penguin (USA). The trial will likely go on for at least a couple of weeks. After it’s over, Apple can start assessing it’s strategy. If they lose, they could appeal…so a final answer might be some time away.

At this point, with all the publishers settled, Kindle owners have already gotten the results they needed (although the wheels are still grinding on Agency Model pricing going away altogether). The outcome of the trial may affect Apple more than it does us…

What do you think? Do you have another reason Apple didn’t settle? Do you think they’ll win? Do you care? You can let me and my readers know by commenting on this post…although I’m also going to add a couple of polls here.

This post by Bufo Calvin originally appeared in the I Love My Kindle blog.

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10 Responses to “Why did Apple go to trial?”

  1. Edward Boyhan Says:

    I ask myself: suppose Apple loses, what might the remedies be that the judge imposes? A fine? Restrictions on practices in iBooks store? I can’t think of anything else. It’s not like a loss at the ITC (as just happened with Apple v Samsung) where a ban on the importation and sales of Apple products can be imposed. I don’t think that iBooks contributes all that much to Apple’s bottom line — so financially, even if they lose the costs in the larger scheme of things are going to be small — so why not push on in the small hope that you might win? It’s not gonna cost too much, and besides we can stretch this out for years and put a little money aside each year (earning interest) to cover whatever the ultimate cost might be. Who knows Apple might win some small points even if they lose.

    This could also just be about personalities: the DOJ and Apple people involved in this case may just grate on each other — I’ve seen that happen in other big situations. It may be that the EU settlement came about because the parties in that negotiation got on together better.

    • rogerknights Says:

      I’ve read that the immediate damages would be low, but there would be subsequent suits by states and private parties seeking triple damages, because the violation was willful.

      • Bufo Calvin Says:

        Thanks for writing, Roger!

        Well, the States’ suit is already out there…I don’t think we would necessarily see more from them based on the outcome of this trial. You might see more private suits attempted, though. The point about this affecting possible damage awards is a good one, though. :)

    • Bufo Calvin Says:

      Thanks for writing, Edward!

      I don’t think fines would happen in this case…I don’t think the DoJ is even asking for them. I think it would just be an alteration of business practices; and without a settlement, it would involve admission of wrong-doing.

      I agree: the EU’s lawyers may have been more palatable for Apple.

  2. rogerknights Says:

    One additional option that should have been in the poll: Apple will settle during the trial. I think that there was strenuous disagreement at Apple about whether to settle of not, and that a compromise was reached that they would go to trial, and settle if it looked like the judge was not leaning their way, and the witness testimony looked bad, etc.

    • Bufo Calvin Says:

      Thanks for writing, Roger!

      I was ambivalent about adding “will settle during the trial” to the poll, and ultimately didn’t. I figured some intelligent person like you would chime in with it. :) I personally think it’s very unlikely…I’d be less surprised if this ends up in the Supreme Court than if Apple settled during the trial. The “damage” is already being done: settling doesn’t alleviate that, and introduces an image of having been beaten. You go into it saying that you’ve done nothing wrong, and then you settle after the evidence comes out? In my opinion, that doesn’t look good…

      • rogerknights Says:

        I agree with your implication that it would not be a sensible strategy to plan to settle if the trial goes poorly. But, if there were a profound split within Apple about whether to settle or not, a “compromise” to do so may have been what emerged after months or years of intractable head-butting.

      • Bufo Calvin Says:

        Thanks for writing, Roger!

        We’ll see what happens. :) I meant to mention, I didn’t include that option in part because I wasn’t making this multiple choice. I didn’t want the same person to pick both the DoJ and Apple as winners, for example…and I’m not sure that “settling” isn’t confusing: is that winning or losing or neither? :)

  3. rogerknights Says:

    Here’s an amusing (and relevant) episode from Chapter 54 of Options: The Secret Life of Steve Jobs: A Parody by Daniel Lyons
    —————

    Sampson launches into his presentation. His team has put together a report to send to the SEC. They’ve found all sorts of misdeeds and shenanigans [at Apple re options backdating].
    ………………..
    “Right,” Ross [an Apple flack] says. … “Basically, our premise is this: Did illegal activities occur? Yes. Was Steve in charge at the time? Yes. Did Steve authorize the illegal activities? Yes. Did Steve benefit from them? Yes. Therefore Steve is not responsible.”

  4. rogerknights Says:

    PS: Here’s another amusing episode from Lyons’ book, this one from Ch. 4:

    “Kid,” he says in a low voice, “it’s just you and me here now, okay? So I need you to tell me the truth. People get greedy. It happens. It’s human nature. These guys, Charley Sampson and his guys, they’re good. If there’s a problem, they’re going to find it. So tell me. Are they going to find something?”

    “This company,” I [Steve Jobs] say, “operates under the highest standards of integrity and honesty and transparency. These have been our principles from day one.”

    “$#!*. It’s worse than I thought. $#!*.”

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