290 791 federal reporter, 3d series · 290 791 federal reporter, 3d series 1 united states of...

290 791 FEDERAL REPORTER, 3d SERIES

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UNITED STATES of America,Appellee,

v.

Stavros M. GANIAS, Defendant–Appellant.

Docket No. 12–240–cr.

United States Court of Appeals,Second Circuit.

June 29, 2015.

Sandra Slack Glover, Anastasia E. King,Esq., United States Attorney’s Office forthe District of Connecticut, New Haven,CT, Sarala Vidya Nagala, United StatesAttorney’s Office for the District of Con-necticut, Hartford, CT, for Appellee.

Stanley A. Twardy, Jr., Esq., Day Pit-ney LLP, Stamford, CT, for John W. Cer-reta, Esq., Daniel Wenner, Day PitneyLLP, Hartford, CT, for Defendant–Appel-lant.

ORDER

Following disposition of this appeal onJune 17, 2014, an active judge of the Courtrequested a poll on whether to rehear thecase en Banc. A poll having been conduct-ed and a majority of the active judges ofthe Court having voted in favor of rehear-ing this appeal en Banc, IT IS HEREBYORDERED that this appeal be heard enBanc. See Fed. R.App. P. 35(a). The enBanc panel will consist of the active judgesof the Court. See 28 U.S.C. § 46(c).

The parties are instructed to brief allissues relevant to the appeal, including:

(1) Whether the Fourth Amendmentwas violated when, pursuant to a warrant,the government seized and cloned threecomputer hard drives containing both re-sponsive and non-responsive files, retainedthe cloned hard drives for some two-and-a-

half years, and then searched the non-responsive files pursuant to a subsequentlyissued warrant; and

(2) Considering all relevant factors,whether the government agents in thiscase acted reasonably and in good faithsuch that the files obtained from thecloned hard drives should not be sup-pressed.

Briefing is not restricted to the issuesand arguments presented to the originalpanel. We invite amicus curiae briefsfrom interested parties. Appellant’s briefand appendix, and any amicus curiae briefsin support thereof, shall be filed by July29, 2015. Appellee’s brief and appendix,and any amicus curiae briefs in supportthereof, shall be filed by August 28, 2015.The Appellant’s reply brief shall be filedby September 14 11, 2015.

Oral argument will be held on Septem-ber 30, 2015, at 3:30 p.m. at the ThurgoodMarshall United States Courthouse, 40 Fo-ley Square, New York, New York.

,

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UNITED STATES of America, State ofTexas, State of Connecticut, State ofAlabama, State of Alaska, State ofArizona, State of Arkansas, State ofColorado, State of Delaware, State ofIdaho, State of Illinois, State ofIndiana, State of Iowa, State of Kan-sas, State of Louisiana, State of Ma-ryland, Commonwealth of Massachu-setts, State of Michigan, State ofMissouri, State of Nebraska, State ofNew Mexico, State of New York,State of North Dakota, State of Ohio,Commonwealth of Pennsylvania,

291U.S. v. APPLE, INC.Cite as 791 F.3d 290 (2nd Cir. 2015)

State of South Dakota, State of Ten-nessee, State of Utah, State of Ver-mont, Commonwealth of Virginia,State of West Virginia, State of Wis-consin, Commonwealth of PuertoRico, and District of Columbia,Plaintiffs–Appellees,

v.

APPLE, INC., Simon & Schuster, Inc.,Verlagsgruppe Georg Von Holtz-brinck GmbH, Holtzbrinck Publish-ers, LLC, DBA Macmillan, Simon &Schuster Digital Sales, Inc., Defen-dants–Appellants,

Hachette Book Group, Inc., HarperCol-lins Publishers L.L.C., The PenguinGroup, a Division of Pearson PLC,Penguin Group (USA), Inc., Defen-dants.

Nos. 13–3741–cv, 13–3748–cv, 13–3783–cv,13–3857–cv, 13–3864–cv, 13–3867–cv.


Argued: Dec. 15, 2014.

Decided: June 30, 2015.

Background: United States and 33 statesand U.S. territories brought antitrust suitsagainst company that manufactured tabletcomputer and distributed electronic books(e-books), as well as several book publish-ers, alleging conspiracy to raise, fix, andstabilize retail prices for newly-releasedand best-selling trade e-books in violationof Sherman Act and various state laws.After a bench trial on issue of liability, theUnited States District Court for the South-ern District of New York, Denise Cote, J.,952 F.Supp.2d 638, entered an injunctionupon finding company orchestrated a con-spiracy to raise e-book prices and, 992F.Supp.2d 263, denied company’s motionfor stay of monitorship. Company and pub-lishers appealed.

Holdings: The Court of Appeals, DebraAnn Livingston, Circuit Judge, held that:

(1) company entered into agreement withpublishers to raise consumer-facing e-book prices;

(2) company entering into individual con-tracts did not preclude finding thatcontracts resulted in a per se restraintof trade;

(3) company was not part of joint ventureor other productive relationship withpublishers;

(4) agreement was a per se unlawful price-fixing conspiracy;

(5) injunction was appropriately designed;and

(6) judicial estoppel was not warranted.

Affirmed.

Lohier, Circuit Judge, filed an opinion con-curring in part and concurring in the judg-ment.

Dennis Jacobs, Circuit Judge, filed a dis-senting opinion.

1. Antitrust and Trade RegulationO540, 541

Under the Sherman Act, horizontalagreements to set prices are, with limitedexceptions, per se unlawful, while the ver-tical agreements on pricing are unlawfulonly if an assessment of market effects,known as a rule-of-reason analysis, revealsthat they unreasonably restrain trade.Sherman Act, § 1, 15 U.S.C.A. § 1.

2. Antitrust and Trade RegulationO537

The Sherman Act bans restraints ontrade effected by a contract, combination,or conspiracy. Sherman Act, § 1, 15U.S.C.A. § 1.



The first crucial question in a Sher-man Act case alleging a trust in restraintof trade is whether the challenged conductstems from independent decision or froman agreement, tacit or express. ShermanAct, § 1, 15 U.S.C.A. § 1.


In a Sherman Act action alleging atrust in restraint of trade, identifying theexistence and nature of a conspiracy re-quires determining whether the evidencereasonably tends to prove that the defen-dant and others had a conscious commit-ment to a common scheme designed toachieve an unlawful objective. ShermanAct, § 1, 15 U.S.C.A. § 1.


Parallel action is not, by itself, suffi-cient to prove the existence of a conspiracyin violation of Sherman Act provision pro-hibiting trusts in restraint of trade; suchbehavior could be the result of coincidence,independent responses to common stimuli,or mere interdependence unaided by anadvance understanding among the parties.Sherman Act, § 1, 15 U.S.C.A. § 1.


Parallel behavior that does not resultfrom an agreement is not unlawful in viola-tion of Sherman Act provision prohibitingtrusts in restraint of trade even if it isanticompetitive. Sherman Act, § 1, 15U.S.C.A. § 1.


To prove an antitrust conspiracy, aplaintiff must show the existence of addi-tional circumstances, often referred to asplus factors, which, when viewed in con-

junction with the parallel acts, can serve toallow a fact-finder to infer a conspiracy toviolate Sherman Act provision prohibitingtrusts in restraint of trade; these addition-al circumstances can, of course, consist ofdirect evidence that the defendants en-tered into an agreement like a recordedphone call in which two competitors agreedto fix prices, but plaintiffs may also pres-ent circumstantial facts supporting the in-ference that a conspiracy existed. Sher-man Act, § 1, 15 U.S.C.A. § 1.


Circumstances that may raise an in-ference of conspiracy to violate ShermanAct provision prohibiting trusts in re-straint of trade include a common motiveto conspire, evidence that shows that theparallel acts were against the apparentindividual economic self-interest of the al-leged conspirators, and evidence of a highlevel of interfirm communications; parallelconduct alone may support an inference ofconspiracy, moreover, if it consists of com-plex and historically unprecedentedchanges in pricing structure made at thevery same time by multiple competitors,and made for no other discernible reason.Sherman Act, § 1, 15 U.S.C.A. § 1.

9. Antitrust and Trade RegulationO977(2)

Finding of conspiracy to violate Sher-man Act provision prohibiting trusts inrestraint of trade requires evidence thattends to exclude the possibility that a de-fendant was acting independently; this re-quirement, however, does not mean that aplaintiff must disprove all nonconspiratori-al explanations for the defendants’ con-duct, but the evidence need only be suffi-cient to allow a reasonable fact finder toinfer that the conspiratorial explanation ismore likely than not. Sherman Act, § 1,15 U.S.C.A. § 1.



Company that manufactured tabletcomputers and distributed electronic books(e-books) entered into agreement withbook publishers to raise consumer-facinge-book prices, as required to find companyviolated Sherman Act provision prohibitingtrusts in restraint of trade; individual con-tracts with publishers were attractive topublishers only if they collectively shiftedtheir relationships with a competitor e-book distributor to model company knewwould result in higher e-book prices, com-pany executive, when announcing launch oftablet computer, predicted that e-bookprices would be same between companyand competitor, publishers were in con-stant communication with each other re-garding negotiations with company andcompetitor, company kept publishers up-dated on how many of them had signedcontracts with company and remindedthem that company was offering publishersthe best chance to challenge competitor’sprice point, and publishers kept companyupdated on negotiations with competitor.Sherman Act, § 1, 15 U.S.C.A. § 1.


Antitrust law does not require identi-cal motives among conspirators when theirindependent reasons for joining togetherlead to collusive action. Sherman Act, § 1,15 U.S.C.A. § 1.


In antitrust cases, the character andeffect of a conspiracy are not to be judgedby dismembering it and viewing its sepa-rate parts, but only by looking at it as awhole. Sherman Act, § 1, 15 U.S.C.A.§ 1.


To succeed on a Sherman Act anti-trust claim, a plaintiff must prove that thecommon scheme designed by the conspira-tors constituted an unreasonable restraintof trade either per se or under the rule ofreason. Sherman Act, § 1, 15 U.S.C.A.§ 1.


In Sherman At antitrust cases, per seand rule-of-reason analysis are two meth-ods of determining whether a restraint isunreasonable, that is, whether its anticom-petitive effects outweigh its procompetitiveeffects. Sherman Act, § 1, 15 U.S.C.A.§ 1.


Because the balancing of whether arestraint of trade is reasonable typicallyrequires case-by-case analysis, most anti-trust claims are analyzed under the rule ofreason, according to which the finder offact must decide whether the questionedpractice imposes an unreasonable restrainton competition. Sherman Act, § 1, 15U.S.C.A. § 1.


Some restraints of trade have suchpredictable and pernicious anticompetitiveeffect, and such limited potential for pro-competitive benefit, that they are deemedunlawful per se; this rule reflects a long-standing judgment that case-by-case anal-ysis is unnecessary for certain practicesthat, by their nature, have a substantialpotential to unreasonably restrain competi-tion. Sherman Act, § 1, 15 U.S.C.A. § 1.



That company that manufactured tab-let computers and distributed electronicbooks (e-books) entered into individualvertical contracts with book publishers didnot preclude finding that contracts result-ed in a per se restraint of trade in violationof the Sherman Act; at issue was allegedprice-fixing conspiracy that resulted fromindividual contracts. Sherman Act, § 1, 15U.S.C.A. § 1.


Company that manufactured tabletcomputers and distributed electronic books(e-books) was not part of joint venture orother productive relationship with bookpublishers that required publishers to co-ordinate with one another on price, asrequired to preclude finding that allegedprice-fixing conspiracy between companyand publishers was a per se unreasonablerestraint of trade in violation of the Sher-man Act; creating e-book retail market didnot require participants to coordinate withone another. Sherman Act, § 1, 15U.S.C.A. § 1.


Agreement between company thatmanufactured tablet computers and dis-tributed electronic books (e-books) andbook publishers to raise e-book prices wasa per se unlawful price-fixing conspiracy inviolation of the Sherman Act; purpose ofagreements was to eliminate competitor e-book distributor’s pricing for new releasesand bestsellers, which publishers believedthreatened their short-term ability to sellhardcover books at higher prices, agree-ment had intended effect as competitor’sprices increased immediately, and e-booksales decreased. Sherman Act, § 1, 15U.S.C.A. § 1.


After finding company that manufac-tured tablet computers and distributedelectronic books (e-books) violated theSherman Act by entering into agreementswith book publishers to raise e-bookprices, provision of injunction prohibitingcompany from entering into agreementswith publishers that restricted company’sability to set e-book prices was appropri-ately designed to guard against futureanticompetitive conduct, and therefore, didnot require vacatur, despite publishers’contention that provision modified consentdecrees into which they had previouslyentered; decrees prohibited publishersfrom restricting any retailer’s authority toset prices, and injunction did not alter thatterm, but applied only to company. Sher-man Act, § 1, 15 U.S.C.A. § 1.

21. Estoppel O68(2)Judicial estoppel is invoked by a court

at its discretion, and is designed to protectthe integrity of the judicial process byprohibiting parties from deliberatelychanging positions according to the exigen-cies of the moment.

22. Estoppel O68(2)While the propriety of applying judi-

cial estoppel depends heavily on the specif-ic factual context before a court, courtstypically consider whether the party’s ar-gument is clearly inconsistent with its ear-lier position, whether the party succeededin persuading a court to accept that earlierposition, and whether the party seeking toassert an inconsistent position would de-rive an unfair advantage or impose anunfair detriment on the opposing party ifnot estopped.

23. Estoppel O68(2)Relief is granted pursuant to judicial

estoppel only when the impact on judicialintegrity is certain.


24. Estoppel O68(2)After finding company that manufac-

tured tablet computers and distributedelectronic books (e-books) violated theSherman Act by entering into agreementswith book publishers to raise e-bookprices, arguments by the United States inseeking injunction provision prohibitingcompany from entering into agreementswith publishers that restricted company’sability to set e-book prices were neither soclearly inconsistent with earlier argumentsin entering consent decrees with publish-ers that prohibited publishers from re-stricting any retailer’s authority to setprices, nor so unfairly detrimental to pub-lishers as to warrant judicial estoppel; U.S.sought two-year ban in consent decree anda five-year ban as to company specifically,and U.S. had presented extensive evidenceabout relationship between publishers andcompany. Sherman Act, § 1, 15 U.S.C.A.§ 1.


A government plaintiff, unlike a pri-vate plaintiff, must seek to obtain reliefnecessary to protect the public from fur-ther anticompetitive conduct and to re-dress anticompetitive harm.

26. Federal Courts O3670The district courts have large discre-

tion to model judgments in antitrust casesinitiated by the government to fit the exi-gencies of the particular case, and alldoubts about the remedy are to be re-solved in the government’s favor.


After finding company that manufac-tured tablet computers and distributedelectronic books (e-books) violated theSherman Act by entering into agreementswith book publishers to raise e-bookprices, district court did not abuse its dis-

cretion in ordering injunction to prohibitcompany from entering into agreementswith publishers that restricted company’sability to set e-book prices and in orderingcompany to treat e-book applications forits electronic devices the same way ittreated other applications; injunction en-sured that company and publishers wouldnot be able to engage in another conspira-cy to set prices. Sherman Act, § 1, 15U.S.C.A. § 1.

Malcolm L. Stewart, Deputy SolicitorGeneral, U.S. Department of Justice,Washington, DC, William J. Baer, Assis-tant Nicholson, David Seidman, FinnualaK. Tessier, Lawrence B. Buterman, Attor-neys, U.S. Department of Justice AntitrustDivision, Washington, DC, for the UnitedStates.

George Jepsen, Attorney General ofConnecticut, W. Joseph Nielsen, AssistantAttorney General, Office of Attorney Gen-eral of Connecticut, Hartford, CT, GregAbbott, Attorney General of Texas, DanielT. Hodge, First Assistant Attorney Gener-al of Texas, John Scott, Deputy AttorneyGeneral of Texas, Jonathan F. Mitchell,Solicitor General of Texas, Andrew Old-ham, Deputy Solicitor General of Texas,John T. Prud’homme, Kim van Winkle,Eric Lipman, Assistant Attorneys General,Office of Attorney General of Texas, Aus-tin, TX, for Plaintiff–States.

Eric T. Schneiderman, Attorney Generalof the State of New York, Won S. Chin,Assistant Solicitor General, Office of Attor-ney General of New York, New York,N.Y., for the State of New York.

Theodore J. Boutros, Jr., Daniel G.Swanson, Blaine H. Evanson, Gibson,Dunn & Crutcher LLP, Los Angeles, CA,Cynthia E. Richman, Gibson, Dunn &


Crutcher LLP, Washington, DC, Orin S.Snyder, Gibson, Dunn & Crutcher LLP,New York, N.Y., for Apple, Inc.

Eamon P. Joyce, Joel M. Mitnick, MarkD. Taticchi, Sidley Austin LLP, New York,N.Y., for Verlagsgruppe Georg von Holtz-brinck GmbH, Holtzbrinck Publishers,LLC, d/b/a Macmillan.

Gregory Silbert, Yehuda L. Buchweitz,James W. Quinn, Weil, Gotshal & MangesLLP, New York, N.Y., for Simon & Schus-ter, Inc. and Simon & Schuster DigitalSales, Inc.

Before: JACOBS, LIVINGSTON, andLOHIER, Circuit Judges.

RAYMOND J. LOHIER (Circuit Judge)files a separate concurring opinion, joiningin the judgment and in the majorityopinion except for Part II.B.2.

DENNIS JACOBS (Circuit Judge) filesa separate dissenting opinion.

DEBRA ANN LIVINGSTON, CircuitJudge:

Since the invention of the printing press,the distribution of books has involved afundamentally consistent process: com-pose a manuscript, print and bind it intophysical volumes, and then ship and sellthe volumes to the public. In late 2007,Amazon.com, Inc. (‘‘Amazon’’) introducedthe Kindle, a portable device that carriesdigital copies of books, known as ‘‘ebooks.’’This innovation had the potential to changethe centuries-old process for producingbooks by eliminating the need to print,bind, ship, and store them. Amazon beganto popularize the new way to read, andencouraged consumers to buy the Kindleby offering desirable books—new releasesand New York Times bestsellers—for$9.99. Publishing companies, which havetraditionally stood at the center of themulti-billion dollar book-producing indus-

try, saw Amazon’s ebooks, and particularlyits $9.99 pricing, as a threat to their way ofdoing business.

By November 2009, Apple, Inc. (‘‘Ap-ple’’) had plans to release a new tabletcomputer, the iPad. Executives at the com-pany saw an opportunity to sell ebooks onthe iPad by creating a virtual marketplaceon the device, which came to be known asthe ‘‘iBookstore.’’ Working within a tighttimeframe, Apple went directly into negoti-ations with six of the major publishingcompanies in the United States. In twomonths, it announced that five of thosecompanies—Hachette, HarperCollins,Macmillan, Penguin, and Simon & Schus-ter (collectively, the ‘‘Publisher Defen-dants’’)—had agreed to sell ebooks on theiPad under arrangements whereby thepublishers had the authority to set prices,and could set the prices of new releasesand New York Times bestsellers as high as$19.99 and $14.99, respectively. Each ofthese agreements, by virtue of its terms,resulted in each Publisher Defendant re-ceiving less per ebook sold via Apple asopposed to Amazon, even given the higherconsumer prices. Just a few months afterthe iBookstore opened, however, every oneof the Publisher Defendants had takencontrol over pricing from Amazon and hadraised the prices on many of their ebooks,most notably new releases and bestsellers.

The United States Department of Jus-tice (‘‘DOJ’’ or ‘‘Justice Department’’) and33 states and territories (collectively,‘‘Plaintiffs’’) filed suit in the United StatesDistrict Court for the Southern District ofNew York, alleging that Apple, in launch-ing the iBookstore, had conspired with thePublisher Defendants to raise pricesacross the nascent ebook market. Thisagreement, they argued, violated § 1 ofthe Sherman Antitrust Act, 15 U.S.C. § 1et seq. (‘‘Sherman Act’’), and state anti-trust laws. All five Publisher Defendants


settled and signed consent decrees, whichprohibited them, for a period, from re-stricting ebook retailers’ ability to setprices. Then, after a three-week benchtrial, the district court (Cote, J.) concludedthat, in order to induce the Publisher De-fendants to participate in the iBookstoreand to avoid the necessity of itself compet-ing with Amazon over the retail price ofebooks, Apple orchestrated a conspiracyamong the Publisher Defendants to raisethe price of ebooks—particularly new re-leases and New York Times bestsellers.United States v. Apple Inc., 952 F.Supp.2d638, 647 (S.D.N.Y.2013). The districtcourt found that the agreement constituteda per se violation of the Sherman Act and,in the alternative, unreasonably restrainedtrade under the rule of reason. See id. at694. On September 5, 2013, the districtcourt entered final judgment on the liabili-ty finding and issued an injunctive orderthat, inter alia, prevents Apple from en-tering into agreements with the PublisherDefendants that restrict its ability to set,alter, or reduce the price of ebooks, andrequires Apple to apply the same termsand conditions to ebook applications soldon its devices as it does to other applica-tions.

On appeal, Apple contends that the dis-trict court’s liability finding was erroneousand that the provisions of the injunctionrelated to its pricing authority and ebookapplications are not necessary to protectthe public. Two of the Publisher Defen-dants—Macmillan and Simon & Schus-ter—join the appeal, arguing that the por-tion of the injunction related to Apple’spricing authority either unlawfully modi-fies their consent decrees or should bejudicially estopped. We conclude that thedistrict court’s decision that Apple orches-trated a horizontal conspiracy among thePublisher Defendants to raise ebook pricesis amply supported and well-reasoned, andthat the agreement unreasonably re-

strained trade in violation of § 1 of theSherman Act. We also conclude that thedistrict court’s injunction is lawful and con-sistent with preventing future anticompeti-tive harms.

Significantly, the dissent agrees that Ap-ple intentionally organized a conspiracyamong the Publisher Defendants to raiseebook prices. Nonetheless, it contendsthat Apple was entitled to do so becausethe conspiracy helped it become an ebookretailer. In arriving at this startling con-clusion—based in large measure on an ar-gument that Apple itself did not assert—the dissent makes two fundamental errors.The first is to insist that the vertical orga-nizer of a horizontal price-fixing conspiracymay escape application of the per se rule.This conclusion is based on a misreading ofSupreme Court precedent, which estab-lishes precisely the opposite. The dissentfails to apprehend that the Sherman Actoutlaws agreements that unreasonably re-strain trade and therefore requires evalu-ating the nature of the restraint, ratherthan the identity of each party who joins into impose it, in determining whether theper se rule is properly invoked. Finally(and most fundamentally) the dissent’sconclusion rests on an erroneous premise:that one who organizes a horizontal price-fixing conspiracy—the ‘‘supreme evil of an-titrust,’’ Verizon Commc’ns Inc. v. LawOffices of Curtis V. Trinko, LLP, 540 U.S.398, 408, 124 S.Ct. 872, 157 L.Ed.2d 823(2004)—among those competing at a differ-ent level of the market has somehow doneless damage to competition than its co-conspirators.

The dissent’s second error is to assume,in effect, that Apple was entitled to enterthe ebook retail market on its own terms,even if these terms could be achieved onlyvia its orchestration of and entry into aprice-fixing agreement with the PublisherDefendants. The dissent tells a story of


Apple organizing this price-fixing conspira-cy to rescue ebook retailers from a monop-olist with insurmountable retail power.But this tale is not spun from any factualfindings of the district court. And thedissent’s armchair analysis wrongly treatsthe number of ebook retailers at any mo-ment in the emergence of a new and trans-formative technology for book distributionas the sine qua non of competition in themarket for trade ebooks.

More fundamentally, the dissent’s theo-ry—that the presence of a strong com-petitor justifies a horizontal price-fixingconspiracy—endorses a concept of mar-ketplace vigilantism that is wholly foreignto the antitrust laws. By organizing aprice-fixing conspiracy, Apple found aneasy path to opening its iBookstore, butit did so by ensuring that market-wideebook prices would rise to a level that it,and the Publisher Defendants, had jointlyagreed upon. Plainly, competition is notserved by permitting a market entrant toeliminate price competition as a condi-tion of entry, and it is cold comfort toconsumers that they gained a new ebookretailer at the expense of passing controlover all ebook prices to a cartel of bookpublishers—publishers who, with Apple’shelp, collectively agreed on a new pricingmodel precisely to raise the price ofebooks and thus protect their profit mar-gins and their very existence in the mar-ketplace in the face of the admittedlystrong headwinds created by the newtechnology.

Because we conclude that the districtcourt did not err in deciding that Apple

violated § 1 of the Sherman Act, and be-cause we also conclude that the districtcourt’s injunction was lawful and consis-tent with preventing future anticompetitiveharms, we affirm.

BACKGROUND

I. Factual Background1

We begin not with Kindles and iPads,but with printed ‘‘trade books,’’ which are‘‘general interest fiction and non-fiction’’books intended for a broad readership.Apple, 952 F.Supp.2d at 648 n. 4. In theUnited States, the six largest publishers oftrade books, known in the publishing worldas the ‘‘Big Six,’’ are Hachette, HarperCol-lins, Macmillan, Penguin, Random House,and Simon & Schuster. Together, the BigSix publish many of the biggest names infiction and non-fiction; during 2010, theirtitles accounted for over 90% of the NewYork Times bestsellers in the UnitedStates. Id. at 648 n. 5.

For decades, trade book publishers op-erated under a fairly consistent businessmodel. When a new book was ready forrelease to the public, the publisher wouldsell hardcover copies to retailers at a‘‘wholesale’’ price and recommend resale toconsumers at a markup, known as the‘‘list’’ price. After the hardcover spentenough time on the shelves—often ayear—publishers would release a paper-back copy at lower ‘‘list’’ and ‘‘wholesale’’prices. In theory, devoted readers wouldpay the higher hardcover price to read thebook when it first came out, while morecasual fans would wait for the paperback.

1. The factual background presented here isdrawn from the district court’s factual find-ings or from undisputed material in the rec-ord before the district court. Because thisCourt reviews the district court’s factual find-ings for ‘‘clear error,’’ we must assess wheth-er ‘‘its view of the evidence is plausible inlight of the entire record.’’ Cosme v.

Henderson, 287 F.3d 152, 158 (2d Cir.2002).In light of this obligation, the dissent is wrongto suggest that citations to the record areinappropriate or misleading. When a factcomes from the district court’s opinion, wecite that opinion; when one comes from therecord, we cite the joint appendix (‘‘J.A.’’).


A. Amazon’s Kindle

On November 19, 2007, Amazon releasedthe Kindle: a portable electronic devicethat allows consumers to purchase, down-load, and read ebooks. At the time, therewas only one other ereader available in theemerging ebook market, and Amazon’sKindle quickly gained traction. In 2007,ebook revenue in North America was only$70 million, a tiny amount relative to theapproximately $30 billion market for physi-cal trade books. The market was growing,however; in 2008 ebook revenue wasroughly $140 million and, by the timeBarnes & Noble, Inc. (Barnes & Noble)launched its Nook ereader in November2009, Amazon was responsible for 90% ofall ebook sales. Apple, 952 F.Supp.2d at648–49.

Amazon followed a ‘‘wholesale’’ businessmodel similar to the one used with printbooks: publishers recommended a digitallist price and received a wholesale pricefor each ebook that Amazon sold. In ex-change, Amazon could sell the publishers’ebooks on the Kindle and determine theretail price. At least early on, publisherstended to recommend a digital list pricethat was about 20% lower than the printlist price to reflect the fact that, with anebook, there is no cost for printing, stor-ing, packaging, shipping, or returning thebooks.

Where Amazon departed from the pub-lishers’ traditional business model was inthe sale of new releases and New YorkTimes bestsellers. Rather than sellingmore expensive versions of these booksupon initial release (as publishers encour-aged by producing hardcover books beforepaperback copies), Amazon set the Kindleprice at one, stable figure—$9.99. At thisprice, Amazon was selling ‘‘certain’’ newreleases and bestsellers at a price that‘‘roughly matched,’’ or was slightly lowerthan, the wholesale price it paid to the

publishers. Apple, 952 F.Supp.2d at 649.David Naggar, a Vice President in chargeof Amazon’s Kindle content, described thisas a ‘‘classic loss-leading strategy’’ de-signed to encourage consumers to adoptthe Kindle by discounting new releasesand New York Times bestsellers and sell-ing other ebooks without the discount.J.A. 1485. The district court also referredto this as a ‘‘loss leader[ ]’’ strategy, Apple,952 F.Supp.2d at 650, 657, 708, and ex-plained that Amazon ‘‘believed [the $9.99]pricing would have long-term benefits forits consumers,’’ id. at 649. Contrary tothe dissent’s portrayal of the opinion, thedistrict court did not find that Amazonused the $9.99 price point to ‘‘assure[ ] itsdomination’’ in the ebook market, or thatits pricing strategy acted as a ‘‘barrier toentry’’ for other retailers. Dissenting Op.at 6–7. Indeed, in November 2009—just afew months before Apple’s launch of theiBookstore—Barnes & Noble entered theebook retail market by launching theNook, Apple, 952 F.Supp.2d at 649 n. 6,and as early as 2007 Google Inc. (‘‘Google’’)had been planning to enter the marketusing a wholesale model, id. at 686.

B. The Publishers’ Reactions

Despite the small number of ebook salescompared to the overall market for tradebooks, top executives in the Big Six sawAmazon’s $9.99 pricing strategy as athreat to their established way of doingbusiness. Those executives included: Ha-chette and Hachette Livre Chief ExecutiveOfficers (‘‘CEOs’’) David Young and Ar-naud Nourry; HarperCollins CEO BrianMurray; Macmillan CEO John Sargent;Penguin USA CEO David Shanks; Ran-dom House Chief Operating Officer Made-line McIntosh; and Simon & SchusterPresident and CEO Carolyn Reidy. Inthe short term, these members of the BigSix thought that Amazon’s lower-priced


ebooks would make it more difficult forthem to sell hardcover copies of new re-leases, ‘‘which were often priced,’’ as thedistrict court noted, ‘‘at thirty dollars ormore,’’ Apple, 952 F.Supp.2d at 649, aswell as New York Times bestsellers. Fur-ther down the road, the publishers fearedthat consumers would become accustomedto the uniform $9.99 price point for theseebooks, permanently driving down theprice they could charge for print versionsof the books. Moreover, if Amazon be-came powerful enough, it could demandlower wholesale prices from the Big Six orallow authors to publish directly with Ama-zon, cutting out the publishers entirely.As Hachette’s Young put it, the idea of the‘‘wretched $9.99 price point becoming a defacto standard’’ for ebooks ‘‘sickened’’ him.J.A. 289.

The executives of the Big Six also recog-nized that their problem was a collectiveone. Thus, an August 2009 Penguin strat-egy report (concluded only a few monthsbefore Apple commenced its efforts tolaunch the iBookstore) noted that ‘‘[c]om-petition for the attention of readers will bemost intense from digital companies whoseobjective may be to [cut out] traditionalpublishers altogetherTTTT It will not bepossible for any individual publisher tomount an effective response, because ofboth the resources necessary and the riskof retribution, so the industry needs todevelop a common strategy.’’ J.A. 287.Similarly, Reidy from Simon & Schusteropined in September 2009 that the publish-ers had ‘‘no chance of success in gettingAmazon to change its pricing practices’’

unless they acted with a ‘‘critical mass,’’and expressed the ‘‘need to gather moretroops and ammunition’’ before implement-ing a move against Amazon. J.A. 290(internal quotation marks omitted).

Conveniently, the Big Six operated in aclose-knit industry and had no qualmscommunicating about the need to act to-gether. As the district court found (basedon the Publisher Defendants’ own testimo-ny), ‘‘[o]n a fairly regular basis, roughlyonce a quarter, the CEOs of the [Big Six]held dinners in the private dining rooms ofNew York restaurants, without counsel orassistants present, in order to discuss thecommon challenges they faced.’’ Apple,952 F.Supp.2d at 651. Because they ‘‘didnot compete with each other on price,’’ butover authors and agents, the publishers‘‘felt no hesitation in freely discussing Am-azon’s prices with each other and theirjoint strategies for raising those prices.’’Id. Those strategies included eliminatingthe discounted wholesale price for ebooksand possibly creating an alternative ebookplatform.

The most significant attack that the pub-lishers considered and then undertook,however, was to withhold new and bestsell-ing books from Amazon until the hardcov-er version had spent several months instores, a practice known as ‘‘windowing.’’Members of the Big Six both kept oneanother abreast of their plans to window,and actively pushed others toward thestrategy.2 By December 2009, the WallStreet Journal and New York Times were

2. Citing one example, the district court refer-enced a fall 2009 email in which Hachette’sYoung informed his colleague Nourry of Si-mon & Schuster’s windowing plans, advising‘‘[c]ompletely confidentially, Carolyn [Reidy]has told me that they [Simon & Schuster] aredelaying the new Stephen King, with his fullsupport, but will not be announcing this untilthe day after Labor Day.’’ Apple, 952

F.Supp.2d at 652 (first and second alterationsin original) (internal quotation marks omit-ted). The district court went on to observethat Young, ‘‘[u]nderstanding the improprietyof this exchange of confidential informationwith a competitor, TTT advised Nourry that ‘itwould be prudent for you to double delete thisfrom your email files when you return to youroffice.’ ’’ Id.


reporting that four of the Big Six hadannounced plans to delay ebook releasesuntil after the print release, and the twoholdouts—Penguin and Random House—faced pressure from their peers.

Ultimately, however, the publishersviewed even this strategy to save theirbusiness model as self-destructive. Em-ployees inside the publishing companiesnoted that windowing encouraged piracy,punished ebook consumers, and harmedlong-term sales. One author wrote to Sar-gent in December 2009 that the ‘‘old modelhas to change’’ and that it would be betterto ‘‘embrace e-books,’’ publish them at thesame time as the hardcovers, ‘‘and pray toGod they both sell like crazy.’’ J.A. 325.Sargent agreed, but expressed the hopethat ebooks could eventually be sold forbetween $12.95 and $14.95. ‘‘The questionis,’’ he mused, ‘‘how to get there?’’ J.A.325.

C. Apple’s Entry into the EbookMarket

Apple is one of the world’s most innova-tive and successful technology companies.Its hardware sells worldwide and supportsmajor software marketplaces like iTunesand the App Store. But in 2009, Applelacked a dedicated marketplace for ebooksor a hardware device that could offer anoutstanding reading experience. Thepending release of the iPad, which Appleintended to announce on January 27, 2010,promised to solve that hardware deficien-cy.

Eddy Cue, Apple’s Senior Vice Presi-dent of Internet Software and Servicesand the director of Apple’s digital contentstores, saw the opportunity for an ebookmarketplace on the iPad. By February2009, Cue and two colleagues—Kevin Sauland Keith Moerer—had researched theebook market and concluded that it waspoised for rapid expansion in 2010 and

beyond. While Amazon had an estimated90% market share in trade ebooks, Cuebelieved that Apple could become a power-ful player in the market in large partbecause consumers would be able to domany tasks on the iPad, and would notwant to carry a separate Kindle for read-ing alone. In an email to Apple’s then-CEO, Steve Jobs, he discussed the possi-bility of Amazon selling ebooks through anapplication on the iPad, but felt that ‘‘itwould be very easy for [Apple] to competewith and TTT trounce Amazon by openingup our own ebook store’’ because ‘‘[t]hebook publishers would do almost anythingfor [Apple] to get into the ebook business.’’J.A. 282.

Jobs approved Cue’s plan for an ebookmarketplace—which came to be known asthe iBookstore—in November 2009. Al-though the iPad would go to market withor without the iBookstore, Apple hoped toannounce the ebook marketplace at theJanuary 27, 2010 iPad launch to ‘‘ensuremaximum consumer exposure’’ and add an-other ‘‘dramatic component’’ to the event.Apple, 952 F.Supp.2d at 655. This leftCue and his team only two months amidstthe holiday season both to create a busi-ness model for the iBookstore and to as-semble a group of publishers to partici-pate. Cue also had personal reasons towork quickly. He knew that Jobs wasseriously ill, and that, by making theiBookstore a success, he could help Jobsachieve a longstanding goal of creating adevice that provides a superior readingexperience.

Operating under a tight timeframe, Cue,Saul, and Moerer streamlined their effortsby focusing on the Big Six publishers.They began by arming themselves withsome important information about thestate of affairs within the publishing indus-try. In particular, they learned that thepublishers feared that Amazon’s pricing


model could change their industry, thatseveral publishers had engaged in simulta-neous windowing efforts to thwart Ama-zon, and that the industry as a whole wasin a state of turmoil. ‘‘Apple understood,’’as the district court put it, ‘‘that the Pub-lishers wanted to pressure Amazon toraise the $9.99 price point for e-books, thatthe Publishers were searching for ways todo that, and that they were willing tocoordinate their efforts to achieve thatgoal.’’ Id. at 656. For its part, as thedistrict court found, Apple was willing tosell ebooks at higher prices, but ‘‘had de-cided that it would not open the iBookstoreif it could not make money on the storeand compete effectively with Amazon.’’Id.

D. Apple’s Negotiations with thePublishers

1. Initial Meetings

Apple held its first meetings with eachof the Big Six between December 15 and16. The meetings quickly confirmed Cue’ssuspicions about the industry. As hewrote to Jobs after speaking with three ofthe publishers, ‘‘[c]learly, the biggest issueis new release pricing’’ and ‘‘Amazon isdefinitely not liked much because of sellingbelow cost for NYT Best Sellers.’’ J.A.326–27. Many publishers also emphasizedthat they were searching for a strategy toregain control over pricing. Apple in-formed each of the Big Six that it wasnegotiating with the other major publish-ers, that it hoped to begin selling ebookswithin the next 90 days, and that it wasseeking a critical mass of participants inthe iBookstore and would launch only ifsuccessful in reaching this goal. Appleinformed the publishers that it did notbelieve the iBookstore would succeed un-less publishers agreed both not to windowbooks and to sell ebooks at a discountrelative to their physical counterparts.Apple noted that ebook prices in the

iBookstore needed to be comparable tothose on the Kindle, expressing the view,as Reidy recorded, that it could not ‘‘toler-ate a market where the product is soldsignificantly more cheaply elsewhere.’’Apple, 952 F.Supp.2d at 657 (internal quo-tation marks omitted). Most importantlyfor the publishers, however, Cue’s teamalso expressed Apple’s belief that Ama-zon’s $9.99 price point was not ingrained inconsumers’ minds, and that Apple couldsell new releases and New York Timesbestsellers for somewhere between $12.99and $14.99. In return, Apple requestedthat the publishers decrease their whole-sale prices so that the company couldmake a small profit on each sale.

These meetings spurred a flurry of com-munications reporting on the ‘‘[t]errificnews[,]’’ as Reidy put it in an email toLeslie Moonves, her superior at parentcompany CBS Corporation (‘‘CBS’’), thatApple ‘‘was not interested in a low pricepoint for digital books’’ and didn’t want‘‘Amazon’s $9.95 [sic] to continue.’’ Apple,952 F.Supp.2d at 658 (first alteration inoriginal) (internal quotation marks omit-ted). Significantly, these communicationsincluded numerous exchanges between ex-ecutives at different Big Six publisherswho, the district court found, ‘‘hashed overtheir meetings with Apple with one anoth-er.’’ Id. The district court found that thefrequent telephone calls among the Pub-lisher Defendants during the period oftheir negotiations with Apple ‘‘representeda departure from the ordinary pattern ofcalls among them.’’ Id. at 655 n. 14.

2. The Agency Model

Meanwhile, Cue, Moerer, and Saul re-turned to Apple’s headquarters to developa business model for the iBookstore. Al-though the team was optimistic about theinitial meetings, they remained concerned


about whether the publishers would reducewholesale prices on new releases and best-sellers by a large enough margin to allowApple to offer competitive prices and stillmake a profit. One strategy that the teamconsidered was to ask publishers for a 25%wholesale discount on all of these titles, soif a physical book sold at $12 wholesale(the going rate for the majority of NewYork Times bestsellers) Apple could pur-chase the ebook version for $9 and offer iton the iBookstore at a small markup. ButCue was aware that some publishers hadincreased Amazon’s digital wholesaleprices in 2009 in an unsuccessful effort toconvince Amazon to change its pricing.Id. at 650; J.A. 1771. Cue felt it would bedifficult to negotiate wholesale prices downfar enough ‘‘for [Apple] to generally com-pete profitably with Amazon’s below-costpricing on the most popular e-books.’’J.A. 1772. As Cue saw it, Apple’s mostvaluable bargaining chip came from thefact that the publishers were desperate‘‘for an alternative to Amazon’s pricingpolicies and excited about TTT the prospectthat [Apple’s] entry [into the ebook mar-ket] would give them leverage in theirnegotiations with Amazon.’’ Apple, 952F.Supp.2d at 659.

It was at this point that Cue’s team,recognizing its opportunity, abandoned thewholesale business model for a new, agen-cy model.3 Unlike a wholesale model, inan agency relationship the publisher setsthe price that consumers will pay for eachebook. Then, rather than the retailer pay-ing the publisher for each ebook that itsells, the publisher pays the retailer afixed percentage of each sale. In essence,the retailer receives a commission for dis-tributing the publisher’s ebooks. Underthe system Apple devised, publisherswould have the freedom to set ebook

prices in the iBookstore, and would keep70% of each sale. The remaining 30%would go to Apple as a commission.

This switch to an agency model obviatedApple’s concerns about negotiating whole-sale prices with the Big Six while ensuringthat Apple profited on every sale. It didnot, however, solve all of the company’sproblems. Because the agency modelhanded the publishers control over pricing,it created the risk that the Big Six wouldsell ebooks in the iBookstore at far higherprices than Kindle’s $9.99 offering. If theprices were too high, Apple could be leftwith a brand new marketplace brimmingwith titles, but devoid of customers.

To solve this pricing problem, Cue’steam initially devised two strategies.First, they realized that they could main-tain ‘‘realistic prices’’ by establishing pricecaps for different types of books. J.A.359. Of course, these caps would need tobe higher than Amazon’s $9.99 price point,or Apple would face the same difficultprice negotiations that it sought to avoidby switching away from the wholesalemodel. But at this point Apple was notcontent to open its iBookstore offeringprices higher than the competition. Foras the district court found, if the PublisherDefendants ‘‘wanted to end Amazon’s $9.99pricing,’’ Apple similarly desired ‘‘thatthere be no price competition at the retaillevel.’’ Apple, 952 F.Supp.2d at 647.

Apple next concluded, then, as the dis-trict court found, that ‘‘[t]o ensure that theiBookstore would be competitive at higherprices, Apple TTT needed to eliminate allretail price competition.’’ Id. at 659.Thus, rather than simply agreeing to pricecaps above Amazon’s $9.99 price point, Ap-ple created a second requirement: publish-ers must switch all of their other ebook

3. Notably, the possibility of an agency ar-rangement was first mentioned by Hachette

and HarperCollins as a way ‘‘to fix Amazonpricing.’’ J.A. 346.


retailers—including Amazon—to an agen-cy pricing model. The result would bethat Apple would not need to compete withAmazon on price, and publishers would beable to eliminate Amazon’s $9.99 pricing.Or, as Cue would later describe the plan toexecutives at Simon & Schuster, Macmil-lan, and Random House, the plan ‘‘solve[d][the] Amazon issue’’ by allowing the pub-lishers to wrest control over pricing fromAmazon.4 Id. at 661 (internal quotationmarks omitted).

On January 4 and 5, Apple sent essen-tially identical emails to each member ofthe Big Six to explain its agency modelproposal. Each email described the com-mission split between Apple and the pub-lishers and recommended three price caps:$14.99 for hardcover books with list pricesabove $35; $12.99 for hardcover bookswith list prices below $35; and $9.99 for allother trade books. The emails also ex-plained that, ‘‘to sell ebooks at realisticprices TTT all [other] resellers of new titlesneed to be in [the] agency model’’ as well.J.A. 360. Or, as Cue told Reidy, ‘‘all pub-lishers’’ would need to move ‘‘all retailers’’to an agency model. J.A. 2060.

3. The ‘‘Most–Favored–Nation’’ Clause

Cue’s thoughts on the agency model con-tinued to evolve after the emails on Janu-ary 4 and 5. Most significantly, Saul—Cue’s in-house counsel—devised an alter-native to explicitly requiring publishers toswitch other retailers to agency. This al-ternative involved the use of a ‘‘most-fa-vored nation’’ clause (‘‘MFN Clause’’ or‘‘MFN’’). In general, an MFN Clause is acontractual provision that requires one

party to give the other the best terms thatit makes available to any competitor. Inthe context of Apple’s negotiations, theMFN Clause mandated that, ‘‘[i]f, for anyparticular New Release in hardcover for-mat, the TTT Customer Price [in the iBook-store] at any time is or becomes higherthan a customer price offered by any otherreseller TTT, then [the] Publisher shall des-ignate a new, lower Customer Price [in theiBookstore] to meet such lower [customerprice].’’ J.A. 559. Put differently, theMFN would require the publisher to offerany ebook in Apple’s iBookstore for nomore than what the same ebook was of-fered elsewhere, such as from Amazon.

On January 11, Apple sent each of theBig Six a proposed eBook Agency Distri-bution Agreement (the ‘‘Contracts’’). Asdescribed in the January 4 and 5 emails,these Contracts would split the proceedsfrom each ebook sale between the publish-er and Apple, with the publisher receiving70%, and would set price caps on ebooks at$14.99, $12.99, and $9.99 depending on thebook’s hardcover price. But unlike theinitial emails, the Contracts containedMFN Clauses in place of the requirementthat publishers move all other retailers toan agency model. Apple then assuredeach member of the Big Six that it wasbeing offered the same terms as the oth-ers.

The Big Six understood the economicincentives that the MFN Clause created.Suppose a new hardcover release sells at alist price of $25, and a wholesale price of$12.50. With Amazon, the publishers hadbeen receiving the wholesale price (or a

4. Cue testified at trial that his reference to‘‘solv[ing] the Amazon issue’’ denoted the pro-posal to price ebooks in the iBookstore above$9.99, and was not a reference to raisingprices across the industry or wresting controlover pricing from Amazon. In this and otherrespects, the district court found Cue’s testi-

mony to be ‘‘not credible’’—a determinationthat, on this record, is in no manner errone-ous, much less clearly so. Id. at 661 n. 19. Asthe district court put it, ‘‘Apple’s pitch to thePublishers was—from beginning to end—a vi-sion for a new industry-wide price schedule.’’Id.


slightly lower digital wholesale price) forevery ebook copy of the volume sold onKindle, even if Amazon ultimately sold theebook for less than that wholesale price.Under Apple’s initial agency model—withprice caps but no MFN Clause—the pub-lishers already stood to make less moneyper ebook with Apple. Because Applecapped the ebook price of a $25 hardcoverat $12.99 and took 30% of that price, pub-lishers could only expect to make $8.75 persale. But what the publishers sacrificed inshort-term revenue, they hoped to gain inlong-term stability by acquiring more con-trol over pricing and, accordingly, the abil-ity to protect their hardcover sales.

The MFN Clause changed the situationby making it imperative, not merely desir-able, that the publishers wrest control overpricing from ebook retailers generally.Under the MFN, if Amazon stayed at awholesale model and continued to sellebooks at $9.99, the publishers would beforced to sell in the iBookstore, too, at thatsame $9.99 price point. The result wouldbe the worst of both worlds: lower short-term revenue and no control over pricing.The publishers recognized that, as a prac-tical matter, this meant that the MFNClause would force them to move Amazonto an agency relationship. As Reidy putit, her company would need to move all itsother ebook retailers to agency ‘‘unless wewanted to make even less money’’ in thisgrowing market. Apple, 952 F.Supp.2d at666 (internal quotation marks omitted).This situation also gave each of the pub-lishers a stake in Apple’s quest to have acritical mass of publishers join the iBook-store because, ‘‘[w]hile no one Publishercould effect an industry-wide shift in pricesor change the public’s perception of abook’s value, if they moved together theycould.’’ Id. at 665; see also J.A. 1981.

Apple understood this dynamic as well.As the district court found, ‘‘Apple did notchange its thinking’’ when it replaced theexplicit requirement that the publishersmove other retailers to an agency modelwith the MFN. Indeed, in the followingweeks, Apple assiduously worked to makesure that the shift to agency occurred.Apple, 952 F.Supp.2d at 663. But Applealso understood that, as Cue bluntly put it,‘‘any decent MFN forces the model’’ awayfrom wholesale and to agency. Id. (inter-nal quotation marks omitted). Or as thedistrict court found, ‘‘the MFN protectedApple from retail price competition as itpunished a Publisher if it failed to imposeagency terms on other e-tailers.’’ Id. at665.

Thus, the terms of the negotiation be-tween Apple and the publishers becameclear: Apple wanted quick and successfulentry into the ebook market and to elimi-nate retail price competition with Amazon.In exchange, it offered the publishers anopportunity ‘‘to confront Amazon as one ofan organized group TTT united in an effortto eradicate the $9.99 price point.’’ Id. at664. Both sides needed a critical mass ofpublishers to achieve their goals. TheMFN played a pivotal role in this quid proquo by ‘‘stiffen[ing] the spines of the [pub-lishers] to ensure that they would demandnew terms from Amazon,’’ and protectingApple from retail price competition. Id. at665.

4. Final Negotiations

The proposed Contracts sparked intensenegotiations as Cue’s team raced to assem-ble enough publishers to announce theiBookstore by January 27. The publish-ers’ first volley was to push back on Ap-ple’s price caps, which they recognizedwould become the ‘‘standard across theindustry’’ for pricing.5 J.A. 571. In a set

5. As one HarperCollins executive put it, the ‘‘upshot’’ of moving to the agency model and


of meetings between January 13 and 14,the majority of the Big Six expressed ageneral willingness to adopt an agencymodel, but refused to do so with the pricelimits Apple demanded. Cue respondedby asking Jobs for permission to create amore lenient price cap system. Under thisnew regime, New York Times bestsellerscould sell for $14.99 if the hardcover waslisted above $30, and for $12.99 if listedbelow that price. As for new releases, a$12.99 cap would apply to hardcoverspriced between $25 and $27.50; a $14.99cap would apply to hardcovers selling forup to $30; and, if the hardcover sold forover $30, publishers could sell the ebookfor between $16.99 and $19.99. Jobs re-sponded that he could ‘‘live with’’ the pric-ing ‘‘as long as [the publishers] move Ama-zon to the agen[cy] model too.’’ J.A. 499.

Cue proposed this new pricing regime tothe Big Six on January 16 and, with only11 days remaining before the iPad launch,turned up the pressure. In each emailconveying the new prices, Cue remindedthe publishers that, if they did not agree tothe iBookstore by the 27th, other compa-nies, including Amazon and Barnes & No-ble, would certainly build their own bookstore apps for the iPad. Correspondencefrom within the publishing companies alsoshows that Cue promoted the proposal asthe ‘‘best chance for publishers to chal-lenge the 9.99 price point,’’ and empha-sized that Apple would ‘‘not move forwardwith the store [unless] 5 of the 6 [majorpublishers] signed the agreement.’’ J.A.522–23. As Cue said at trial, he attemptedto ‘‘assure [the publishers] that they wer-en’t going to be alone, so that [he] wouldtake the fear awa[y] of the Amazon retri-bution that they were all afraid of.’’ J.A.2068 (internal quotation marks omitted).

‘‘The Apple team reminded the Publish-ers,’’ as the district court found, ‘‘that thiswas a rare opportunity for them to achievecontrol over pricing.’’ Apple, 952F.Supp.2d at 664.

By January 22, two publishers—Simon& Schuster and Hachette—had verballycommitted to join the iBookstore, while athird, Penguin, had agreed to Apple’sterms in principle. As for the others, Cuewas frustrated that they kept ‘‘chickeningout’’ because of the ‘‘dramatic businesschange’’ that Apple was proposing. J.A.547. To make matters worse, ‘‘[p]ress re-ports on January 18 and 19 alerted thepublishing world and Amazon to the Pub-lishers’ negotiations with Apple,’’ Apple,952 F.Supp.2d at 670–71, and Amazonlearned from Random House that it wasfacing ‘‘pressure from other publishers TTT

to move to [the] agency model becauseApple had made it clear that unless all ofthe Big Six participated, they wouldn’tbother with building a bookstore,’’ J.A.1520. Representatives from Amazon de-scended on New York for a set of long-scheduled meetings with the publishers.As the district court found, ‘‘[i]n separateconversations on January 20 and over thenext few days, the Publisher Defendantsall told Amazon that they wanted tochange to an agency distribution modelwith Amazon.’’ Apple, 952 F.Supp.2d at672.

Macmillan, however, presented an issuefor Apple. The district court found that ata January 20 lunch between John Sargentand Amazon, Sargent ‘‘announced thatMacmillan was planning to offer Amazonthe option to choose either an agency [orwholesale] model.’’ Id. But at dinner withCue that night, according to the districtcourt, Cue made sure that Sargent under-

adopting price caps was that ‘‘Apple wouldcontrol price and that price would be stan-dard across the industry.’’ Apple, 952

F.Supp.2d at 670 (internal quotation marksomitted).


stood the consequences of the MFN, ex-plaining ‘‘that Macmillan had no choice butto move Amazon to an agency model if itwanted to sign an agency agreement withApple.’’ 6 Id. The next day, Sargentemailed Cue to express his continued res-ervations about switching Macmillan’s oth-er retailers to an agency relationship.

With the iPad launch fast approaching,Cue enlisted the help of others. Cue hadreceived an email from Simon & Schuster’sCarolyn Reidy, who had already verballycommitted to Apple’s terms and whom Cuewould later call the ‘‘real leader of thebook industry,’’ moments after hearingfrom Sargent. J.A. 621. Cue then spokewith Reidy for twenty minutes beforereaching out to Brian Murray, who, as thedistrict court found, ‘‘was fully supportiveof the requirement that all e-tailers bemoved to an agency model.’’ Apple, 952F.Supp.2d at 673 n. 39. After the discus-sions, Cue asked Sargent to speak withboth Reidy and Murray. Sargent com-plied, and ‘‘spoke to both Murray andReidy by telephone for eight and fifteenminutes, respectively.’’ Id. at 673. Min-utes later, Sargent called the Amazon rep-resentative to inform him that Macmillanplanned to sign an agreement that ‘‘re-quired’’ the company to conduct businesswith Amazon through an agency model.Id. By January 23, Macmillan had verballyagreed to join the iBookstore.

Cue followed a similar strategy withPenguin. While Penguin’s CEO DavidShanks agreed to Apple’s terms on Janu-ary 22, he informed Cue that he wouldjoin the iBookstore only if four other pub-lishers agreed to participate. By January25, Apple had signatures from three pub-

lishers but Penguin was still noncommit-tal. Cue called Shanks, and the two spokefor twenty minutes. ‘‘Less than an hour[later], Shanks called Reidy to discussPenguin’s status in its negotiations withApple.’’ Id. at 675. Penguin signed theContract that afternoon.

HarperCollins was the fifth, and final,publisher to agree in principle to Apple’sproposal. Murray, its CEO, ‘‘remainedunhappy over the size of Apple’s commis-sion and the existence of price caps.’’ Id.at 673 n. 39. Unable to negotiate success-fully with Murray, Cue asked Jobs to con-tact James Murdoch, the CEO of the pub-lisher’s parent company, and ‘‘tell him wehave 3 signed so there is no leap of faithhere.’’ Id. at 675 (internal quotationmarks omitted). After a series of emails,Jobs summarized Apple’s position to Mur-doch:

[W]e simply don’t think the ebook mar-ket can be successful with pricing higherthan $12.99 or $14.99. Heck, Amazon isselling these books at $9.99, and whoknows, maybe they are right and we willfail even at $12.99. But we’re willing totry at the prices we’ve proposedTTTT AsI see it, [HarperCollins] has the follow-ing choices: (1) Throw in with [A]ppleand see if we can all make a go of this tocreate a real mainstream ebooks marketat $12.99 and $14.99. (2) Keep goingwith Amazon at $9.99. You will make abit more money in the short term, but inthe medium term Amazon will tell youthey will be paying you 70% of $9.99.They have shareholders too. (3) Holdback your books from Amazon. Withouta way for customers to buy your ebooks,they will steal them.

6. Although Cue denied discussing the MFNthat night, the district court found this testi-mony not credible in light of Cue’s depositiontestimony and his contemporaneous email toJobs that Sargent had ‘‘legal concerns over

the price-matching.’’ Apple, 952 F.Supp.2dat 672 n. 38 (internal quotation marks omit-ted). This determination was not clearly er-roneous.


Id. at 677. Cue also emailed Murray toinform him that four other publishers hadsigned their agreements. Murray thencalled executives at both Hachette andMacmillan before agreeing to Apple’sterms.

As the district court found, during theperiod in January during which Apple con-cluded its agreements with the PublisherDefendants, ‘‘Apple kept the Publisher De-fendants apprised about who was in andhow many were on board.’’ 7 Id. at 673.The Publisher Defendants also kept inclose communication. As the district courtnoted, ‘‘[i]n the critical negotiation period,over the three days between January 19and 21, Murray, Reidy, Shanks, Young,and Sargent called one another 34 times,with 27 calls exchanged on January 21alone.’’ Id. at 674.

By the January 27 iPad launch, five ofthe Big Six—Hachette, HarperCollins,Macmillan, Penguin, and Simon & Schus-ter—had agreed to participate in theiBookstore. The lone holdout, RandomHouse, did not join because its executivesbelieved it would fare better under awholesale pricing model and were unwill-ing to make a complete switch to agencypricing. Steve Jobs announced the iBook-store as part of his presentation introduc-ing the iPad. When asked after the presen-tation why someone should purchase anebook from Apple for $14.99 as opposed to

$9.99 with Amazon or Barnes & Noble,Jobs confidently replied, ‘‘[t]hat won’t bethe case TTT the price will be the sameTTTT

[P]ublishers will actually withhold their[e]books from Amazon TTT because theyare not happy with the price.’’ 8 A daylater, Jobs told his biographer the publish-ers’ position with Amazon: ‘‘[y]ou’re goingto sign an agency contract or we’re notgoing to give you the books.’’ J.A. 891(internal quotation marks omitted).

E. Negotiations with Amazon

Jobs’s boast proved to be prophetic.While the Publisher Defendants were sign-ing Apple’s Contracts, they were also in-forming Amazon that they planned onchanging the terms of their agreementswith it to an agency model. However,their move against Amazon began in ear-nest on January 28, the day after the iPadlaunch. That afternoon, John Sargentflew to Seattle to deliver an ultimatum onbehalf of Macmillan: that Amazon wouldswitch its ebook sales agreement withMacmillan to an agency model or suffer aseven-month delay in its receipt of Macmil-lan’s new releases.9 Amazon responded byremoving the option to purchase Macmil-lan’s print and ebook titles from its web-site.

Sargent, as the district court found, hadinformed Cue of his intention to confrontAmazon before ever leaving for Seattle.10

7. Indeed, on the morning of January 21, Ap-ple’s initial deadline for the publishers tocommit to agency, Simon & Schuster’s Reidyemailed Cue to get ‘‘an update on your prog-ress in herding us cats.’’ J.A. 543.

8. On January 29, Simon & Schuster’s generalcounsel wrote to Reidy that she ‘‘[could not]believe that Jobs made [this] statement,’’which she considered ‘‘[i]ncredibly stupid.’’J.A. 638.

9. As the district court found, ‘‘[s]even monthswas no random period—it was the number of

months for which titles were designated NewRelease titles under the Apple Agreement andrestrained by the Apple price caps and MFN.’’Apple, 952 F.Supp.2d at 679.

10. At trial, Cue claimed he had no advanceknowledge of Sargent’s plan to go to Seattle,but the district court found this testimony tobe incredible. Sargent had emailed Cueabout his trip days before the meeting tookplace. Moreover, on January 28, the day ofthe meeting, Jobs told his biographer that thePublisher Defendants ‘‘went to Amazon andsaid, ‘You’re going to sign an agency contract


Apple, 952 F.Supp.2d at 678. On his re-turn, he emailed Cue to inform him aboutAmazon’s decision to remove Macmillanebooks from Kindle, adding a note to saythat he wanted to ‘‘make sure you are inthe loop.’’ J.A. 640. Sargent also wrote apublic letter to Macmillan’s authors andagents, describing the Amazon negotia-tions. Hachette’s Arnaud Nourry emailedthe CEO of Macmillan’s parent companyto express his ‘‘personal support’’ for Mac-millan’s actions and to ‘‘ensure [him] that[he was] not going to find [his] companyalone in the battle.’’ J.A. 643. A Penguinexecutive wrote to express similar supportfor Macmillan’s position.

The district court found that while Ama-zon was ‘‘opposed to adoption of the agen-cy model and did not want to cede pricingauthority to the Publishers,’’ it knew thatit could not prevail in this position againstfive of the Big Six. Apple, 952 F.Supp.2d at671, 680. When Amazon told Macmillanthat it would be willing to negotiate agencyterms, Sargent sent Cue an email titled‘‘URGENT!!’’ that read: ‘‘Hi Eddy, I amgonna need to figure out our final agencyterms of sale tonight. Can you call meplease?’’ J.A. 642. Cue and Sargentspoke that night and, while Cue denied attrial that the conversation concerned Mac-millan’s negotiations with Amazon, the dis-trict court found that ‘‘his denial was notcredible.’’ 11 Apple, 952 F.Supp.2d at 681n. 52. By February 5, Amazon had agreedto agency terms with Macmillan.

The other publishers who had joined theiBookstore quickly followed Macmillan’slead. On February 11, Reidy wrote to the

head of CBS that Simon & Schuster wasbeginning agency negotiations with Ama-zon. She informed him that she was try-ing to ‘‘delay’’ negotiations because it was‘‘imperative TTT that the other publisherswith whom Apple has announced dealspush for resolution on their term changes’’at the same time, ‘‘thus not leaving us outthere alone.’’ J.A. 701. Each of the Pub-lisher Defendants then informed Amazonthat they were under tight deadlines tonegotiate new agency agreements, andkept one another informed about the de-tails of their negotiations. As David Nag-gar, one of Amazon’s negotiators, testified,whenever Amazon ‘‘would make a conces-sion on an important deal point,’’ it would‘‘come back to us from another publisherasking for the same thing or proposingsimilar language.’’ J.A. 1491.

Once again, Apple closely monitored thenegotiations with Amazon. The PublisherDefendants would inform Cue when theyhad completed agency agreements, and histeam monitored price changes on the Kin-dle. When Penguin languished behind theothers, Cue informed Jobs that Apple was‘‘changing a bunch of Penguin titles to9.99’’ in the iBookstore ‘‘because theydidn’t get their Amazon deal done.’’ Ap-ple, 952 F.Supp.2d at 682 (internal quota-tion marks omitted). By March 2010,Macmillan, HarperCollins, Hachette, andSimon & Schuster had completed agencyagreements with Amazon. When Penguincompleted its deal in June, the company’sexecutive proudly announced to Cue that‘‘[t]he playing field is now level.’’ Id. (in-ternal quotation marks omitted).12

or we’re not going to give you the books.’ ’’Apple, 952 F.Supp.2d at 678 n. 47. The dis-trict court’s assessment of Cue’s credibilitywas not clearly erroneous.

11. As the district court noted, Macmillan hadexecuted its Contract with Apple a week earli-er, so that ‘‘the only final agency terms still

under discussion were with Amazon.’’ Apple,952 F.Supp.2d at 681 n. 52.

12. Eventually, the Publisher Defendants nego-tiated agency agreements with Barnes & No-ble, and later Google. Random House alsoadopted the agency model, and joined theiBookstore, in early 2011.


F. Effect on Ebook Prices

As Apple and the Publisher Defendantsexpected, the iBookstore price caps quicklybecame the benchmark for ebook versionsof new releases and New York Times best-sellers. In the five months following thelaunch of the iBookstore, the publisherswho joined the marketplace and switchedAmazon to an agency model priced 85.7%of new releases on Kindle and 92.1% ofnew releases on the iBookstore at, or justbelow, the price caps. Apple, 952F.Supp.2d at 682. Prices for New YorkTimes bestsellers took a similar leap aspublishers began to sell 96.8% of theirbestsellers on Kindle and 99.4% of theirbestsellers on the iBookstore at, or justbelow, the Apple price caps. Id. Duringthat same time period, Random House,which had not switched to an agency mod-el, saw virtually no change in the prices forits new releases or New York Times best-sellers.

The Apple price caps also had a rippleeffect on the rest of the Publisher Defen-dants’ catalogues. Recognizing that Ap-ple’s price caps were tied to the price ofhardcover books, many of these publishersincreased the prices of their newly re-leased hardcover books to shift the ebookversion into a higher price category. Id.at 683. Furthermore, because the Pub-lisher Defendants who switched to theagency model expected to make less mon-ey per sale than under the wholesale mod-el, they also increased the prices on theirebooks that were not new releases or best-sellers to make up for the expected loss ofrevenue.13 Based on data from February2010—just before the Publisher Defen-dants switched Amazon to agency pric-

ing—to February 2011, an expert retainedby the Justice Department observed thatthe weighted average price of the Publish-er Defendants’ new releases increased by24.2%, while bestsellers increased by40.4%, and other ebooks increased by27.5%, for a total weighted average ebookprice increase of 23.9%.14 Indeed, even Ap-ple’s expert agreed, noting that, over atwo-year period, the Publisher Defendantsincreased their average prices for hardcov-ers, new releases, and other ebooks.

Increasing prices reduced demand forthe Publisher Defendants’ ebooks. Ac-cording to one of Plaintiffs’ experts, thepublishers who switched to agency sold77,307 fewer ebooks over a two-week peri-od after the switch to agency than in acomparable two-week period before theswitch, which amounted to selling 12.9%fewer units. Id. at 684. Another expertrelied on data from Random House toestimate how many ebooks the PublisherDefendants who switched Amazon to agen-cy would have sold had they stayed withthe wholesale model, and concluded thatthe agency switch and price increases ledto 14.5% fewer sales. Id.

Significantly, these changes took placeagainst the backdrop of a rapidly changingebook market. Amazon introduced theKindle in November 2007, just over twoyears before Apple launched the iPad inJanuary 2010. During that short period,Apple estimated that the market grewfrom $70 million in ebook sales in 2007 to$280 million in 2009, and the companyprojected those figures to grow significant-ly in following years. Apple’s expert wit-nesses argued that overall ebook sales con-tinued to grow in the two years after the

13. The five Publisher Defendants accountedfor 48.8% of all retail trade ebook sales in theUnited States during the first quarter of 2010.

14. A weighted average price controls for thefact that different ebooks sell in differentquantities by dividing the total price that con-sumers paid for ebooks by the total number ofebooks sold.


creation of the iBookstore and that theaverage ebook price fell during thoseyears. But as Plaintiffs’ experts pointedout, the ebook market had been expandingrapidly even before Apple’s entry and av-erage prices had been falling as lower-endpublishers entered the market and largernumbers of old books became available indigital form. ‘‘Apple’s experts did notpresent any analysis that attempted tocontrol for the many changes that the e-book market was experiencing duringthese early years of its growth,’’ Apple,952 F.Supp.2d at 685, nor did they esti-mate how the market would have grownbut for Apple’s agreement with the Pub-lisher Defendants to switch to an agencymodel and raise prices. To the contrary,the undisputed fact that the Publisher De-fendants raised prices on their ebooks,which accounted for roughly 50% of thetrade ebook market in the first quarter of2010, necessitated ‘‘a finding that the ac-tions taken by Apple and the PublisherDefendants led to an increase in the priceof e-books.’’ Id.

Finally, in response to the dissent’sclaim that Apple’s conduct ‘‘deconcen-trat[ed] TTT the e-book retail market’’ andthus was ‘‘pro-competitive,’’ Dissenting Op.at 351, it is worth noting that the districtcourt’s economic analysis and the parties’submissions at trial focused entirely on theprice and sales figures for trade ebooks.This is because both parties agreed thatthe relevant market in this case is ‘‘thetrade e-books market, not the e-readermarket or the ‘e-books system’ market.’’United States v. Apple, Inc., 889F.Supp.2d 623, 642 (S.D.N.Y.2012); Apple,952 F.Supp.2d at 694 n. 60. The districtcourt did not analyze the state of competi-tion between ebook retailers or determinethat Amazon’s pricing policy acted, as thedissent accuses, as a ‘‘barrier[ ] to entry’’for other potential retailers. DissentingOp. at 348–49, 351.

II. Procedural History

On April 11, 2012, Plaintiffs filed a pairof civil antitrust actions in the UnitedStates District Court for the Southern Dis-trict of New York. The complaints allegedthat Apple and the Publisher Defen-dants—Hachette, HarperCollins, Macmil-lan, Penguin, and Simon & Schuster—con-spired to raise, fix, and stabilize the retailprice for newly released and bestsellingtrade ebooks in violation of § 1 of theSherman Act and various state laws. Thelitigation then proceeded along two sepa-rate trajectories, one for the Publisher De-fendants and the other for Apple.

A. Publisher Defendants

Hachette, HarperCollins, and Simon &Schuster agreed to settle with DOJ bysigning consent decrees on the same daythat the Justice Department filed its com-plaint. Pursuant to the Tunney Act, 15U.S.C. § 16 et seq., ‘‘at least 60 days priorto the effective date’’ of a consent judg-ment, the United States must file a ‘‘com-petitive impact statement,’’ which includes,inter alia, ‘‘the nature and purpose of theproceeding,’’ ‘‘a description of the practicesor events giving rise to the alleged viola-tion of the antitrust laws,’’ and an explana-tion of the relief obtained by the consentjudgment ‘‘and the anticipated effects oncompetition of such relief.’’ Id. § 16(b).In compliance with these requirements,DOJ issued a competitive impact state-ment that outlined the remedies it plannedto impose on Hachette, HarperCollins, andSimon & Schuster. Two of those proposedremedies required that, for two years, thethree publishers ‘‘not restrict, limit, or im-pede an E-book Retailer’s ability to set,alter, or reduce the Retail Price of any E-book or to offer price discounts or anyother form of promotions,’’ and that theynot ‘‘enter into any agreement’’ with retail-


ers that limit such practices. J.A. 171126–27.

After the 60–day comment period, theJustice Department moved in the districtcourt for a decision that ‘‘the entry of thejudgment is in the public interest,’’ 15U.S.C. § 16(e), and for approval of theconsent decree. In defense of the two-year limitations provisions, DOJ explainedthat the Publisher Defendants had usedretail price restrictions to ‘‘effectuat[e] theconspiracy’’ and that two years was suffi-cient to ‘‘allow movement in the market-place away from collusive conditions’’ with-out ‘‘alter[ing] the ultimate development ofthe competitive landscape in the still-evolv-ing e-books industry.’’ J.A. 1054–55. OnSeptember 5, 2012, the district court ap-proved the consent decree and found thetwo-year ban on retail-price restrictions‘‘wholly appropriate given the Settling De-fendants’ alleged abuse of such provisionsTTT, the Government’s recognition thatsuch terms are not intrinsically unlawful,and the nascent state of competition in thee-books industry.’’ J.A. 1088.

The remaining Publisher Defendants,Penguin and Macmillan, settled in quicksuccession. On December 18, 2012, Pen-guin agreed to a consent decree with es-sentially the same terms that Hachette,HarperCollins, and Simon & Schuster re-ceived. A few months later, in February2013, Macmillan also agreed to settle. Theterms of Macmillan’s consent decree con-tained slight modifications. Rather thandelaying the prohibition on retail discountsuntil the court approved the decree, DOJrequired Macmillan to begin compliancewithin three days of signing the decree.In exchange, the Justice Departmentagreed to back-date the beginning of thelimitations period to December 18, 2012and to reduce its length from two years to23 months, explaining that ‘‘[c]onsumersare better served by bringing more imme-

diate retail price competition to the mar-ket’’ and that a ‘‘23–month cooling-off peri-od is sufficient’’ to restore competition.J.A. 1162–63. The district court approvedPenguin’s consent decree on May 17, 2013,and Macmillan’s on August 12, 2013.

B. Apple

Unlike the Publisher Defendants, Appleopted to take the case to trial. Fact andexpert discovery concluded on March 22,2013 and, after filing pretrial motions, theparties agreed to a bench trial on Apple’sliability and injunctive relief, to be followedby a separate trial on damages on thestate claims if the states prevailed.

On July 10, 2013, after conducting athree-week bench trial, the district courtconcluded that Apple had violated § 1 ofthe Sherman Act and various state anti-trust laws. In brief, the court found thatApple ‘‘orchestrat[ed]’’ a conspiracy amongthe Publisher Defendants to ‘‘eliminate re-tail price competition [in the e-book mar-ket] in order to raise the retail prices of e-books.’’ Apple, 952 F.Supp.2d at 697. Be-cause this conspiracy consisted of a groupof competitors—the Publisher Defen-dants—assembled by Apple to increaseprices, it constituted a ‘‘horizontal price-fixing conspiracy’’ and was a per se viola-tion of the Sherman Act. Id. at 694. Itconcluded, moreover, that even if theagreement to raise prices and eliminateretail price competition were analyzed un-der the rule of reason, it would still consti-tute an unreasonable restraint of trade inviolation of § 1. Id. In the district court’sview, Plaintiffs’ experts persuasively dem-onstrated that the agreement facilitated an‘‘across-the board price increase in e-bookssold by the Publisher Defendants’’ and acorresponding drop in sales. Id. Apple, onthe other hand, failed to show that ‘‘theexecution of the Agreements,’’ as opposedto the launch of the iPad and ‘‘evolution of


digital publishing more generally’’ (whichwere independent of the Agreements),‘‘had any pro-competitive effects.’’ Id.

After the district court issued its liabilitydecision, the parties submitted briefing oninjunctive relief. The court conducted ahearing on the issue and, on September 5,2013, issued a final injunctive order againstApple and entered final judgment. Theinjunctive order consists of four categoriesof relief: (1) ‘‘Prohibited Conduct,’’ whichprevents Apple from enforcing MFNs withebook publishers, retaliating against pub-lishers for signing agreements with otherretailers, or agreeing with any of the Pub-lisher Defendants to restrict, limit, or im-pede Apple’s ability to set ebook retailprices; (2) ‘‘Required Conduct,’’ which,among other things, forces Apple to modi-fy its agency agreements with the Publish-er Defendants and to treat ebook apps soldin the iTunes store like any other app soldthere; (3) ‘‘Antitrust Compliance,’’ whichrequires Apple to improve its internal sys-tem for preventing antitrust violations;and (4) ‘‘External Compliance Moni-tor[ing],’’ which allows the court to appointan external monitor to ensure Apple’s com-pliance with the injunctive order.

After the entry of the district court’sinjunctive order, Apple, Macmillan, and Si-mon & Schuster filed this appeal. Theparties have not yet conducted a trial toassess the damages stemming from thestate antitrust claims.

DISCUSSION

To hold a defendant liable for violating§ 1 of the Sherman Act, a district courtmust find ‘‘a combination or some form ofconcerted action between at least two le-gally distinct economic entities’’ that ‘‘con-stituted an unreasonable restraint oftrade.’’ Capital Imaging Assocs. v. Mo-hawk Valley Med. Assocs., 996 F.2d 537,542 (2d Cir.1993); see 15 U.S.C. § 1. Onappeal, Apple challenges numerous aspects

of the district court’s § 1 analysis and alsocontends that the injunctive order that thedistrict court imposed on the company isunlawful. Macmillan and Simon & Schus-ter have joined Apple’s challenge to theinjunction, arguing that it impermissiblyinterferes with their consent decrees andis barred by the doctrine of judicial estop-pel. We conclude that the district court’sliability determination was sound and itsinjunctive order lawful. We therefore af-firm the judgment of the district court.

I. Standard of Review

Following a bench trial, this Court re-views the ‘‘district court’s findings of factfor clear error’’ and its ‘‘conclusions of lawand mixed questions de novo.’’ Connors v.Conn. Gen. Life Ins. Co., 272 F.3d 127, 135(2d Cir.2001); see Fed.R.Civ.P. 52(a). Thedistrict court’s evidentiary rulings and itsfashioning of equitable relief are reviewedfor abuse of discretion. See Zerega Ave.Realty Corp. v. Hornbeck OffshoreTransp., LLC, 571 F.3d 206, 212–13 (2dCir.2009) (evidentiary rulings); Abraham-son v. Bd. of Educ. Of the WappingersFalls Cent. Sch. Dist., 374 F.3d 66, 76 (2dCir.2004) (equitable relief).

II. Apple’s Liability Under § 1

[1] This appeal requires us to addressthe important distinction between ‘‘hori-zontal’’ agreements to set prices, whichinvolve coordination ‘‘between competitorsat the same level of [a] market structure,’’and ‘‘vertical’’ agreements on pricing,which are created between parties ‘‘at dif-ferent levels of [a] market structure.’’Anderson News, L.L.C. v. Am. Media,Inc., 680 F.3d 162, 182 (2d Cir.2012) (inter-nal quotation marks omitted). Under § 1of the Sherman Act, the former are, withlimited exceptions, per se unlawful, whilethe latter are unlawful only if an assess-ment of market effects, known as a rule-of-

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reason analysis, reveals that they unrea-sonably restrain trade. See Leegin Crea-tive Leather Prods., Inc. v. PSKS, Inc.,551 U.S. 877, 893, 127 S.Ct. 2705, 168L.Ed.2d 623 (2007).

Although this distinction is sharp in the-ory, determining the orientation of anagreement can be difficult as a matter offact and turns on more than simply identi-fying whether the participants are at thesame level of the market structure. Forinstance, courts have long recognized theexistence of ‘‘hub-and-spoke’’ conspiraciesin which an entity at one level of themarket structure, the ‘‘hub,’’ coordinatesan agreement among competitors at a dif-ferent level, the ‘‘spokes.’’ Howard HessDental Labs. Inc. v. Dentsply Int’l, Inc.,602 F.3d 237, 255 (3d Cir.2010); see alsoToys ‘‘R’’ Us, Inc. v. FTC, 221 F.3d 928,932–34 (7th Cir.2000). These arrange-ments consist of both vertical agreementsbetween the hub and each spoke and ahorizontal agreement among the spokes‘‘to adhere to the [hub’s] terms,’’ oftenbecause the spokes ‘‘would not have gonealong with [the vertical agreements] ex-cept on the understanding that the other[spokes] were agreeing to the same thing.’’VI Phillip E. Areeda & Herbert Hoven-kamp, Antitrust Law ¶ 1402c (3d ed.2010)(citing PepsiCo, Inc. v. Coca–Cola Co., 315F.3d 101 (2d Cir.2002)); see also Am. BarAss’n, Antitrust Law Developments 24–26(6th ed.2007); XII Areeda & Hovenkamp,supra, ¶ 2004c.15

Apple characterizes its Contracts withthe Publisher Defendants as a series ofparallel but independent vertical agree-ments, a characterization that forms thebasis for its two primary argumentsagainst the district court’s decision. First,

Apple argues that the district court imper-missibly inferred its involvement in a hori-zontal price-fixing conspiracy from theContracts themselves. Because (in Ap-ple’s view) the Contracts were vertical,lawful, and in Apple’s independent eco-nomic interest, the mere fact that Appleagreed to the same terms with multiplepublishers cannot establish that Apple con-sciously organized a conspiracy among thePublisher Defendants to raise consumer-facing ebook prices—even if the effect ofits Contracts was to raise those prices.Second, Apple argues that, even if it didorchestrate a horizontal price-fixing con-spiracy, its conduct should not be subjectto per se condemnation. According to Ap-ple, proper application of the rule of rea-son reveals that its conduct was not unlaw-ful.

For the reasons set forth below, wereject these arguments. On this record,the district court did not err in determin-ing that Apple orchestrated an agreementwith and among the Publisher Defendants,in characterizing this agreement as a hori-zontal price fixing-conspiracy, or in holdingthat the conspiracy unreasonably re-strained trade in violation of § 1 of theSherman Act.

A. The Conspiracy with the Publish-er Defendants

[2, 3] Section 1 of the Sherman Actbans restraints on trade ‘‘effected by acontract, combination, or conspiracy.’’Bell Atl. Corp. v. Twombly, 550 U.S. 544,553, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)(internal quotation marks omitted). Thefirst ‘‘crucial question in a Section 1 case istherefore whether the challenged conduct‘stem[s] from independent decision or from

15. In this sense, the ‘‘hub-and-spoke’’ meta-phor is somewhat inaccurate—the plaintiffmust also prove the existence of a ‘‘rim’’ tothe wheel in the form of an agreement among

the horizontal competitors. See Dickson v.Microsoft Corp., 309 F.3d 193, 203–04 (4thCir.2002).


an agreement, tacit or express.’ ’’ Starr v.Sony BMG Music Entm’t, 592 F.3d 314,321 (2d Cir.2010) (alteration in original)(quoting Theatre Enters., Inc. v. Para-mount Film Distrib. Corp., 346 U.S. 537,540, 74 S.Ct. 257, 98 L.Ed. 273 (1954)).

[4–7] Identifying the existence and na-ture of a conspiracy requires determiningwhether the evidence ‘‘reasonably tends toprove that the [defendant] and others hada conscious commitment to a commonscheme designed to achieve an unlawfulobjective.’’ Monsanto Co. v. Spray–RiteServ. Corp., 465 U.S. 752, 764, 104 S.Ct.1464, 79 L.Ed.2d 775 (1984) (internal quo-tation marks omitted). Parallel action isnot, by itself, sufficient to prove the exis-tence of a conspiracy; such behavior couldbe the result of ‘‘coincidence, independentresponses to common stimuli, or mere in-terdependence unaided by an advance un-derstanding among the parties.’’ Twom-bly, 550 U.S. at 556 n. 4, 127 S.Ct. 1955(internal quotation marks omitted). In-deed, parallel behavior that does not resultfrom an agreement is not unlawful even ifit is anticompetitive. See In re Text Mes-saging Antitrust Litig., 782 F.3d 867, 873–79 (7th Cir.2015); In re Flat Glass Anti-trust Litig., 385 F.3d 350, 360–61 (3d Cir.2004). Accordingly, to prove an antitrustconspiracy, ‘‘a plaintiff must show the exis-tence of additional circumstances, often re-ferred to as ‘plus’ factors, which, whenviewed in conjunction with the parallelacts, can serve to allow a fact-finder toinfer a conspiracy.’’ Apex Oil Co. v. Di-Mauro, 822 F.2d 246, 253 (2d Cir.1987).

[8] These additional circumstances can,of course, consist of ‘‘direct evidence thatthe defendants entered into an agreement’’like ‘‘a recorded phone call in which twocompetitors agreed to fix prices.’’ Mayor& City Council of Baltimore, Md. v. Citi-group, Inc., 709 F.3d 129, 136 (2d Cir.2013). But plaintiffs may also ‘‘present

circumstantial facts supporting the infer-ence that a conspiracy existed.’’ Id. Cir-cumstances that may raise an inference ofconspiracy include ‘‘a common motive toconspire, evidence that shows that the par-allel acts were against the apparent indi-vidual economic self-interest of the allegedconspirators, and evidence of a high levelof interfirm communications.’’ Id. (inter-nal quotation marks omitted). Parallelconduct alone may support an inference ofconspiracy, moreover, if it consists of‘‘complex and historically unprecedentedchanges in pricing structure made at thevery same time by multiple competitors,and made for no other discernible reason.’’Id. at 137 (internal quotation marks omit-ted).

[9] Because of the risk of condemningparallel conduct that results from indepen-dent action and not from an actual unlaw-ful agreement, the Supreme Court hascautioned against drawing an inference ofconspiracy from evidence that is equallyconsistent with independent conduct aswith illegal conspiracy—or, as the Courthas called it, ‘‘ambiguous’’ evidence. Mat-sushita Elec. Indus. Co. v. Zenith RadioCorp., 475 U.S. 574, 597 n. 21, 106 S.Ct.1348, 89 L.Ed.2d 538 (1986). Thus, a find-ing of conspiracy requires ‘‘evidence thattends to exclude the possibility’’ that thedefendant was ‘‘acting independently.’’Monsanto, 465 U.S. at 764, 104 S.Ct. 1464.This requirement, however, ‘‘[does] notmean that the plaintiff must disprove allnonconspiratorial explanations for the de-fendants’ conduct’’; rather, the evidenceneed only be sufficient ‘‘to allow a reason-able fact finder to infer that the conspira-torial explanation is more likely than not.’’In re Publ’n Paper Antitrust Litig., 690F.3d 51, 63 (2d Cir.2012) (quoting PhillipE. Areeda & Herbert Hovenkamp, Funda-mentals of Antitrust Law § 14.03(b), at14–25 (4th ed.2011)); accord Matsushita,


475 U.S. at 588, 106 S.Ct. 1348 (requiringthat ‘‘the inference of conspiracy is reason-able in light of the competing inferences ofindependent action’’); In re High FructoseCorn Syrup Antitrust Litig., 295 F.3d 651,655–56 (7th Cir.2002).

[10] Apple portrays its Contracts withthe Publisher Defendants as, at worst,‘‘unwittingly facilitat[ing]’’ their joint con-duct. Apple Br. at 23. All Apple did, itclaims, was attempt to enter the market onprofitable terms by offering contractualprovisions—an agency model, the MFNClause, and tiered price caps—which en-sured the company a small profit on eachebook sale and insulated it from retailprice competition. This had the effect ofraising prices because it created an incen-tive for the Publisher Defendants to de-mand that Amazon adopt an agency modeland to seize control over consumer-facingebook prices industry-wide. But althoughApple knew that its contractual termswould entice the Publisher Defendants(who wanted to do away with Amazon’s$9.99 pricing) to seek control over pricesfrom Amazon and other ebook retailers,Apple’s success in capitalizing on the Pub-lisher Defendants’ preexisting incentives,it contends, does not suggest that it joineda conspiracy among the Publisher Defen-dants to raise prices. In sum, Apple’sbasic argument is that because its Con-tracts with the Publisher Defendants werefully consistent with its independent busi-ness interests, those agreements provideonly ‘‘ambiguous’’ evidence of a § 1 con-spiracy, and the district court thereforeerred under Matsushita and Monsanto ininferring such a conspiracy.

We disagree. At the start, Apple’s be-nign portrayal of its Contracts with thePublisher Defendants is not persuasive—not because those Contracts themselveswere independently unlawful, but because,in context, they provide strong evidence

that Apple consciously orchestrated a con-spiracy among the Publisher Defendants.As explained below, and as the districtcourt concluded, Apple understood that itsproposed Contracts were attractive to thePublisher Defendants only if they collec-tively shifted their relationships with Ama-zon to an agency model—which Appleknew would result in higher consumer-facing ebook prices. In addition to theseContracts, moreover, ample additional evi-dence identified by the district court estab-lished both that the Publisher Defendants’shifting to an agency model with Amazonwas the result of express collusion amongthem and that Apple consciously played akey role in organizing that collusion. Thedistrict court did not err in concluding thatApple was more than an innocent bystand-er.

Apple offered each Big Six publisher aproposed Contract that would be attractiveonly if the publishers acted collectively.Under Apple’s proposed agency model, thepublishers stood to make less money persale than under their wholesale agree-ments with Amazon, but the Publisher De-fendants were willing to stomach this lossbecause the model allowed them to sellnew releases and bestsellers for more than$9.99. Because of the MFN Clause, how-ever, each new release and bestseller soldin the iBookstore would cost only $9.99 aslong as Amazon continued to sell ebooks atthat price. So in order to receive theperceived benefit of Apple’s proposed Con-tracts, the Publisher Defendants had toswitch Amazon to an agency model aswell—something no individual publisherhad sufficient leverage to do on its own.Thus, each Publisher Defendant would beable to accomplish the shift to agency—and therefore have an incentive to signApple’s proposed Contracts—only if it act-ed in tandem with its competitors. SeeStarr, 592 F.3d at 324; Flat Glass, 385


F.3d at 360–61; see also J.A. 1974 (notingthat the agreements would ‘‘not fix thepublishers’ problems’’ if they could notmove Amazon to an agency model). Bythe very act of signing a Contract withApple containing an MFN Clause, then,each of the Publisher Defendants signaleda clear commitment to move against Ama-zon, thereby facilitating their collective ac-tion. As the district court explained, theMFNs ‘‘stiffened the spines’’ of the Pub-lisher Defendants. Apple, 952 F.Supp.2dat 665.

As a sophisticated negotiator, Apple wasfully aware that its proposed Contractswould entice a critical mass of publishersonly if these publishers perceived an op-portunity collectively to shift Amazon toagency.16 In fact, this was the very pur-pose of the MFN, which Apple’s Saul de-vised as an elegant alternative to a provi-sion that would have explicitly requiredthe publishers to adopt an agency modelwith other retailers. As Cue put it, theMFN ‘‘force[d] the model’’ from wholesaleto agency. J.A. 865. Indeed, the MFN’scapacity for forcing collective action by thepublishers was precisely what enabledJobs to predict with confidence that ‘‘theprice will be the same’’ on the iBookstoreand the Kindle when he announced thelaunch of the iPad—the same, Jobs said,because the publishers would make Ama-zon ‘‘sign TTT agency contract[s]’’ bythreatening to withhold their ebooks. J.A.891. Apple was also fully aware that oncethe Publisher Defendants seized controlover consumer-facing ebook prices, thoseprices would rise. It knew from the outsetthat the publishers hated Amazon’s $9.99

price point, and it put price caps in itsagreements because it specifically antici-pated that once the publishers gained con-trol over prices, they would push themhigher than $9.99, higher than Apple itselfdeemed ‘‘realistic.’’ Apple, 952 F.Supp.2dat 692 (internal quotation marks omitted).

[11] On appeal, Apple nonetheless de-fends the Contracts that it proposed to thepublishers as an ‘‘aikido move’’ thatshrewdly leveraged market conditions toits own advantage. Apple Br. at 17.‘‘[A]ikido move’’ or not, the attractivenessof Apple’s offer to the Publisher Defen-dants hinged on whether it could success-fully help organize them to force Amazonto an agency model and then to use theirnewfound collective control to raise ebookprices. The Supreme Court has definedan agreement for Sherman Act § 1 pur-poses as ‘‘a conscious commitment to acommon scheme designed to achieve anunlawful objective.’’ Monsanto, 465 U.S.at 764, 104 S.Ct. 1464 (internal quotationmarks omitted). Plainly, this use of thepromise of higher prices as a bargainingchip to induce the Publisher Defendants toparticipate in the iBookstore constituted aconscious commitment to the goal of rais-ing ebook prices. ‘‘Antitrust law has neverrequired identical motives among conspira-tors’’ when their independent reasons forjoining together lead to collusive action.Spectators’ Commc’n Network Inc. v. Colo-nial Country Club, 253 F.3d 215, 220 (5thCir.2001) (emphasis added). Put different-ly, ‘‘independent reasons’’ can also be ‘‘in-terdependent,’’ and the fact that Apple’sconduct was in its own economic interest in

16. Apple’s argument on appeal that it did nothave sufficient market power to coordinatethe Publisher Defendants is beside the point.Market power may afford one means bywhich a company can coerce others to com-ply with its wishes, but brute force is not theonly way to foster an agreement. Here, both

Apple and the Publisher Defendants under-stood that Apple was in a position to ‘‘solve’’the publishers’ ‘‘Amazon problem’’ by helpingthem eliminate what they saw as a mortalthreat to their businesses—namely, the $9.99price point.


no way undermines the inference that itentered an agreement to raise ebookprices. VI Areeda & Hovenkamp, supra,¶ 1413a (internal quotation marks omitted).

Nor was the Publisher Defendants’ jointaction against Amazon a result of paralleldecisionmaking. As we have explained,conduct resulting solely from competitors’independent business decisions—and notfrom any ‘‘agreement’’—is not unlawfulunder § 1 of the Sherman Act, even if it isanticompetitive. See Text Messaging, 782F.3d at 873–79. But to generate a per-missible inference of agreement, a plaintiffneed only present sufficient evidence thatsuch agreement conclude that it was notequally likely that the near-simultaneoussigning of Apple’s Contracts by multiplepublishers—which led to all of the Pub-lisher Defendants moving against Ama-zon—resulted from the parties’ indepen-dent decisions, as opposed to a ‘‘meetingof [the] minds.’’ Monsanto, 465 U.S. at765, 104 S.Ct. 1464; see Toys ‘‘R’’ Us, 221F.3d at 935–36 (holding that exclusive-dealing agreements between a retailer andmanufacturers that were contrary to themanufacturers’ individual self-interest butconsistent with their collective interestsupported the inference of a horizontalconspiracy in which the retailer participat-ed); VI Areeda & Hovenkamp, supra,¶ 1425a, d (‘‘[A] conspiracy may be in-ferred if a defendant’s action would havebeen contrary to its self-interest in theabsence of advance agreement.’’ Id.¶ 1425a). That the Publisher Defendants

were in constant communication regardingtheir negotiations with both Apple andAmazon can hardly be disputed. Indeed,Apple never seriously argues that thePublisher Defendants were not acting inconcert.

Even so, Apple claims, it cannot haveorganized the conspiracy among thePublisher Defendants if it merely ‘‘un-wittingly facilitated [their] joint conduct.’’Apple Br. at 23. But this argumentfounders—and dramatically so—on thefactual findings of the district court. Asthe district court explained, Apple’s Con-tracts with the publishers ‘‘must be con-sidered in the context of the entire rec-ord.’’ Apple, 952 F.Supp.2d at 699.Even if Apple was unaware of the ex-tent of the Publisher Defendants’ coordi-nation when it first approached them,17

its subsequent communications with themas negotiations progressed show thatApple consciously played a key role inorganizing their express collusion. Fromthe outset, Cue told the publishers thatApple would launch its iBookstore onlyif a sufficient number of them agreed toparticipate and that each publisherwould receive identical terms, assuringthem that a critical mass of major pub-lishers would be prepared to moveagainst Amazon. Later on, Cue and histeam kept the publishers updated abouthow many of their peers signed Apple’sContracts, and reminded them that itwas offering ‘‘the best chance for pub-

17. Apple endeavors to draw the districtcourt’s factfinding into doubt by asserting,erroneously, that the ‘‘bedrock of the court’sentire decision’’ hinges on its supposed deter-mination that Apple, knowing that the pub-lishers had been coordinating beforehand,joined a preexisting conspiracy to raise pricesat its initial meetings with the Publisher De-fendants—a proposition that, it says, is un-supported by the record. The district court,however, did not find that Apple joined an

ongoing conspiracy in late 2009, but merelyobserved that Apple went into its initial meet-ings with the understanding that the Publish-er Defendants disliked, and were trying tofight, Amazon’s $9.99 pricing, and so wouldbe receptive to the news that Apple was opento higher prices. See Apple, 952 F.Supp.2d at703. These findings were amply supportedand help explain how the agreement amongApple and the Publisher Defendants thereaf-ter emerged.


lishers to challenge the 9.99 price point’’before it became ‘‘cement[ed]’’ in ‘‘con-sumer expectations.’’ J.A. 522. Whentime ran short, Apple coordinated phonecalls between the publishers who hadagreed and those who remained on thefence.18 As Cue said at trial, Apple en-deavored to ‘‘assure [the publishers] thatthey weren’t going to be alone, so that[Apple] would take the fear awa[y] ofthe Amazon retribution that they wereall afraid of.’’ J.A. 2068.

Apple’s involvement in the conspiracycontinued even past the signing of itsagency agreements. Before Sargent flewto Seattle to meet with Amazon, he toldCue. Apple stayed abreast of the PublisherDefendants’ progress as they set coordi-nated deadlines with Amazon and sharedinformation with one another during nego-tiations. Apple’s communications with thePublisher Defendants thus went well be-yond legitimately ‘‘exchang[ing] informa-tion’’ within ‘‘the normal course of busi-ness,’’ Monsanto, 465 U.S. at 762–63, 104S.Ct. 1464 (internal quotation marks omit-ted), or ‘‘friendly banter among businesspartners,’’ Apple Br. at 38; see Monsanto,465 U.S. at 765–66, 104 S.Ct. 1464 (con-cluding that message about getting ‘‘themarket place in order’’ could lead to infer-ence of conspiracy (internal quotationmarks omitted)); see also Starr, 592 F.3dat 324; Apex Oil, 822 F.2d at 255–57.

[12] Apple responds to this evidence—which the experienced judge who oversaw

the trial characterized repeatedly as ‘‘over-whelming’’—by explaining how each pieceof evidence standing alone is ‘‘ambiguous’’and therefore insufficient to support aninference of conspiracy. We are not per-suaded. In antitrust cases, ‘‘[t]he charac-ter and effect of a conspiracy are not to bejudged by dismembering it and viewing itsseparate parts, but only by looking at it asa whole.’’ Cont’l Ore Co. v. Union Carbide& Carbon Corp., 370 U.S. 690, 699, 82S.Ct. 1404, 8 L.Ed.2d 777 (1962). Com-bined with the unmistakable purpose ofthe Contracts that Apple proposed to thepublishers, and with the collective moveagainst Amazon that inevitably followedthe signing of those Contracts, the emailsand phone records demonstrate that Appleagreed with the Publisher Defendants,within the meaning of the Sherman Act, toraise consumer-facing ebook prices byeliminating retail price competition. Thedistrict court did not err in rejecting Ap-ple’s argument that the evidence of itsorchestration of the Publisher Defendants’conspiracy was ‘‘ambiguous.’’

Given the record and the district court’sfactual findings, we do not share Appleand its amici’s concern that we will stifleproductive enterprise by inferring anagreement among Apple and the PublisherDefendants on the basis of otherwise law-ful contract terms, such as an agency mod-el and MFNs. To begin with, it is wellestablished that vertical agreements, law-ful in the abstract, can in context ‘‘beuseful evidence for a plaintiff attempting

18. Apple takes issue with the district court’sconclusion that Apple was aware of, and facil-itated, communication between the PublisherDefendants. But the district court found thatCue believed Reidy was a ‘‘leader’’ in thepublishing industry and that, on at least twooccasions toward the end of the negotiatingperiod, Cue called a recalcitrant executive,who then spoke to Reidy before agreeing toApple’s terms. See Apple, 952 F.Supp.2d at659–60; J.A. 2019–20. Reidy herself advert-

ed to Cue’s role in ‘‘herding us cats.’’ J.A.543. Moreover, the publishing executives fre-quently denied having any conversationsabout Apple during this period, despite strongdocumentary and phone record evidence tothe contrary. The district court found thatthese denials lacked credibility and ‘‘stronglysupport[ed] a finding of consciousness ofguilt.’’ Apple, 952 F.Supp.2d at 693 n. 59.This view of the facts is not clearly erroneous.


to prove the existence of a horizontal car-tel,’’ Leegin, 551 U.S. at 893, 127 S.Ct.2705, particularly where multiple competi-tors sign vertical agreements that wouldbe against their own interests were theyacting independently, see, e.g., InterstateCircuit v. United States, 306 U.S. 208, 222,59 S.Ct. 467, 83 L.Ed. 610 (1939); Toys‘‘R’’ Us, 221 F.3d at 935–36. The MFNs inApple’s Contracts created a set of econom-ic incentives pursuant to which the Con-tracts were only attractive to the PublisherDefendants to the extent they acted collec-tively. That these contract terms hadsuch an effect under the particular circum-stances of this case—and therefore furnishpart of the evidence of Apple’s agreementwith the Publisher Defendants—says noth-ing about their broader legality. It shouldbe self-evident that our analysis is in-formed by the particular context in whichApple’s contract terms were deployed. Inany event, we are breaking no new groundin concluding that MFNs, though surelyproper in many contexts, can be ‘‘misusedto anticompetitive ends in some cases.’’Blue Cross & Blue Shield United of Wis.v. Marshfield Clinic, 65 F.3d 1406, 1415(7th Cir.1995); see Starr, 592 F.3d at 324(finding MFN evidence of conspiracy).Under the right circumstances, an MFNcan ‘‘facilitate anticompetitive horizontalcoordination’’ by ‘‘reduc[ing] [a company’s]incentive to deviate from a coordinatedhorizontal arrangement.’’ Jonathan B.Baker, Vertical Restraints with Horizon-

tal Consequences: Competitive Effects of‘‘Most–Favored–Customer’’ Clauses, 64Antitrust L.J. 517, 520–21 (1996); see alsoJonathan B. Baker & Judith A. Chevalier,The Competitive Consequences of Most–Favored–Nation Provisions, Antitrust,Spring 2013, at 20–26, available at http://digitalcommons.wcl.american.edu/cgi/viewcontent.cgi?article=1280 & con-text=facsch lawrev.19

In short, we have no difficulty on thisrecord rejecting Apple’s argument that thedistrict court erred in concluding that Ap-ple ‘‘conspir[ed] with the Publisher Defen-dants to eliminate retail price competitionand to raise e-book prices.’’ Apple, 952F.Supp.2d at 691. Having concluded thatthe district court correctly identified anagreement between Apple and the Publish-er Defendants to raise consumer-facingebook prices, we turn to Apple’s and thedissent’s arguments that this agreementdid not violate § 1 of the Sherman Act.

B. Unreasonable Restraint of Trade

[13] ‘‘Although the Sherman Act, by itsterms, prohibits every agreement ‘in re-straint of trade,’ [the Supreme] Court haslong recognized that Congress intended tooutlaw only unreasonable restraints.’’State Oil Co. v. Khan, 522 U.S. 3, 10, 118S.Ct. 275, 139 L.Ed.2d 199 (1997). Thus,to succeed on an antitrust claim, a plaintiffmust prove that the common scheme de-

19. Nor does our holding remotely suggestthat price caps are always unlawful, whichthey are not. See State Oil Co. v. Khan, 522U.S. 3, 118 S.Ct. 275, 139 L.Ed.2d 199 (1997)(holding that vertical maximum price-fixingagreements should be analyzed under the ruleof reason). Apple required price caps be-cause it knew that once the Publisher Defen-dants moved on Amazon to seize control overebook prices, they would raise them. Applewanted to ensure that the Publisher Defen-dants set ‘‘realistic prices’’ that reflected thelower costs of producing ebooks. J.A. 359.

The Publisher Defendants and Apple under-stood that these caps would become the‘‘standard across the industry.’’ J.A. 573.The price negotiations therefore reflected acommon understanding that prices wouldrise, but a difference of opinion among the co-conspirators over how high they could reason-ably go. See United States v. Andreas, 216F.3d 645, 680 (7th Cir.2000) (‘‘The need tonegotiate some details of the conspiracy withthe cartel members TTT does not strip a defen-dant of the organizer role.’’).


signed by the conspirators ‘‘constituted anunreasonable restraint of trade either perse or under the rule of reason.’’ CapitalImaging, 996 F.2d at 542.

[14–16] In antitrust cases, ‘‘[p ]er seand rule-of-reason analysis are TTT twomethods of determining whether a re-straint is ‘unreasonable,’ i.e., whether itsanticompetitive effects outweigh its pro-competitive effects.’’ Atl. Richfield Co. v.USA Petroleum Co., 495 U.S. 328, 342, 110S.Ct. 1884, 109 L.Ed.2d 333 (1990). Be-cause this balancing typically requirescase-by-case analysis, ‘‘most antitrustclaims are analyzed under [the] ‘rule ofreason,’ according to which the finder offact must decide whether the questionedpractice imposes an unreasonable restrainton competition.’’ Khan, 522 U.S. at 10,118 S.Ct. 275; see also Gatt Commc’ns,Inc. v. PMC Assocs., L.L.C., 711 F.3d 68,75 n. 8 (2d Cir.2013). However, somerestraints ‘‘have such predictable and per-nicious anticompetitive effect, and suchlimited potential for procompetitive bene-fit, that they are deemed unlawful per se.’’Khan, 522 U.S. at 10, 118 S.Ct. 275. Thisrule ‘‘reflect[s] a longstanding judgment’’that case-by-case analysis is unnecessaryfor certain practices that, ‘‘by their na-ture[,] have a substantial potential’’ to un-reasonably restrain competition. FTC v.Sup.Ct. Trial Lawyers Ass’n, 493 U.S. 411,433, 110 S.Ct. 768, 107 L.Ed.2d 851 (1990)(internal quotation marks omitted).

Horizontal price-fixing conspiracies tra-ditionally have been, and remain, the ‘‘ar-chetypal example’’ of a per se unlawfulrestraint on trade. Catalano, Inc. v. Tar-get Sales, Inc., 446 U.S. 643, 647, 100 S.Ct.1925, 64 L.Ed.2d 580 (1980). By contrast,the Supreme Court in recent years hasclarified that vertical restraints—includingthose that restrict prices—should general-ly be subject to the rule of reason. SeeLeegin, 551 U.S. at 882, 127 S.Ct. 2705

(holding that the rule of reason applies tovertical minimum price-fixing); Khan, 522U.S. at 7, 118 S.Ct. 275 (holding that therule of reason applies to vertical maximumprice-fixing).

In this case, the district court held thatthe agreement between Apple and thePublisher Defendants was unlawful underthe per se rule; in the alternative, evenassuming that a rule-of-reason analysiswas required, the district court concludedthat the agreement was still unlawful. SeeApple, 952 F.Supp.2d at 694. On appeal,we consider three primary argumentsagainst application of the per se rule.First, Apple and our dissenting colleagueargue that the per se rule is inappropriatein this case because Apple’s Contracts withthe Publisher Defendants were vertical,not horizontal. Even if the challengedagreement here was horizontal, Apple ar-gues next, it promoted ‘‘enterprise andproductivity.’’ Finally, Apple contendsthat even if the agreement was horizontal,it was not, in fact, a ‘‘price-fixing’’ conspir-acy of the kind that deserves per se con-demnation. We address, and reject, thesearguments in turn. Because the ebookindustry, however, is new and at leastarguably involves some new ways of doingbusiness, I also consider, writing only formyself, Apple’s rule-of-reason argument.

1. Whether the Per Se Rule Applies

a. Horizontal Agreement

In light of our conclusion that the dis-trict court did not err in determining thatApple organized a price-fixing conspiracyamong the Publisher Defendants, Appleand the dissent’s initial argument againstthe per se rule—that Apple’s conduct mustbe subject to rule-of-reason analysis be-cause it involved merely multiple indepen-dent, vertical agreements with the Publish-er Defendants—cannot succeed.


‘‘The true test of legality’’ under § 1 ofthe Sherman Act ‘‘is whether the restraintimposed is such as merely regulates andperhaps thereby promotes competition orwhether it is such as may suppress or evendestroy competition.’’ Bd. of Trade of Cityof Chi. v. United States, 246 U.S. 231, 238,38 S.Ct. 242, 62 L.Ed. 683 (1918) (emphasisadded). By agreeing to orchestrate a hori-zontal price-fixing conspiracy, Apple com-mitted itself to ‘‘achiev[ing] [that] unlawfulobjective,’’ Monsanto, 465 U.S. at 764, 104S.Ct. 1464 (internal quotation marks omit-ted): namely, collusion with and amongthe Publisher Defendants to set ebookprices. This type of agreement, moreover,is a restraint ‘‘that would always or almostalways tend to restrict competition anddecrease output.’’ Leegin, 551 U.S. at 886,127 S.Ct. 2705 (internal quotation marksomitted).

The response, raised by Apple and ourdissenting colleague, that Apple engagedin ‘‘vertical conduct’’ that is unfit for per secondemnation therefore misconstrues theSherman Act analysis. It is the type ofrestraint Apple agreed to impose that de-termines whether the per se rule or therule of reason is appropriate. These rulesare means of evaluating ‘‘whether [a] re-straint is unreasonable,’’ not the reason-ableness of a particular defendant’s role inthe scheme. Atl. Richfield, 495 U.S. at342, 110 S.Ct. 1884 (emphasis added) (in-ternal quotation marks omitted); see alsoNat’l Collegiate Athletic Ass’n v. Bd. ofRegents of the Univ. of Okla., 468 U.S. 85,103, 104 S.Ct. 2948, 82 L.Ed.2d 70 (1984)(‘‘Both per se rules and the Rule of Reasonare employed to form a judgment aboutthe competitive significance of the re-straint.’’ (internal quotation marks omit-ted)).

Consistent with this principle, the Su-preme Court and our Sister Circuits haveheld all participants in ‘‘hub-and-spoke’’

conspiracies liable when the objective ofthe conspiracy was a per se unreasonablerestraint of trade. See Richard A. Posner,The Next Step in the Antitrust Treatmentof Restricted Distribution: Per Se Legali-ty, 48 U. Chi. L.Rev. 6, 22 (1981) (‘‘[C]asesin which dealers or distributors collude TTT

among themselves and bring in the manu-facturer to enforce their cartel, TTT can bedealt with under the conventional rulesapplicable to horizontal price-fixing con-spiracies.’’). In Klor’s, Inc. v. Broadway–Hale Stores, Inc., for example, the Su-preme Court considered whether a promi-nent retailer of electronic appliances couldbe held liable under § 1 of the ShermanAct for fostering an agreement with andamong its distributors to have those com-panies boycott a competing retailer. 359U.S. 207, 79 S.Ct. 705, 3 L.Ed.2d 741(1959). The Court characterized this ar-rangement as a ‘‘[g]roup boycott[ ]’’ sup-ported by a ‘‘wide combination consistingof manufacturers, distributors and a retail-er.’’ Id. at 212–13, 79 S.Ct. 705. It thendecided that, if the combination wereproved at trial, holding the retailer liablewould be appropriate because ‘‘[g]roupboycotts, or concerted refusals by tradersto deal with other traders,’’ are per seunreasonable restraints of trade. Id. at212, 79 S.Ct. 705.

The Supreme Court followed a similarapproach in United States v. General Mo-tors Corp., 384 U.S. 127, 86 S.Ct. 1321, 16L.Ed.2d 415 (1966), when it consideredwhether § 1 prohibited a car manufactur-er, General Motors, from coordinating agroup of dealerships to prevent other deal-ers from selling cars at discount prices.The majority called this arrangement a‘‘classic conspiracy in restraint of trade’’and refused to entertain General Motors’request to consider the company’s reasonsfor creating the conspiracy. Id. at 140, 86S.Ct. 1321. The Court explained that‘‘[t]here can be no doubt that the effect of


the combination TTT here was to restraintrade and commerce within the meaning ofthe Sherman Act’’ because ‘‘[e]limination,by joint collaborative action, of discountersfrom access to the market is a per seviolation of the Act.’’ Id. at 145, 86 S.Ct.1321; see, e.g., Toys ‘‘R’’ Us, 221 F.3d at936; Denny’s Marina, Inc. v. RenfroProds., Inc., 8 F.3d 1217, 1220–21 (7thCir.1993); United States v. MMR Corp.(LA), 907 F.2d 489, 498 (5th Cir.1990); seealso Albert Foer & Randy Stutz, PrivateEnforcement of Antitrust Law in theUnited States 29 (2012).

Because the reasonableness of a re-straint turns on its anticompetitive effects,and not the identity of each actor whoparticipates in imposing it, Apple and thedissent’s observation that the SupremeCourt has refused to apply the per se ruleto certain vertical agreements is inappo-site. The rule of reason is unquestionablyappropriate to analyze an agreement be-tween a manufacturer and its distributorsto, for instance, limit the price at which thedistributors sell the manufacturer’s goodsor the locations at which they sell them.See Leegin, 551 U.S. at 881, 127 S.Ct.2705; Cont’l T.V., Inc. v. GTE SylvaniaInc., 433 U.S. 36, 57, 97 S.Ct. 2549, 53L.Ed.2d 568 (1977). These vertical re-strictions ‘‘are widely used in our freemarket economy,’’ can enhance interbrandcompetition, and do not inevitably have a‘‘pernicious effect on competition.’’ Cont’lT.V., 433 U.S. at 57–58, 97 S.Ct. 2549(internal quotation marks omitted). Butthe relevant ‘‘agreement in restraint oftrade’’ in this case is not Apple’s verticalContracts with the Publisher Defendants(which might well, if challenged, have to beevaluated under the rule of reason); it isthe horizontal agreement that Apple orga-nized among the Publisher Defendants toraise ebook prices. As explained below,horizontal agreements with the purposeand effect of raising prices are per se

unreasonable because they pose a ‘‘threatto the central nervous system of the econo-my,’’ United States v. Socony–Vacuum OilCo., 310 U.S. 150, 224 n. 59, 60 S.Ct. 811,84 L.Ed. 1129 (1940); that threat is just assignificant when a vertical market partici-pant organizes the conspiracy. Indeed, asthe dissent notes, the Publisher Defen-dants’ coordination to fix prices is uncon-tested on appeal. See Dissenting Op. at348. The competitive effects of that samerestraint are no different merely because adifferent conspirator is the defendant.

Accordingly, when the Supreme Courthas applied the rule of reason to verticalagreements, it has explicitly distinguishedsituations in which a vertical player orga-nizes a horizontal cartel. For instance, inBusiness Electronics Corp. v. Sharp Elec-tronics Corp., the Court concluded that anagreement ‘‘between a manufacturer and adealer to terminate’’ another dealer is a‘‘vertical nonprice restraint’’ that should beevaluated under the rule of reason. 485U.S. 717, 726, 108 S.Ct. 1515, 99 L.Ed.2d808 (1988). The Court distinguished Gen-eral Motors and Klor’s on the grounds that‘‘both cases involved horizontal combina-tions,’’ id. at 734, 108 S.Ct. 1515, and notedthat ‘‘a facially vertical restraint imposedby a manufacturer only because it hasbeen coerced by a ‘horizontal carte[l]’ TTT

is in reality a horizontal restraint,’’ id. at730 n. 4, 108 S.Ct. 1515 (alteration in origi-nal). More recently, in NYNEX Corp. v.Discon, Inc., the Court ruled that ‘‘a buy-er’s decision to buy from one seller ratherthan another’’ is subject to analysis underthe rule of reason. 525 U.S. 128, 130, 119S.Ct. 493, 142 L.Ed.2d 510 (1998). Inarriving at this conclusion, the Court tookcare to distinguish, rather than overturn,Klor’s, noting that per se liability was ap-propriate for the organizer of the conspira-cy in that case because the agreement at


issue was not ‘‘simply a ‘vertical’ agree-ment between supplier and customer, but[also] a ‘horizontal’ agreement among com-petitors.’’ Id. at 136, 119 S.Ct. 493 (citingBus. Elecs. Corp., 485 U.S. at 734, 108S.Ct. 1515).

The Court’s decision in Leegin CreativeLeather Products, Inc. v. PSKS, Inc., is nodifferent. 551 U.S. 877, 127 S.Ct. 2705,168 L.Ed.2d 623 (2007). In Leegin, aleather manufacturer entered into sepa-rate agreements with each of its retailers,which required them to sell its goods atcertain prices. The plaintiff—a retailerwho refused to comply with the require-ment—argued that these resale pricemaintenance agreements constituted per seviolations of the Sherman Act. The Su-preme Court disagreed, concluding that‘‘vertical price restraints are to be judgedby the rule of reason.’’ Id. at 882, 127S.Ct. 2705. Its analysis was careful todistinguish between vertical restraints andhorizontal ones. Vertical price restraintsare unfit for the per se rule because theycan be used to encourage retailers to in-vest in promoting a product by ensuringthat other retailers will not undercut theirprices for that good. See id. at 890–92,127 S.Ct. 2705. However, vertical pricerestraints can also be used to organizehorizontal cartels to increase prices, whichare, ‘‘and ought to be, per se unlawful.’’Id. at 893, 127 S.Ct. 2705. When used forsuch a purpose, the vertical agreementmay be ‘‘useful evidence TTT to prove theexistence of a horizontal cartel.’’ Id.; seealso VI Areeda & Hovenkamp, supra,¶ 1402c. The Court made clear that it wasaddressing only the lawfulness of the man-ufacturer’s vertical agreements and notthe plaintiff’s claim that the manufactureralso ‘‘participated in an unlawful horizontalcartel with competing retailers.’’ Id. at907–08, 127 S.Ct. 2705; see also PSKS,Inc. v. Leegin Creative Leather Prods.,Inc., 615 F.3d 412 (5th Cir.2010) (consider-

ing plaintiff’s ‘‘hub-and-spoke’’ theory onremand).

Our dissenting colleague suggests thatLeegin also ‘‘rejected per se liability forhub-and-spokes agreements.’’ DissentingOp. at 346. This position relies on a singlesentence from the opinion’s analysis of howvertical resale price restraints can harmcompetition, which states that, if a ‘‘verti-cal agreement setting minimum resaleprices is entered upon to facilitate’’ a hori-zontal cartel, it ‘‘would need to be heldunlawful under the rule of reason.’’ Leegin,551 U.S. at 893, 127 S.Ct. 2705. If theSupreme Court meant to overturn GeneralMotors and Klor’s—precedents that it hasconsistently reaffirmed—this cryptic sen-tence was certainly an odd way to accom-plish that result. The Supreme Court‘‘does not normally overturn, or so dramat-ically limit, earlier authority sub silentio.’’Shalala v. Ill. Council on Long TermCare, Inc., 529 U.S. 1, 18, 120 S.Ct. 1084,146 L.Ed.2d 1 (2000); see also, e.g., Nestorv. Pratt & Whitney, 466 F.3d 65, 72 n. 8(2d Cir.2006) (‘‘It is not within our purviewto anticipate whether the Supreme Courtmay one day overrule its existing prece-dent.’’ (quoting United States v. Santiago,268 F.3d 151, 155 n. 6 (2d Cir.2001) (inter-nal quotation marks omitted))).

We need not worry about the possibilitythat Leegin covertly changed the law gov-erning hub-and-spoke conspiracies, howev-er, because the passage relied upon by thedissent is entirely consistent with holdingthe ‘‘hub’’ in such a conspiracy liable forthe horizontal agreement that it joins. Ahorizontal conspiracy can use verticalagreements to facilitate coordination with-out the other parties to those agreementsknowing about, or agreeing to, the horizon-tal conspiracy’s goals. For example, a car-tel of manufacturers could ensure compli-ance with a scheme to fix prices by havingevery member ‘‘require its dealers to ad-


here to specified resale prices.’’ VIII Ar-eeda & Hovenkamp, supra, ¶ 1606b. Be-cause it may be difficult to distinguish suchfacilitating practices from procompetitivevertical resale price agreements, the quot-ed passage from Leegin notes that those‘‘vertical agreement[s] TTT would need tobe held unlawful under the rule of reason.’’551 U.S. at 893, 127 S.Ct. 2705. But thereis no such possibility for confusion in thehub-and-spoke context, where the verticalorganizer has not only committed to verti-cal agreements, but has also agreed toparticipate in the horizontal conspiracy.In that situation, the court need not con-sider whether the vertical agreements re-strained trade because all participantsagreed to the horizontal restraint, which is‘‘and ought to be, per se unlawful.’’ Id.20

[17] In short, the relevant ‘‘agreementin restraint of trade’’ in this case is theprice-fixing conspiracy identified by thedistrict court, not Apple’s vertical con-tracts with the Publisher Defendants.How the law might treat Apple’s verticalagreements in the absence of a findingthat Apple agreed to create the horizontalrestraint is irrelevant. Instead, the ques-tion is whether the vertical organizer of ahorizontal conspiracy designed to raiseprices has agreed to a restraint that is anyless anticompetitive than its co-conspira-

tors, and can therefore escape per se liabil-ity. We think not. Even in light of thisconclusion, however, we must address twoadditional arguments that Apple raisesagainst application of the per se rule.

b. ‘‘Enterprise and Productivity’’

Apple seeks refuge from the per se ruleby invoking a line of cases in which courtshave permitted defendants to introduceprocompetitive justifications for horizontalprice-fixing arrangements that would ordi-narily be condemned per se if those agree-ments ‘‘when adopted could reasonablyhave been believed to promote ‘enterpriseand productivity.’ ’’ Apple Br. at 50 (quot-ing In re Sulfuric Acid Antitrust Litig.,703 F.3d 1004, 1011 (7th Cir.2012)) (inter-nal quotation mark omitted). The deci-sions falling in this line are narrow, andthey do not support Apple’s position. InBroadcast Music, Inc. v. ColumbiaBroadcasting System, Inc. (‘‘BMI ’’), thedefendants were corporations formed bycopyright owners to negotiate ‘‘blanket li-censes’’ allowing licensees to perform anyof the licensed works for a flat fee. 441U.S. 1, 4–6, 99 S.Ct. 1551, 60 L.Ed.2d 1(1979). Although this scheme literallyamounted to ‘‘price fixing’’ by the defen-dants’ members, the Court upheld it un-

20. Since Leegin, the Sixth Circuit has ac-knowledged that plaintiffs can ‘‘establish[ ] aper se violation [of the Sherman Act] underthe hub and spoke theory.’’ Total BenefitsPlanning Agency, Inc. v. Anthem Blue Cross &Blue Shield, 552 F.3d 430, 435 n. 3 (6thCir.2008). To the extent that the Third Cir-cuit decided otherwise in Toledo Mack Sales& Serv., Inc. v. Mack Trucks, Inc., 530 F.3d204, 225 (3d Cir.2008), its more recent opin-ions cast doubt on that decision. In In reInsurance Brokerage Antitrust Litigation, forexample, the court noted that ‘‘hub-and-spokeconspiracies’’ have ‘‘a long history in antitrustjurisprudence,’’ and cited Total Benefits forthe position that ‘‘[t]he critical issue for estab-lishing a per se violation with the hub and

spoke system is how the spokes are connectedto each other.’’ 618 F.3d 300, 327 (3d Cir.2010) (internal quotation marks omitted).The court also acknowledged that ‘‘[t]he anti-competitive danger inherent’’ in alleged hori-zontal collusion ‘‘is not necessarily mitigatedby the fact that’’ a broker at a different levelof the market structure ‘‘managed the detailsof each bid, nor by the likelihood that thehorizontal collusion would not have occurredwithout the broker’s involvement.’’ Id. at338. The panel in Insurance Brokerage, how-ever, had no occasion to revisit Toledo Mackbecause the plaintiffs had failed to establish ahorizontal agreement—the ‘‘rim’’ in the hub-and-spokes conspiracy. Id. at 362.


der the rule of reason because blanketlicenses were the only way to eliminatethe ‘‘prohibitive’’ cost of each copyrightowner’s individually negotiating licenses,monitoring licensees’ use of their work,and enforcing the licenses’ terms. Id. at20–21, 99 S.Ct. 1551. In National Collegi-ate Athletic Ass’n v. Board of Regents ofthe University of Oklahoma (‘‘NCAA’’),the Court relied on BMI in applying therule of reason to (but ultimately strikingdown) restrictions placed by the NationalCollegiate Athletic Association (‘‘NCAA’’)on the number of football games that itsmembers could agree with television net-works to broadcast. 468 U.S. 85, 103, 104S.Ct. 2948, 82 L.Ed.2d 70 (1984). Manyof the NCAA’s restrictions on its mem-bers were ‘‘essential if the product [ama-teur athletics] is to be available at all,’’ soa ‘‘fair evaluation’’ of the broadcast re-strictions’ ‘‘competitive character re-quire[d] consideration of the NCAA’s jus-tifications for the restraints.’’ Id. at 101,103, 104 S.Ct. 2948.

[18] The Supreme Court has charac-terized these decisions as limited to situa-tions where the ‘‘restraints on competitionare essential if the product is to be avail-able at all.’’ Am. Needle, Inc. v. Nat’lFootball League, 560 U.S. 183, 203, 130S.Ct. 2201, 176 L.Ed.2d 947 (2010) (quot-ing NCAA, 468 U.S. at 101, 104 S.Ct. 2948)(internal quotation marks omitted). Buteven if read broadly, these cases, and oth-ers in this category, apply the rule ofreason only when the restraint at issuewas imposed in connection with some kindof potentially efficient joint venture. XIAreeda & Hovenkamp, supra, ¶ 1908b;see, e.g., Sulfuric Acid, 703 F.3d at 1013(describing joint venture formed by defen-dants). Put differently, a participant in aprice-fixing agreement may invoke onlycertain, limited kinds of ‘‘enterprise andproductivity’’ to receive the rule of rea-

son’s advantages. As the Supreme Courthas explained—including in BMI itself, see441 U.S. at 8 & n. 11, 99 S.Ct. 1551—theper se rule would lose all the benefits ofbeing ‘‘per se ’’ if conspirators could seekto justify their conduct on the basis of itspurported competitive benefits in everycase. Here, there was no joint venture orother similar productive relationship be-tween any of the participants in the con-spiracy that Apple joined. Apple also doesnot claim, nor could it, that creating anebook retail market is possible only if theparticipating publishers coordinate withone another on price.

c. Price–Fixing Conspiracy

As noted, the Supreme Court has fornearly 100 years held that horizontal collu-sion to raise prices is the ‘‘archetypal ex-ample’’ of a per se unlawful restraint oftrade. Catalano, 446 U.S. at 647, 100S.Ct. 1925. If successful, these conspira-cies concentrate the power to set pricesamong the conspirators, including the‘‘power to control the market and to fixarbitrary and unreasonable prices.’’ Unit-ed States v. Trenton Potteries Co., 273U.S. 392, 397, 47 S.Ct. 377, 71 L.Ed. 700(1927). And even if unsuccessful or ‘‘notTTT aimed at complete elimination of pricecompetition,’’ the conspiracies pose a‘‘threat to the central nervous system ofthe economy’’ by creating a dangerouslyattractive opportunity for competitors toenhance their power at the expense ofothers. Socony–Vacuum Oil, 310 U.S. at224 n. 59, 60 S.Ct. 811 (1940). Thus:

[P]rice-fixing cartels are condemned perse because the conduct is tempting tobusinessmen but very dangerous to soci-ety. The conceivable social benefits arefew in principle, small in magnitude,speculative in occurrence, and alwayspremised on the existence of price-fixingpower which is likely to be exercisedadversely to the publicTTTT And even if


power is usually established while anydefenses are not, litigation will be com-plicated, condemnation delayed, wouldbe price-fixers encouraged to hope forescape, and criminal punishment lessjustified. Deterrence of a generally per-nicious practice would be weakened.

Trial Lawyers Ass’n, 493 U.S. at 434 n. 16,110 S.Ct. 768 (quoting 7 Philip Areeda,Antitrust Law ¶ 1509, at 412–13 (1986)).

[19] Apple and its amici argue that thehorizontal agreement among the publish-ers was not actually a ‘‘price-fixing’’ con-spiracy that deserves per se treatment inthe first place. But it is well establishedthat per se condemnation is not limited toagreements that literally set or restrictprices. Instead, any conspiracy ‘‘formedfor the purpose and with the effect ofraising, depressing, fixing, pegging, or sta-bilizing the price of a commodity TTT isillegal per se,’’ and the precise ‘‘machineryemployed TTT is immaterial.’’ Socony–Vacuum Oil, 310 U.S. at 223, 60 S.Ct. 811;see also Catalano, 446 U.S. at 647–48, 100S.Ct. 1925 (collecting cases); XII Areeda& Hovenkamp, supra, ¶ 2022a, d. The con-spiracy among Apple and the PublisherDefendants comfortably qualifies as a hori-zontal price-fixing conspiracy.

As we have already explained, the Pub-lisher Defendants’ primary objective in ex-pressly colluding to shift the entire ebookindustry to an agency model (with Apple’shelp) was to eliminate Amazon’s $9.99 pric-ing for new releases and bestsellers, whichthe publishers believed threatened theirshort-term ability to sell hardcovers athigher prices and the long-term consumerperception of the price of a new book.They had grown accustomed to a businessin which they rarely competed with oneanother on price and could, at least partial-ly, control the price of new releases andbestsellers by releasing hardcover copiesbefore paperbacks. Amazon, and the

ebook, upset that model, and reducedprices to consumers by eliminating theneed to print, store, and ship physical vol-umes. Its $9.99 price point for new releas-es and bestsellers represented a small losson a small percentage of its sales designedto encourage consumers to adopt the newtechnology.

Faced with downward pressure onprices but unconvinced that withholdingbooks from Amazon was a viable strategy,the Publisher Defendants—their coordina-tion orchestrated by Apple—combinedforces to grab control over price. Collec-tively, the Publisher Defendants account-ed for 48.8% of ebook sales in 2010. J.A.1571. Once organized, they had sufficientclout to demand control over pricing, inthe form of agency agreements, from Am-azon and other ebook distributors. Thiscontrol over pricing facilitated their ulti-mate goal of raising ebook prices to theprice caps. See VIII Areeda & Hoven-kamp, supra, ¶ 1606b (‘‘Even when specif-ic prices are not agreed upon, an expresshorizontal agreement that each manufac-turer will use resale price maintenance orother distribution restraints should be il-legal. Its only business function is to fa-cilitate price coordination among manufac-turers.’’). In other words, the PublisherDefendants took by collusion what theycould not win by competition. And Appleused the publishers’ frustration with Ama-zon’s $9.99 pricing as a bargaining chip inits negotiations and structured its Con-tracts to coordinate their push to raiseprices throughout the industry. A coordi-nated effort to raise prices across the rel-evant market was present in every chap-ter of this story.

This conspiracy to raise prices also hadits intended effect. Immediately after thePublisher Defendants switched Amazon toan agency model, they increased the Kin-dle prices of 85.7% of their new releases


and 96.8% of their New York Times best-sellers to within 1% of the Apple pricecaps. They also increased the prices oftheir other ebook offerings. Within twoweeks of the move to agency, the weightedaverage price of the Publisher Defendants’ebooks—which accounted for just underhalf of all ebook sales in 2010—had in-creased by 18.6%, while the prices forRandom House and other publishers re-mained relatively stable.

This sudden increase in prices reducedebook sales by the Publisher Defendantsand proved to be durable. One analysiscompared two-week periods before and af-ter the Publisher Defendants took controlover pricing and found that they sold12.9% fewer ebooks after the switch. An-other expert for Plaintiffs conducted a re-gression analysis, which showed that, overa six-month period following the switch,the Publisher Defendants sold 14.5% fewerebooks than they would have had the priceincreases not occurred. Nonetheless,ebook prices for the Publisher Defendantsover those six months, controlling for oth-er factors, remained 16.8% higher thanbefore the switch. And even Apple’s ex-pert produced a chart showing that thePublisher Defendants’ prices for new re-leases, bestsellers, and other offerings re-mained elevated a full two years after theytook control over pricing.

Apple points out that, in the two yearsfollowing the conspiracy, prices across theebook market as a whole fell slightly andtotal output increased. However, whenthe agreement at issue involves price fix-ing, the Supreme Court has consistently

held that courts need not even conduct anextensive analysis of ‘‘market power’’ or a‘‘detailed market analysis’’ to demonstrateits anticompetitive character. FTC v. Ind.Fed’n of Dentists, 476 U.S. 447, 460, 106S.Ct. 2009, 90 L.Ed.2d 445 (1986); see alsoNat’l Soc’y of Prof’l Eng’rs v. UnitedStates, 435 U.S. 679, 692–93, 98 S.Ct. 1355,55 L.Ed.2d 637 (1978). The district court’sassessment of Apple’s and the PublisherDefendants’ motives, coupled with the un-ambiguous increase in the prices of theirebooks, was sufficient to confirm that pricefixing was the goal, and the result, of theconspiracy. See Cal. Dental Ass’n v. FTC,526 U.S. 756, 779–80, 119 S.Ct. 1604, 143L.Ed.2d 935 (1999).

Moreover, Apple’s evidence regardinglong-term growth and prices in the ebookindustry is not inconsistent with the con-clusion that the price-fixing conspiracysucceeded in actually raising prices. Thepopularization of ebooks fundamentally al-tered the publishing industry by eliminat-ing many of the marginal costs associatedwith selling books. When Apple launchedthe iBookstore just two years after Ama-zon introduced the Kindle, the ebook mar-ket was already experiencing rapid growthand falling prices, and those trends wereexpected to continue. J.A. 1630, 1647.The district court found that the PublisherDefendants’ collective move to retake con-trol of prices—and to eliminate Amazon’s$9.99 price point for new releases and NewYork Times bestsellers—tapped thebrakes on those trends, causing prices torise across their offerings and slowingtheir sales growth relative to other pub-lishers.21 No court can presume to know

21. Significantly, the Publisher Defendants areall major producers of new releases and NewYork Times bestsellers, and they collectivelyincreased prices in those categories. Thoseprices remained high notwithstanding the in-flux of new publishers and low-cost ebooks, tothe detriment of consumers interested in that

segment of the market. See 42nd Parallel N.v. E St. Denim Co., 286 F.3d 401, 405–06 (7thCir.2002) (‘‘The key inquiry in a market pow-er analysis is whether the defendant has theability to raise prices without losing its busi-ness.’’ (internal quotation marks omitted));K.M.B. Warehouse Distribs., Inc. v. Walker


the proper price of an ebook, but the longjudicial experience applying the ShermanAct has shown that ‘‘[a]ny combinationwhich tampers with price structures TTT

would be directly interfering with the freeplay of market forces.’’ Socony–VacuumOil, 310 U.S. at 221, 60 S.Ct. 811; see alsoArizona v. Maricopa Cnty. Med. Soc’y,457 U.S. 332, 346, 102 S.Ct. 2466, 73L.Ed.2d 48 (1982). By setting new, dura-ble prices through collusion rather thancompetition, Apple and the Publisher De-fendants imposed their view of properpricing, supplanting the market’s free play.This evidence, viewed in conjunction withthe district court’s findings as to and anal-ysis of the conspiracy’s history and pur-pose, is sufficient to support the conclusionthat the agreement to raise ebook priceswas a per se unlawful price-fixing conspira-cy.

2. Rule of Reason

As explained above, neither Apple northe dissent has presented any particularlystrong reason to think that the conspiracywe have identified should be spared per secondemnation. My concurring colleaguewould therefore affirm the district court’sdecision on that basis alone. I, too, believethat per se condemnation is appropriate inthis case and view Apple’s sloganeeringreferences to ‘‘innovation’’ as a distractionfrom the straightforward nature of theconspiracy proven at trial. Nonetheless, Iam mindful of Apple’s argument that thenascent ebook industry has some new andunusual features and that the per se rule isnot fit for ‘‘business relationships wherethe economic impact of certain practices isnot immediately obvious.’’ Leegin, 551U.S. at 887, 127 S.Ct. 2705 (internal quota-tion marks omitted); accord Major League

Baseball Props., Inc. v. Salvino, Inc., 542F.3d 290, 316 (2d Cir.2008) (‘‘Per se treat-ment is not appropriate TTT where theeconomic and competitive effects of thechallenged practice are unclear.’’); Sulfu-ric Acid, 703 F.3d at 1011 (‘‘It is a bad ideato subject a novel way of doing businessTTT to per se treatment under antitrustlaw.’’). I therefore assume, for the sake ofargument, that it is appropriate to applythe rule of reason and to analyze the com-petitive effects of Apple’s horizontal agree-ment with the Publisher Defendants.

Notably, however, the ample evidencehere concerning the purpose and effects ofApple’s agreement with the Publisher De-fendants affects the scope of the rule-of-reason analysis called for in this case. Un-der a prototypically robust rule-of-reasonanalysis, the plaintiff must demonstrate an‘‘actual adverse effect’’ on competition inthe relevant market before the ‘‘burdenshifts to the defendants to offer evidenceof the pro-competitive effects of theiragreement.’’ Geneva Pharms. Tech. Corp.v. Barr Labs. Inc., 386 F.3d 485, 506–07(2d Cir.2004) (internal quotation marksomitted). The factfinder then weighs thecompeting evidence ‘‘to determine if theeffects of the challenged restraint tend topromote or destroy competition.’’ Id. at507. But not every case that requires ruleof reason analysis ‘‘is a candidate for ple-nary market examination.’’ Cal. DentalAss’n, 526 U.S. at 779, 119 S.Ct. 1604.‘‘What is required, rather, is an enquirymeet for the case, looking to the circum-stances, details, and logic of a restraint.’’Id. at 781, 119 S.Ct. 1604.

To that end, the Supreme Court hasapplied an abbreviated version of the rule

Mfg. Co., 61 F.3d 123, 128–29 (2d Cir.1995);cf. U.S. Dep’t of Justice & Fed. TradeComm’n, Horizontal Merger Guidelines § 6.1(2010) (noting that, ‘‘[i]n differentiated prod-

uct industries, some products can be veryclose substitutes TTT while other products aremore distant substitutes’’).


of reason—otherwise known as ‘‘quicklook’’ review—to agreements whose anti-competitive effects are easily ascertained.See id. at 779, 119 S.Ct. 1604. This ‘‘quicklook’’ effectively relieves the plaintiff of itsburden of providing a robust market anal-ysis, see id., by shifting the inquiry directlyto a consideration of the defendant’s pro-competitive justifications. See XI Areeda& Hovenkamp, supra, ¶ 1914d (‘‘[W]henthe restraint appears ‘on its face’ to be onethat tends to TTT increase price,’’ an abbre-viated rule-of-reason analysis ‘‘operates toshift the burden of proof rather than to cutoff the inquiry, as is usually true in a perse case.’’). Thus, in NCAA, the SupremeCourt refrained from applying the per serule to the challenged television broadcastrestrictions, but it did not require an‘‘elaborate industry analysis TTT to demon-strate [their] anticompetitive character.’’468 U.S. at 109, 104 S.Ct. 2948 (internalquotation marks omitted). And inIndiana Federation of Dentists, the Courtdid not apply the per se rule to a groupboycott when, in the relevant market, theeconomic impact was ‘‘not immediately ob-vious,’’ but it nonetheless dispensed with afull analysis of the agreement’s anticom-petitive character. 476 U.S. at 459, 106S.Ct. 2009; see also Major League Base-ball, 542 F.3d at 317; United States v.Brown Univ., 5 F.3d 658, 669 (3d Cir.1993).

Here, the same evidence supporting ourdetermination that per se condemnation isthe correct way to dispose of this appealalso supports at most a ‘‘quick look’’ inqui-ry under the rule of reason. Contrary tothe dissent’s suggestion, this approachdoes not somehow ‘‘taint’’ the rule-of-rea-son analysis. The dissent concedes thatthe conscious object of Apple’s signing itsContracts with the Publisher Defendantswas to organize a horizontal conspiracyamong them to raise consumer-facingebook prices. See Dissenting Op. at 346

(noting that ‘‘price increases’’ were ‘‘theexpected result’’ of the defendants’ agree-ment). It is unsurprising in these circum-stances that we are easily able to discernthe anticompetitive effects of that horizon-tal conspiracy. A quick-look approach op-erates only to shift the rule-of-reasonanalysis directly to Apple’s procompetitivejustifications for organizing the conspira-cy; I do not give those defenses anyshorter shrift than I otherwise would un-der a more robust analysis. My rejectionof Apple’s defenses thus has nothing to dowith my application of the quick-look ap-proach and everything to do with how un-persuasive those defenses are.

a. Market Entry

Apple’s initial argument that its agree-ment with the Publisher Defendants wasprocompetitive (an argument presentedprincipally in an amicus brief adoptedwholeheartedly by the dissent) is that byeliminating Amazon’s $9.99 price point, theagreement enabled Apple and other ebookretailers to enter the market and challengeAmazon’s dominance. But this defense—that higher prices enable more competitorsto enter a market—is no justification for ahorizontal price-fixing conspiracy. As theSupreme Court has cogently explained:

[I]n any case in which competitors areable to increase the price level or tocurtail production by agreement, it couldbe argued that the agreement has theeffect of making the market more at-tractive to potential new entrants. Ifthat potential justifies horizontal agree-ments among competitors imposing onekind of voluntary restraint or another ontheir competitive freedom, it would seemto follow that the more successful anagreement is in raising the price level,the safer it is from antitrust attack.


Nothing could be more inconsistent withour cases.

Catalano, 446 U.S. at 649, 100 S.Ct. 1925.

Nor does this argument become strong-er when it is asserted, as here, that ahorizontal cartel at one level of the marketpromoted market entry at another, en-hancing competition. My dissenting col-league’s view that ‘‘deconcentrating,’’ Dis-senting Op. at 349–50, Amazon’s share ofretail ebook sales justifies concentratingpower over pricing in the hands of thePublisher Defendants reflects a basic mis-understanding of the nature of the compe-tition that antitrust law protects. Newentrants to a market are desirable to theextent that consumers would choose to buytheir products at the price offered. Whena market is concentrated and an incum-bent firm is charging supracompetitiveprices, a new entrant can benefit consum-ers by undercutting the incumbent’sprices, thus offering better value for thesame goods. Dominant firms who want todeter competition—so that they can keepcharging supracompetitive prices—mayerect barriers to entry to keep these newcompetitors out, and the dissent is quiteright that these barriers are generally un-desirable.

Market dominance may, however, arise‘‘as a consequence of a superior product,business acumen, or historic accident,’’ andis ‘‘not only not unlawful; it is an impor-tant element of the free market system.’’Trinko, 540 U.S. at 407, 124 S.Ct. 872(internal quotation marks omitted). Theability to provide goods at particularly lowprices is one way that a firm can gain suchan edge in the marketplace. Competitorsare, of course, entitled to challenge domi-nant firms by offering, among otherthings, superior products and lower prices.But success is not guaranteed. A domi-nant firm charging low prices may haveproven itself more efficient than its com-

petitors, such that a potential new en-trant’s inability to earn a profit would re-sult not from any artificial ‘‘barriers toentry,’’ but rather from the fact that, inlight of the value proposition offered bythe dominant firm, consumers would notchoose to buy the new entrant’s productsat the price it is willing and able to offer.See Einer Elhauge, United States Anti-trust Law and Economics 2 (2d ed. 2011)(‘‘If a firm makes a better mousetrap, andthe world beats a path to its door, it maydrive out all rivals and establish a monopo-ly; but that is a good result, not a badone.’’).

From this perspective, the dissent’s con-tention that Apple could not have enteredthe ebook retail market without the price-fixing conspiracy, because it could not haveprofited either by charging more than Am-azon or by following Amazon’s pricing, is acomplete non sequitur. The posited dilem-ma is the whole point of competition: ifApple could not turn a profit by sellingnew releases and bestsellers at $9.99, or ifit could not make the iBookstore and iPadso attractive that consumers would paymore than $9.99 to buy and read thoseebooks on its platform, then there was noplace for its platform in the ebook retailmarket. Neither the district court norPlaintiffs had an obligation to identify a‘‘viable alternative’’ for Apple’s profitableentry because Apple had no entitlement toenter the market on its preferred terms.Dissenting Op. at 352–53.

Although low prices that deter new en-try may simply reflect the dominant firm’sefficiency, it is true that below-cost pricingcan, under certain circumstances, be anti-competitive. The dissent suggests thatAmazon’s pricing gave it an unfair advan-tage, so that even if Apple had pricedebooks at an efficient level (whatever thatmight have been), it still would not havebeen able to enter the market on a profit-


able basis. But Amazon was taking a riskby engaging in loss-leader pricing, losingmoney on some sales in order to encouragereaders to adopt the Kindle. ‘‘That below-cost pricing may impose painful losses onits target is of no moment to the antitrustlaws if competition is not injured: It isaxiomatic that the antitrust laws werepassed for ‘the protection of competition,not competitors.’ ’’ Brooke Grp. Ltd. v.Brown & Williamson Tobacco Corp., 509U.S. 209, 224, 113 S.Ct. 2578, 125 L.Ed.2d168 (1993) (quoting Brown Shoe Co. v.United States, 370 U.S. 294, 320, 82 S.Ct.1502, 8 L.Ed.2d 510 (1962)). Because low-er prices improve consumer welfare (allelse being equal), below-cost pricing is un-lawfully anticompetitive only if there is a‘‘dangerous probability’’ that the firm en-gaging in it will later recoup its losses byraising prices to monopoly levels afterdriving its rivals out of the market. Id. IfApple and the Publisher Defendantsthought that Amazon’s conduct was trulyanticompetitive under this standard, theycould have sued under § 2 of the ShermanAct. (Whether DOJ would have pursued itsown enforcement action is of unclear rele-vance given the availability of a privateremedy.) Failing that, Amazon’s pricingwas part of the competitive landscape thatcompeting ebook retailers had to accept.22

Instead, the dissent invites conduct thatis strictly prohibited by the ShermanAct—horizontal collusion to fix prices—tocure a perceived abuse of market power.Whatever its merit in the abstract, thatpreference for collusion over dominance iswholly foreign to antitrust law. See Trin-ko, 540 U.S. at 408, 124 S.Ct. 872 (refer-ring to collusion as the ‘‘supreme evil ofantitrust’’). Because of the long-termthreat to competition, the Sherman Act

does not authorize horizontal price conspir-acies as a form of marketplace vigilantismto eliminate perceived ‘‘ruinous competi-tion’’ or other ‘‘competitive evils.’’ Mari-copa Cnty. Med. Soc’y, 457 U.S. at 346, 102S.Ct. 2466 (quoting Socony–Vacuum Oil,310 U.S. at 221, 60 S.Ct. 811). Indeed, theattempt to justify a conspiracy to raiseprices ‘‘on the basis of the potential threatthat competition poses TTT is nothing lessthan a frontal assault on the basic policy ofthe Sherman Act.’’ Nat’l Soc’y of Prof’lEng’rs, 435 U.S. at 695, 98 S.Ct. 1355.And it is particularly ironic that the‘‘terms’’ that Apple was able to insist uponby organizing a cartel of Publisher Defen-dants to move against Amazon—namely,the elimination of retail price competi-tion—accomplished the precise opposite ofwhat new entrants to concentrated mar-kets are ordinarily supposed to provide.In short, Apple and the dissent err first inequating a symptom (a single-retailer mar-ket) with a disease (a lack of competition),and then err again by prescribing the dis-ease itself as the cure.

The dissent’s ‘‘frontal assault’’ on compe-tition law is not only wrong as a legalmatter for all the reasons just given; it isalso, despite its professed fidelity to thedistrict court’s view of the facts, premisedon various mischaracterizations of the rec-ord. Put simply, it is far from clear thateither Apple itself or other ebook retailerscould not have entered the ebook retailmarket without Apple’s efforts with thePublisher Defendants to eliminate pricecompetition. As the district court noted,‘‘[Apple] did not attempt to argue or showat trial that the price of admission to newmarkets must be or is participation in ille-gal price-fixing schemes’’ and did not ‘‘sug-

22. While the dissent accuses us of supposingthat ‘‘competition should be genteel, lawyer-designed, and fair under sporting rules,’’ Dis-senting Op. at 342, it is the dissent’s position

that would have ebook consumers subsidizeApple’s entry into the market by paying morefor ebooks so that Apple would not have tocompete on price.

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gest[ ] that the only way it could haveentered the e-book market was to agreewith the Publisher Defendants to raise e-book prices.’’ Apple, 952 F.Supp.2d at708.

The district court’s statement that Applefeared ‘‘losing money if it tried or wasforced to match Amazon’s pricing,’’ Id. at658—the peg on which the dissent largelyhangs its argument—is hardly a conclusivefinding that Apple would have lost moneyhad it entered a market that featured re-tail price competition. Barnes & Noble,for its part, had chosen to enter and stayin the market in the face of Amazon’spricing. Google, too, had plans to enterthe ebook market before Apple launchedthe iBookstore. Moreover, the districtcourt never found that Apple could nothave entered the market on a wholesalemodel while charging more than Amazonfor new releases and bestsellers. To fillthis hole in its theory, the dissent suggeststhat Apple would have ‘‘impair[ed] itsbrand’’ by charging more than Amazon.Dissenting Op. at 352 (internal quotationmarks omitted). But putting aside thefact that Apple’s perception of its brandvalue is irrelevant—does the dissent reallythink it is desirable to require more effi-cient competitors to charge the same astheir less efficient rivals solely so the lat-ter will be spared the indignity of not

charging the best price?—the district courtactually found that Apple believed it wouldhave been ‘‘unrealistic[ ]’’ to charge morethan its price caps after switching to anagency model, Apple, 952 F.Supp.2d at692, a finding that says nothing about whatApple would have been willing to chargeunder a wholesale model.

The record makes clear the flaws in thedissent’s argument. When Cue was stillcontemplating a wholesale model, his ob-jective was not for Apple’s pricing tomatch Amazon’s precisely, but rather forthat pricing to be ‘‘generally competitive.’’J.A. 1758. And had Apple opted to com-pete on both price and platform but con-cluded that it could not match Amazon’s$9.99 pricing, some consumers might wellhave paid somewhat more to read newreleases and bestsellers on the iPad, arevolutionary ereader boasting many morefeatures than the Kindle.23 The iPad wascoming to market with or without a price-fixing conspiracy, and some iPad ownerswho wanted to read ebooks surely wouldnot have wanted to buy a separate Kindlesolely to benefit from Amazon’s $9.99 pric-ing for new releases and bestsellers.(Whether Apple would have viewed itsprofits under that scenario as large enoughto justify entry is not an antitrust con-cern.)

23. A prediction that consumers would havepaid more to read ebooks on the iPad than onthe Kindle because of the iPad’s improvedreading experience or other attractive fea-tures does not somehow suggest that ebooksare ‘‘Veblen goods [or] Giffen goods.’’ Dis-senting Op. at –––– n. 7. The dissent alsosuggests that Apple could not have dependedon the iPad’s hardware advantages as part ofa strategy to charge more than Amazon be-cause antitrust law would have required it toopen up the iPad to a Kindle app. Id. at 352.But for a unilateral refusal to deal to beunlawful, the defendant must have monopolypower, which Apple plainly did not. See, e.g.,United States v. Microsoft Corp., 253 F.3d 34,

51 (D.C.Cir.2001) (en banc) (‘‘While merelypossessing monopoly power is not itself anantitrust violation, it is a necessary element ofa monopolization charge.’’ (citation omitted));Elhauge, supra, at 268 (‘‘A firm that lacksdominant market power TTT can unilaterallychoose with whom they deal without fear ofantitrust liability.’’); see also Trinko, 540 U.S.at 408, 124 S.Ct. 872 (‘‘Under certain circum-stances, a refusal to cooperate with rivals canconstitute anticompetitive conduct and violate§ 2. We have been very cautious in recogniz-ing such exceptions, because of the uncertainvirtue of forced sharing and the difficulty ofidentifying and remedying anticompetitiveconduct by a single firm.’’).

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In actuality, the district court’s fact-find-ing illustrates that Apple organized thePublisher Defendants’ price-fixing conspir-acy not because it was a necessary precon-dition to market entry, but because it wasa convenient bargaining chip. Apple wasoperating under a looming deadline andrecognized that, by aligning its interestswith those of the Publisher Defendantsand offering them a way to raise pricesacross the ebook market, it could gainquick entry into the market on extremelyfavorable terms, including the eliminationof retail price competition from Amazon.But the offer to orchestrate a horizontalconspiracy to raise prices is not a legiti-mate way to sweeten a deal.

The facts also do not support the conclu-sion that Amazon’s market position wouldhave discouraged other ebook retailersfrom entering the market absent the price-fixing conspiracy orchestrated by Apple.Amazon popularized ebooks with thelaunch of the Kindle in late 2007, andenjoyed a strong market position becauseof its innovation. Cf. Trinko, 540 U.S. at407, 124 S.Ct. 872 (noting that the opportu-nity to gain market power ‘‘induces risktaking that produces innovation and eco-nomic growth’’). Barnes & Noble wasAmazon’s first major competitor, and whenit entered the market—on a wholesalemodel—with the introduction of the Nookin 2009, it began to erode Amazon’s mar-ket share. The iPad itself also promisedto introduce more competition with orwithout Apple’s iBookstore by providing aplatform for companies to build ebookmarketplaces without investing in tabletdevelopment. These new entrants gavepublishers more leverage to negotiate foralternative sales models or different pric-ing. Indeed, publishers were already inseparate discussions about an agency mod-el with Barnes & Noble before Apple of-fered a way to swap the rigors of competi-tion for the comfort of collusion.

To summarize, the district court madeno finding that a horizontal conspiracy toeliminate price competition in the ebookretail market was necessary to bring moreretailers into the market to challenge Am-azon, nor does the record evidence supportthis conclusion. More importantly, even ifthere were such evidence, the fact that acompetitor’s entry into the market is con-tingent on a horizontal conspiracy to raiseprices only means (absent monopolisticconduct by the market’s dominant firm,which cannot lawfully be challenged bycollusion) that the competitor is inefficient,i.e., that its entry will not enhance consum-er welfare. For these reasons, I wouldreject the argument that Apple’s entryinto the market represented an importantprocompetitive benefit of the horizontalprice-fixing conspiracy it orchestrated.

b. Other Justifications

Apart from its and other retailers’ entryinto the market, Apple points to otherpurported procompetitive benefits of itsagreement with the Publisher Defendants,namely, eventual price decreases in theebook industry and the various technologi-cal innovations embedded in the iPad. Thedistrict court correctly concluded that Ap-ple failed to establish a connection betweenthese benefits and the conspiracy amongApple and the Publisher Defendants. Ap-ple, 952 F.Supp.2d at 694; see NCAA, 468U.S. at 113–15, 104 S.Ct. 2948 (concludingthat the need to coordinate to produceintercollegiate athletics was not related tocoordination on television rights); XI Ar-eeda & Hovenkamp, supra, ¶ 1908b.

While it may be true that ebook priceseventually declined industry-wide, newpublishers were adopting the digital for-mat and prices were falling even beforeApple’s entry into the market. Apple didnot introduce any admissible evidence link-


ing the continued influx of new titles intothe ebook market to its agreement withthe Publisher Defendants.24 Nor did itprovide an explanation for how this price-fixing agreement altered the business andpricing decisions of other publishers in aprocompetitive direction. The districtcourt’s refusal to give Apple credit forthese trends was therefore proper.

The technological innovations embeddedin the iPad are similarly unrelated to Ap-ple’s agreement with the Publisher Defen-dants. The iPad’s backlit touchscreen, au-dio and video capabilities, and ability tooffer consumers a number of services on asingle device revolutionized tablet comput-ing. But, as Apple’s witnesses testified,the company had every intention of bring-ing the iPad to market with or without theiBookstore. Moreover, Apple was not theonly entity that could use the iPad’s newfeatures to enhance the ebook experi-ence—other retailers, or the publishersthemselves, could have designed andlaunched ebook applications on the plat-form. The district court was correct notto score these hardware innovations asprocompetitive benefits of the agreementbetween Apple and the Publisher Defen-dants to raise prices.

Accordingly, I agree with the districtcourt’s decision that, under the rule of

reason, the horizontal agreement to raiseconsumer-facing ebook prices that Appleorchestrated unreasonably restrainedtrade. But given the clear applicability ofthe per se rule in this context, the analysishere is largely offered in response to thedissent. I also confidently join with myconcurring colleague in affirming the dis-trict court’s conclusion that Apple commit-ted a per se violation of § 1 of the Sher-man Act.

III. The Injunctive Order

Next, Apple and two of the PublisherDefendants—Macmillan and Simon &Schuster—challenge specific portions ofthe district court’s September 5, 2013 in-junctive order. In particular, Macmillanand Simon & Schuster ask us to vacate theprovision which prohibits Apple, for a peri-od of time, from entering agreements withthe Publisher Defendants that restrict itsability to set ebook prices. S.P.A. 205.Apple separately seeks vacatur of a provi-sion requiring it to apply the same termsand conditions to ebook applications in itsApp Store as it does to other applications,and of the district court’s decision to ap-point a compliance monitor. We addresseach of the parties’ arguments in turn.

24. Apple sought to introduce expert testimonyfrom Dr. Michelle Burtis, which it believedwould link continued long-term growth andprice changes to its launch of the iBookstore.However, the district court excluded this testi-mony on the grounds that Dr. Burtis ‘‘did notoffer any scientifically sound analysis of thecause for this purported price decline or seekto control for the factors that may have led toit.’’ Apple, 952 F.Supp.2d at 694 n. 61. Thiswas no abuse of discretion. See Zerega Ave.Realty, 571 F.3d at 212–13. ‘‘[T]he proponentof expert testimony has the burden of estab-lishing by a preponderance of the evidence’’that the expert’s opinion is based on sufficientfacts, is the product of reliable principles andmethods, and applies those principles and

methods reliably to the facts at hand. UnitedStates v. Williams, 506 F.3d 151, 160 (2dCir.2007); see Fed.R.Evid. 702. Dr. Burtismerely compared the average ebook pricesfrom the two years before Apple’s entry intothe market with the average prices two yearsafter. She did not account for the rapidgrowth and change in that industry or explainthe process she used to determine whetherApple’s agency agreements were responsiblefor lower prices. See Gen. Elec. Co. v. Joiner,522 U.S. 136, 146, 118 S.Ct. 512, 139 L.Ed.2d508 (1997); United States v. Dukagjini, 326F.3d 45, 54 (2d Cir.2003). The district courttherefore acted well within its discretion inexcluding Dr. Burtis’s testimony.


A. Macmillan and Simon & Schuster

In the September 5, 2013 injunctive or-der, the district court mandated that ‘‘Ap-ple shall not enter into or maintain anyagreement with a Publisher Defendantthat restricts, limits, or impedes Apple’sability to set, alter, or reduce the RetailPrice of any E-book or to offer price dis-counts or any other form of promotions.’’S.P.A. 205. This prohibition began uponentry of the order and expires at differenttimes for each of the Publisher Defen-dants. The earliest expiration date liftsthe ban for agreements between Apple andHachette beginning 24 months after entryof the injunctive order. Expiration datesfor agreements with each of the otherPublisher Defendants are then set in six-month intervals, with Simon & Schuster’sban expiring 36 months after entry of thefinal judgment and Macmillan’s ban endingafter 48 months.

Macmillan and Simon & Schuster seekvacatur of this prohibition. Both publish-ers are subject to separate consent de-crees, which prohibit them from signingagreements with any ebook retailers whichrestrict the retailer’s ability to ‘‘set, alter,or reduce’’ ebook prices, ‘‘or to offer pricediscounts.’’ J.A. 1126; J.A. 1148. Theprohibition lasts two years for Simon &Schuster and 23 months for Macmillan.According to both Publisher Defendants,the district court’s injunctive order againstApple, in light of these consent decrees, isunlawful for two reasons. First, they con-tend that the injunctive order impermissi-bly modifies their consent decrees by ex-tending the time during which they cannotnegotiate to restrict the price at whichApple sells ebooks.25 Second, they arguethat DOJ should have been judicially es-topped from seeking a prohibition on

agreements limiting Apple’s discountingauthority that lasts longer than two yearsbecause, in the filings in support of theconsent decrees, it argued that two yearswas a sufficient amount of time to restorecompetition in the ebook market. Neitherobjection is persuasive.

We begin with the argument that theinjunctive order impermissibly amendedthe Publisher Defendants’ consent decrees.Federal Rule of Civil Procedure 60(b) es-tablishes the grounds for seeking ‘‘relieffrom a final judgment, order, or proceed-ing,’’ Fed.R.Civ.P. 60(b), including modifi-cations of consent decrees. Rufo v. In-mates of Suffolk Cnty. Jail, 502 U.S. 367,378–79, 112 S.Ct. 748, 116 L.Ed.2d 867(1992); United States v. Eastman KodakCo., 63 F.3d 95, 101 (2d Cir.1995). Therule adopts a flexible approach, enumerat-ing specific reasons for modification whilealso allowing alterations for ‘‘any otherreason that justifies relief.’’ Fed.R.Civ.P.60(b). ‘‘[A] party seeking an alteration’’under this catch-all provision bears the‘‘burden of establishing that a significantchange in circumstances warrants themodification.’’ United States v. Sec’y ofHous. & Urban Dev., 239 F.3d 211, 217 (2dCir.2001).

[20] The Publisher Defendants’ argu-ment rests on the premise that the districtcourt’s injunctive order modified their con-sent decrees and therefore should havecomplied with Rule 60(b)’s requirements.The premise is incorrect. Macmillan’s andSimon & Schuster’s consent decrees pro-hibit them from restricting any retailer’sauthority to set prices. The injunctiveorder does not alter the terms of thosedecrees. Instead, it provides relief againsta different party by limiting Apple’s au-

25. Macmillan also contends that the injunc-tive order broadens the restrictions imposedby its consent decree because the decree al-

lows the company to set certain limits onprice discounts, which it can no longer set forebooks sold by Apple.


thority to negotiate away its ability to setprices in agreements with any of the Pub-lisher Defendants. The fact that the orderalso has the effect of preventing the Pub-lisher Defendants from restricting Apple’spricing authority does not render it ‘‘[r]e-lief from a final judgment, order, or pro-ceeding’’ requiring a motion under Rule60(b). Fed.R.Civ.P. 60(b). A consent de-cree is ‘‘enforced as [an] order[ ],’’ but‘‘construed largely as [a] contract[ ].’’ SECv. Citigroup Global Mkts., Inc., 752 F.3d285, 297 (2d Cir.2014) (internal quotationmarks omitted). Its scope must be dis-cerned within its ‘‘four corners, and not byreference to what might satisfy the pur-poses of one of the parties to it.’’ UnitedStates v. Armour & Co., 402 U.S. 673, 682,91 S.Ct. 1752, 29 L.Ed.2d 256 (1971); seealso Perez v. Danbury Hosp., 347 F.3d419, 424 (2d Cir.2003). An injunctive or-der against an entity that is not party tothe consent decree and neither changesthe terms of nor interprets the decree doesnot modify the contract and therefore doesnot require a Rule 60(b) motion. Indeed,as a practical matter, injunctions often al-ter the options available to other parties.Rule 60(b) does not hold district courtsissuing injunctions to a higher standardsimply because the injunction may affectrights addressed in a different party’s con-sent decree.

[21–23] Macmillan and Simon & Schus-ter’s judicial estoppel argument fares nobetter. Judicial estoppel is ‘‘invoked by acourt at its discretion,’’ and is designed to‘‘protect the integrity of the judicial pro-cess by prohibiting parties from deliber-ately changing positions according to theexigencies of the moment.’’ New Hamp-shire v. Maine, 532 U.S. 742, 749–50, 121S.Ct. 1808, 149 L.Ed.2d 968 (2001) (citationomitted) (internal quotation marks omit-ted). While the propriety of applying es-toppel depends heavily on the ‘‘specific

factual context[ ]’’ before the court, we typ-ically consider whether the party’s argu-ment is ‘‘clearly inconsistent with its earli-er position,’’ whether the party ‘‘succeededin persuading a court to accept’’ that earli-er position, and whether the ‘‘party seek-ing to assert an inconsistent position wouldderive an unfair advantage or impose anunfair detriment on the opposing party ifnot estopped.’’ Id. at 750–51, 121 S.Ct.1808 (internal quotation marks omitted);see also Adelphia Recovery Trust v. Gold-man, Sachs & Co., 748 F.3d 110, 116 (2dCir.2014). ‘‘[R]elief is granted only whenthe TTT impact on judicial integrity is cer-tain.’’ Republic of Ecuador v. ChevronCorp., 638 F.3d 384, 397 (2d Cir.2011) (in-ternal quotation marks omitted).

[24] We conclude that DOJ’s argu-ments in support of the injunctive orderwere neither so clearly inconsistent withits earlier arguments nor so unfairly detri-mental to the Publisher Defendants as towarrant judicial estoppel. In support ofthe consent decrees, the Justice Depart-ment argued that a two-year ban on re-stricting retailers’ abilities to set priceswas sufficient to ‘‘allow movement in themarketplace away from collusive condi-tions.’’ J.A. 1055. It then pushed for alonger, five-year restriction on agreementsspecifically with Apple. While facially in-consistent, we have emphasized the needto ‘‘carefully consider the contexts in whichapparently contradictory statements aremade to determine if there is, in fact,direct and irreconcilable contradiction.’’Rodal v. Anesthesia Grp. of Onondaga,P.C., 369 F.3d 113, 119 (2d Cir.2004). Andhere, context is particularly important.The consent decrees ban certain agree-ments between the Publisher Defendantsand any retailers. The injunctive order,on the other hand, pertained only to thePublisher Defendants’ agreements withApple. Given the extensive factfinding at


trial about the relationship that Apple de-veloped with the Publisher Defendants andits willingness to coordinate their conspira-cy, DOJ had a basis for distinguishing thelength of the restrictions in the consentdecrees from those in the injunctive order.This was not a case of a party reversingcourses, to the detriment of the legal sys-tem, ‘‘simply because his interests havechanged.’’ New Hampshire, 532 U.S. at749, 121 S.Ct. 1808.

Furthermore, the district court did notapprove the Justice Department’s requestfor a five-year ban on all discounting re-strictions between Apple and the PublisherDefendants. Instead, the injunctive orderadopts an interval-based system, whichprevents Apple from agreeing to limit itspricing authority for between 24 and 48months depending on the Publisher Defen-dant. The district court imposed this in-terval system so ‘‘there would be no pointin time when Apple would be renegotiatingwith all of the publisher defendants atonce[, and] no one point in time when [a]

publisher defendant[ ] could be assuredthat it was taking the same bargainingposition as its peers vis-a-vis Apple.’’ J.A.2376. This independent rationale for theinjunctive order ensures that DOJ’s argu-ment did not produce ‘‘inconsistent re-sults’’ or compromise the integrity of thejudicial process. Simon v. Safelite GlassCorp., 128 F.3d 68, 72 (2d Cir.1997).

B. Apple

Apple, like Macmillan and Simon &Schuster, objects to the portion of theinjunctive order preventing it from agree-ing to limit its pricing authority. In addi-tion, the company asks us to vacate anoth-er provision, which requires it to ‘‘applythe same terms and conditions to the saleor distribution of an E-book App throughApple’s App Store as [it] applies to allother apps sold or distributed through[the] App Store.’’ S.P.A. 207. Apple con-tends that neither provision is necessary toprotect the public.26 We disagree.

26. Apple also argues that the district court’sdecision to appoint a Procedure 53 and sepa-ration-of-powers principles. Apple devotedonly two conclusory sentences to these threeseparate facial challenges to the districtcourt’s authority. We therefore deem the ar-guments forfeited and do not consider them.Frank v. United States, 78 F.3d 815, 833 (2dCir.1996) (‘‘Issues not sufficiently argued arein general deemed waived and will not beconsidered on appeal.’’), vacated on othergrounds, 521 U.S. 1114, 117 S.Ct. 2501, 138L.Ed.2d 1007 (1997); Zhang v. Gonzales, 426F.3d 540, 545 n. 7 (2d Cir.2005). We alsonote that, following Rule 53’s amendment in2003, the Advisory Committee stated that‘‘[r]eliance on a master’’ appointed under thatRule ‘‘is appropriate when a complex decreerequires complex policing, particularly whena party has proved resistant or intransigent,’’and that both the Supreme Court and thisCourt have approved such appointments.Fed.R.Civ.P. 53 advisory committee’s note(2003 Amendments) (citing Local 28 of theSheet Metal Workers’ Int’l Ass’n v. E.E.O.C.,478 U.S. 421, 481–82, 106 S.Ct. 3019, 92

L.Ed.2d 344 (1986)); see also Republic of thePhilippines v. N.Y. Land Co., 852 F.2d 33, 36–37 (2d Cir.1988) (collecting cases). In light ofthis background, it would be inappropriate toexcuse Apple’s failure to argue and for thispanel to entertain its facial challenges to thedistrict court’s authority on the scant briefingbefore us.

Judge Jacobs, who sat on a separate panelof this Court that considered an as-appliedchallenge to the monitor’s conduct, contendsthat ‘‘the injunction warps the role of a neu-tral, court-appointed referee into that of anadversary party.’’ Dissenting Op. at 353.Whatever the merits of this argument, it is notproperly before us on this appeal. Here, Ap-ple has asserted only (and without argumen-tation of any sort) that appointing a monitor,in general, violates the Sherman Act, Rule 53,and separation-of-powers principles. The dis-sent’s position eschews that broad facial chal-lenge and instead focuses on the conduct ofthe monitor in this particular case, drawingentirely on a record not before this panel, butpresented to a separate panel in another ap-peal. See United States v. Apple Inc., 787 F.3d


[25, 26] ‘‘A Government plaintiff, un-like a private plaintiff, must seek to obtainrelief necessary to protect the public fromfurther anticompetitive conduct and to re-dress anticompetitive harm.’’ F. Hoff-mann–La Roche Ltd. v. Empagran S.A.,542 U.S. 155, 170, 124 S.Ct. 2359, 159L.Ed.2d 226 (2004) (emphasis added).Thus, ‘‘[w]hen the purpose to restraintrade appears from a clear violation of law,it is not necessary that all untraveledroads to that end be left open and thatonly the worn one be closed.’’ Int’l SaltCo. v. United States, 332 U.S. 392, 400, 68S.Ct. 12, 92 L.Ed. 20 (1947), abrogated onother grounds by Ill. Tool Works Inc. v.Independent Ink, Inc., 547 U.S. 28, 126S.Ct. 1281, 164 L.Ed.2d 26 (2006). Thedistrict court has ‘‘large discretion to mod-el [its] judgments to fit the exigencies ofthe particular case,’’ id., and ‘‘all doubts’’about the remedy are to be ‘‘resolved in[the Government’s] favor,’’ United Statesv. E.I. du Pont de Nemours & Co., 366U.S. 316, 334, 81 S.Ct. 1243, 6 L.Ed.2d 318(1961).

[27] The district court was well withinits discretion to restrict Apple’s ability togive up its pricing authority and to requirethat Apple treat ebook applications thesame way that it treats other applications.Apple relinquished its authority to setprices as part of its conspiracy with thePublisher Defendants. By delaying Ap-ple’s ability to renegotiate similar restric-tions and arranging for the restrictions toexpire at different times for each Publish-er Defendant, the injunctive order ensuredthat Apple and the Publisher Defendantswould not be able to use that same strate-gy as part of a new conspiracy. The provi-sion requiring ebook applications in theApp Store to receive the same terms andconditions as other applications furthers

that goal. The district court expressedconcern that Apple and the Publisher De-fendants may use ebook applications tocircumvent the injunction’s rules about Ap-ple’s pricing authority, or that Apple mayimpose restrictions on ebook applicationsto punish publishers who refused to act inconcert with their competitors. For in-stance, the court found evidence that Ran-dom House eventually joined the iBook-store on Apple’s desired terms in partbecause Apple prevented the companyfrom launching an ebook application in theApp Store. The district court was there-fore correct to decide that these provisionsof the injunctive order were ‘‘necessary toprotect the public from further anticom-petitive conduct.’’ F. Hoffmann–LaRoche, 542 U.S. at 170, 124 S.Ct. 2359.

CONCLUSION

We have considered the appellants’ re-maining arguments and find them to bewithout merit. Because we conclude thatApple violated § 1 of the Sherman Act byorchestrating a horizontal conspiracyamong the Publisher Defendants to raiseebook prices, and that the injunctive reliefordered by the district court is appropri-ately designed to guard against futureanticompetitive conduct, the judgment ofthe district court is AFFIRMED.

LOHIER, Circuit Judge, concurring inpart and concurring in the judgment:

I join in the majority opinion except forpart II.B.2 relating to the application ofthe rule of reason. In my view, Apple’sappeal rises or falls based on the applica-tion of the per se rule. That rule clearlyapplies to the central agreement in thiscase (and the only agreement alleged to beunlawful): the publishers’ horizontal

131, 2015 WL 3405534 (2d Cir.2015). We donot believe it is proper to resolve this appeal

with reference to arguments that Apple hasfailed to make.


agreement to fix ebook prices. Cf. LeeginCreative Leather Prods., Inc. v. PSKS,Inc., 551 U.S. 877, 893, 127 S.Ct. 2705, 168L.Ed.2d 623 (2007) (vertical agreements‘‘may TTT be useful evidence for a plaintiffattempting to prove the existence of ahorizontal cartel’’). I would affirm on thatbasis alone.

That said, I recognize that the publisherdefendants, who used Apple both as pow-erful leverage against Amazon and to keepeach other in collusive check, may appearto be more culpable than Apple. Andthere is also some surface appeal to Ap-ple’s argument that the ebook market, inlight of Amazon’s virtually uncontesteddominance, needed more competition. Butmore corporate bullying is not an appro-priate antidote to corporate bullying. Itcannot have been lawful for Apple to re-spond to a competitor’s dominant marketpower by helping rival corporations (thepublishers) fix prices, as the District Courtfound happened here. However sympa-thetic Apple’s plight and the publishers’predicament may have been, I am per-suaded that permitting ‘‘marketplace vigi-lantism,’’ Majority Op. at 298, would do farmore harm to competition than good,would be disastrous as a policy matter, andis in any event not sanctioned by the Sher-man Act.

DENNIS JACOBS, Circuit Judge,dissenting:

I respectfully dissent.

This appeal is taken by Apple Inc. froma judgment in the United States DistrictCourt for the Southern District of NewYork (Cote, J.), awarding an antitrust in-junction in favor of the United States, 31states, the District of Columbia, and theCommonwealth of Puerto Rico. The plain-tiffs’ claims are premised on Apple’s con-

duct as a prospective retailer of e-books.I vote to reverse.

* * *I have no quarrel with the district

court’s conscientious findings of fact; Iaffirmatively rely on them, and cite themthroughout. The 156 pages of findingstrack communications and interactions thathappened over the 48–day course ofevents, detail by detail. See United Statesv. Apple Inc., 952 F.Supp.2d 638, 655–81(S.D.N.Y.2013) (‘‘Apple I ’’). All that isneeded to decide the case, however, arethe schematic facts that show the architec-ture of the horizontal and vertical arrange-ments and the dynamics of the competitiveforces. They are set out in a nutshell inthe following paragraphs, and at somewhatgreater length in the Background sectionof this opinion.

As Apple was preparing the launch of itsfirst iPad tablet in 2009, the company rec-ognized that the device could support e-books, and gave consideration to includingan e-book retail platform. However, Ama-zon had preceded Apple in the market, hadestablished a 90 percent ascendency insales of e-books, and was effectively ex-cluding new entrants by offering bestsel-lers at a price ($9.99) that for many bookswas below the prices Amazon was payingpublishers.

Although Apple was positioned to enterthe retail market, it was unwilling to do soon terms that would incur a loss on e-booksales (as would happen if it met Amazon’sbelow-cost price), or that would impair itsbrand and likely fail (as would happen if itcharged more than Amazon). So, as acondition to its entry as a competing buyerfor the publishers’ wares, Apple insistedthat the publishers agree to a distributionmodel that would lower that barrier toretail entry.

The new distribution model was imple-mented by several terms in Apple’s con-


tracts with publishers: agency pricing, ti-ered price caps, and a most-favored-nationclause. It is conceded that none of thoseterms is, standing alone, illegal. Applealso encouraged publishers to implementagency pricing in their contracts with oth-er retailers. Although publishers were un-happy about Amazon’s below-cost price fore-books (which eroded the publishers’hardcover sales) no one publisher alonecould counter Amazon. In short order,five of the country’s six largest publishersagreed to Apple’s terms and jointly pres-sured Amazon to adopt agency pricing.The publishers thereby prevailed in whatthe district court found to be a horizontalprice-fixing conspiracy. The barrier to en-try thus removed, Apple entered the retailmarket as a formidable competitor. In thedeconcentrated market, Amazon’s 90 per-cent market share is now 60 percent.

(I acknowledge that, in adducing factsfound by the district court, this opinionunavoidably casts imputations on Amazon.Fairness requires acknowledgment thatAmazon has not appeared in this litigationand has not had a full opportunity to dis-pute the district court’s findings or charac-terizations. Moreover, the fact of Ama-zon’s monopoly alone would not support aninference that Amazon’s behavior was inany way unlawful.)

The Department of Justice, 31 states,the District of Columbia, and the Common-wealth of Puerto Rico sued Apple and thefive publishers for conspiracy in unreason-able restraint of trade, in violation of § 1of the Sherman Antitrust Act, 15 U.S.C.§ 1. The publishers settled, and Apple pro-ceeded to a bench trial. The district courtruled that Apple’s conduct as a verticalenabler of the publishers’ horizontal priceconspiracy constituted a violation per se of§ 1, and that (in any event) Apple’s con-duct would also violate § 1 under the ruleof reason. On this appeal, a majority af-

firms only on the ground of liability per se.See Op. of Judge Lohier, ante, at 339–40.Since I would reverse, I consider as wellthe rule of reason. Judge Livingston’sopinion argues (for herself alone) that thejudgment could be affirmed on that alter-native ground.

The district court committed three deci-sive errors:

1 The district court ruled (and the ma-jority affirms) that a vertical enablerof a horizontal price-fixing conspiracyis in per se violation of the antitrustlaws. However, the Supreme Courtteaches that a vertical agreement de-signed to facilitate a horizontal cartel‘‘would need to be held unlawful underthe rule of reason.’’ Leegin CreativeLeather Prods., Inc. v. PSKS, Inc., 551U.S. 877, 893, 127 S.Ct. 2705, 168L.Ed.2d 623 (2007) (emphasis added).(POINT I)

1 The district court’s alternative rulingunder the rule of reason was predeter-mined by its (erroneous) per se ruling.Thus the district court assessed im-pacts on competition without recogniz-ing that Apple’s role as a verticalplayer differentiated it from the pub-lishers. The court should insteadhave considered Apple as a competitoron the distinct horizontal plane of re-tailers, where Apple competed withAmazon (and smaller players such asBarnes & Noble). (POINT II)

1 Apple’s conduct, assessed under therule of reason on the horizontal planeof retail competition, was unambigu-ously and overwhelmingly pro-compet-itive. Apple was a major potentialcompetitor in a market dominated by a90 percent monopoly, and was justifi-ably unwilling to enter a market onterms that would assure a loss on salesor exact a toll on its reputation. Inthat connection, the district court erro-


neously deemed the monopolist’s $9.99price as categorically good for compe-tition because it was lower than cost,and because e-book prices rose afterthe monopoly was broken. (POINTIII)

A further and pervasive error (by the dis-trict court and by my colleagues on thisappeal) is the implicit assumption thatcompetition should be genteel, lawyer-de-signed, and fair under sporting rules, andthat antitrust law is offended by gloves-offcompetition.

BACKGROUND

From the 2007 inception of the U.S.retail market for e-books through 2009,Amazon ‘‘dominated the e-book retail mar-ket, selling nearly 90% of all e-books.’’Apple I, 952 F.Supp.2d at 649. It assuredits domination by charging its retail cus-tomers $9.99 for new releases and bestsel-lers, below the wholesale price that Ama-zon was paying to publishers. Id. at 649–50, 708. The popular media reported thatAmazon ‘‘takes a loss on the sale of themost popular e-books.’’ Id. at 652. Thatpricing deterred potential retail competi-tors from entering the relevant market—‘‘trade e-books in the United States’’ 1—because an entrant ‘‘would run the risk oflosing money if it tried or was forced tomatch Amazon’s pricing to remain compet-itive.’’ Id. at 658.

Amazon’s below-cost pricing was also athreat to publishers, because at a $9.99price point, e-books cannibalized sales of(more profitable) hardcover editions. Id.at 649. Although the major publishersbelieved Amazon’s below-cost pricing was‘‘predatory,’’ id. at 653, each publisher un-derstood that it was powerless to take onAmazon, id. at 650. Publishers fearedthat Amazon might ‘‘compete directly withpublishers by negotiating directly with au-thors and literary agents for rights,’’ id. at649, and might ‘‘retaliate’’ against insubor-dinate publishers ‘‘by removing the ‘buybuttons’ on the Amazon site that allow cus-tomers to purchase books TTT or by elimi-nating [a publisher’s] products from itssite altogether,’’ id. at 679. One publisher,Macmillan, suffered such retaliation whenAmazon removed the ‘‘buy buttons’’ forprint and e-book versions of Macmillantitles. Id.

Amazon’s 90 percent market share con-stituted a monopoly under antitrust law.See, e.g., Am. Tobacco Co. v. UnitedStates, 328 U.S. 781, 797, 66 S.Ct. 1125, 90L.Ed. 1575 (1946) (characterizing as ‘‘asubstantial monopoly’’ a market share of‘‘over 80% of the field’’); 3B Areeda &Hovenkamp, Antitrust Law ¶ 801 (3ded.2008). Amazon’s below-cost pricing wasa barrier to entry by Apple in 2009, whenit contemplated entry into the e-book retailmarket via the iPad.2 Apple I, 952

1. The parties did not dispute this market defi-nition. Apple I, 952 F.Supp.2d at 694 n. 60.

2. While the district court did not use the label‘‘barrier to entry,’’ its findings of fact madethe point clearly. In finding that a new en-trant to e-book retail in 2009 ‘‘would run therisk of losing money if it tried or was forcedto match Amazon’s pricing to remain compet-itive,’’ Apple I, 952 F.Supp.2d at 658, thedistrict court left no doubt that the effect ofAmazon’s below-cost pricing regime was to‘‘impede entry and protect existing marketpower’’—the basic operation of a barrier to

entry, 2B Areeda & Hovenkamp, supra,¶ 420c, at 78.

The majority disputes whether there wasany barrier to entry under Amazon’s below-cost pricing regime, because at least one com-petitor attempted to join the market. See Op.of Judge Livingston, ante, at 299 (for theCourt), 333. Even if that entrant had anychance of success (nobody contends that itsold a meaningful number of e-books, ormade any money, or reduced Amazon’s mam-moth market share to less than 90 percent),that fact need not imply ease of entry because‘‘a barrier may protect a market incumbent


F.Supp.2d at 654, 658. Apple neverthelessundertook to develop an e-book retail plat-form in time for the iPad’s launch, sched-uled for January 27, 2010. Id. at 654–55.However, ‘‘Apple did not have to open ane-bookstore when it launched the iPad’’;and it was willing to enter the market onlyon the condition that its e-book retail busi-ness would be profitable, such that Applecould ‘‘compete effectively with Amazon’’without adopting a loss-leadership and be-low-cost pricing strategy. Id. at 656–59.

Apple opened extensive negotiationswith publishers to determine how if at allit could enter the e-book retail market.Id. at 655–57. Apple met with the leadersof the six largest publishing houses in theUnited States: Hachette, HarperCollins,Macmillan, Penguin, Random House, andSimon & Schuster. Id. at 647, 655. Atthe outset, Apple understood that the pub-lishers were unhappy with Amazon’s be-low-cost pricing of e-books; so Apple knewthat the publishers ‘‘were willing to coordi-nate their efforts’’ to combat the $9.99price point. Id. at 656.

After some weeks, Apple and severalpublishers devised a new model for e-bookdistribution. Amazon had been paying awholesale price for each e-book, and resell-ing (often at a loss) for a retail price of itschoosing. Apple’s distribution contractswould adopt an agency system: publisherswould set the retail prices of e-books soldthrough Apple’s platform and Apple wouldtake a fixed-percent commission on eachsale. Id. at 659. However, the agencymodel would expose Apple (or any retailer)to risk, because publishers might protecthardcover sales by setting retail prices fore-books so high that Apple would appearout of touch with consumers aware of Am-azon’s $9.99 price. Id. Apple’s solutionwas twofold. First, the proposed agencycontract included a most favored nation

(‘‘MFN’’) clause, under which publishersmust price their new releases in Apple’sstore at or below the lowest price offeredby any other e-book retailer. Id. at 662.The district court found that the MFNclause ‘‘effectively forced’’ each publisherthat signed Apple’s agency contract tomove its other retailers onto the agencymodel. Id. at 664. That is because, onceApple’s cost was set as a percentage of theretail price, the publishers would suffer ifApple matched Amazon’s $9.99 retail price.Second, the proposed contract includedmaximum prices for various categories ofe-books. Id. at 661–62. The district courtfound that these tiered price caps had theeffect of setting anchor prices across the e-book industry. Id. at 670. Nonetheless,as the district court observed, these termsare not inherently illegal, and ‘‘entirelylawful contracts may include an MFN,price caps, or pricing tiers.’’ Id. at 698.

As Apple negotiated with publishers tosign the agency contract, it told each ma-jor publisher that all signing publisherswould receive the same terms. Id. at 667.In the end, five of the six largest publish-ers signed Apple’s agency contract. Id. at673. (Only Random House, the country’slargest, did not. Id.) As the district courtfound, the five signatories represented‘‘over 48% of all e-books in the UnitedStates’’ when they signed Apple’s agencycontract. Id. at 648. Apple unveiled its e-book retail platform—the ‘‘iBookstore’’—atthe first public demonstration of the iPadon January 27, 2010. Id. at 678–79.

After the publishers signed on to Ap-ple’s agency contract, they had to focus onAmazon’s adoption of the agency modelbecause otherwise (as explained above) theMFN clause would allow Apple to matchAmazon’s price for bestsellers, and pay thepublishers no more than a percentage

without completely excluding entry.’’ 2B Ar- eeda & Hovenkamp, supra, ¶ 420a, at 73.


commission on $9.99. However, ‘‘the[p]ublishers feared retaliation from Ama-zon unless they acted in unison,’’ id. at 670,and ‘‘needed reassurance that they wouldnot be alone,’’ id. at 674. An Apple execu-tive liaised with each of the five signatorypublishers, to encourage a ‘‘united front’’in their negotiations with Amazon, and tokeep the publishers ‘‘apprised about whowas in and how many were on board.’’ Id.at 673. The publishers also communicateddirectly with each other. Id. at 674–77.When Amazon realized that the five pub-lishers were acting in concert, it accededand signed the agency contracts. Id. at680–82.

Those are the findings on which Applewas adjudged to have committed an anti-trust violation. The putative violationamounted to: (a) embedding the agencymodel (complete with MFN clauses andprice caps) in Apple’s own contracts withpublishers and (b) encouraging the pub-lishers to coordinate horizontally in theirefforts to push the industry-wide adoptionof the agency model. Apple and the pub-lishers shared the motive to increase thepublishers’ pricing power in order to de-prive Amazon of its monopoly. They suc-ceeded: as the district court noted earlierin this litigation, ‘‘Amazon’s market sharein e-books decreased from 90 to 60 percentin the two years following the introductionof agency pricing.’’ United States v. Ap-ple, Inc., 889 F.Supp.2d 623, 640 (S.D.N.Y.2012).

* * *

The foregoing Background accepts andrelies upon the district court’s findings offact. One cannot say the same of JudgeLivingston’s opinion, which supports its le-gal conclusions and its market analysiswith novel findings made now on appeal,i.e., remand by other means. A few exam-ples:

1 The notion that Amazon’s below-costpricing was loss-leadership ‘‘designedto encourage consumers to adopt theKindle,’’ Op. of Judge Livingston, ante,at 299 (for the Court), is a novelty,supported by neither the fact findingsnor the record. At any rate, the effectof e-book pricing outside of the rele-vant market is irrelevant.

1 The majority asserts that Amazon’sbelow-cost pricing was limited to only‘‘a small loss’’ on only ‘‘a small per-centage of its sales.’’ Id. at 327 (forthe Court). These observations areapparently drawn from a submissionby Amazon, downplaying the anti-com-petitive effects of its monopoly-protec-tive pricing. The district court did notrely on these statistics, presumably be-cause they are misleading and self-serving: they ignore that the minorityof titles comprising new releases andbestsellers naturally have an outsizeimpact on the industry. Accordingly,the district court found that the below-cost pricing had consequences on themarket, namely that a new entrant‘‘would run the risk of losing money ifit tried or was forced to match Ama-zon’s pricing to remain competitive.’’Apple I, 952 F.Supp.2d at 658.

1 I can find no record support for thenarrative that Amazon’s market sharewas eroding before Apple’s entry, thatthe iPad ‘‘promised to introduce morecompetition with or without Apple’siBookstore,’’ and that the publishersthereby enjoyed increased negotiatingleverage. Op. of Judge Livingston,ante, at 334. Similarly, the assertionthat Barnes & Noble disrupted Ama-zon’s dominance in the e-book market,see id. at 334, is supported neither bythe district court’s findings nor by therecord.


By contrast, my antitrust analysis relieson the findings made by the district court,and incorporates no others, in order (a) toavoid factual disputes with my colleagues,(b) to defer to the district court’s thoroughfact findings in arriving at my legal conclu-sions, and (c) to respect the limited role ofappellate courts.

DISCUSSION

I

The district court’s principal legal error,from which other errors flow, is its conclu-sion that Apple violated § 1 under the perse rule. Having found that the publishers’coordinated strategy was a horizontalprice-fixing conspiracy, and that Apple hadfacilitated that conspiracy in its verticalrelationship with the publishers, see AppleI, 952 F.Supp.2d at 691, the district courtdrew the legal conclusion that these factsestablished a per se violation of the Sher-man Act by Apple. This appeal turns onwhether purely vertical participation inand facilitation of a horizontal price-fixingconspiracy gives rise to per se liability.

Section 1 of the Sherman Act ‘‘out-law[s] only unreasonable restraints’’; so acourt weighing an alleged violation ‘‘pre-sumptively applies rule of reason analysis,under which antitrust plaintiffs must dem-onstrate that a particular contract orcombination is in fact unreasonable andanticompetitive before it will be found un-lawful.’’ Texaco Inc. v. Dagher, 547 U.S.1, 5, 126 S.Ct. 1276, 164 L.Ed.2d 1 (2006)(quoting State Oil Co. v. Khan, 522 U.S.3, 10, 118 S.Ct. 275, 139 L.Ed.2d 199(1997)). The exception, liability per se, isreserved for those categories of behaviorso definitively and universally anti-com-petitive that a court’s consideration ofmarket forces and reasonableness wouldbe pointless. Id. Traditionally, restraintsthat are per se unlawful take the form of

horizontal agreements ‘‘raising, depress-ing, fixing, pegging, or stabilizing theprice of a commodity.’’ United States v.Socony–Vacuum Oil Co., 310 U.S. 150,223, 60 S.Ct. 811, 84 L.Ed. 1129 (1940).

Among modern cases, the per se ruletakes aim exclusively at horizontal agree-ments, because ‘‘competition among themanufacturers of the same [product] TTT isthe primary concern of antitrust law.’’Continental T.V., Inc. v. GTE SylvaniaInc., 433 U.S. 36, 52 n. 19, 97 S.Ct. 2549, 53L.Ed.2d 568 (1977). Accordingly, thetrend of antitrust law has been a steadyconstriction of the per se rule in the con-text of vertical relationships. See, e.g.,Leegin Creative Leather Prods., Inc. v.PSKS, Inc., 551 U.S. 877, 901, 127 S.Ct.2705, 168 L.Ed.2d 623 (2007) (holding thatvertical agreements for minimum pricesare not per se violations); State Oil Co.,522 U.S. at 7, 118 S.Ct. 275 (holding thatvertical agreements for maximum pricesare not per se violations); ContinentalT.V., 433 U.S. at 59, 97 S.Ct. 2549 (holdingthat vertical non-price restraints are notper se violations); White Motor Co. v.United States, 372 U.S. 253, 261–64, 83S.Ct. 696, 9 L.Ed.2d 738 (1963) (holdingthat vertical territorial restraints are notper se violations). The cases have ‘‘contin-ued to temper, limit, or overrule oncestrict prohibitions on vertical restraints.’’Leegin, 551 U.S. at 901, 127 S.Ct. 2705.

A vertical relationship that facilitates ahorizontal price conspiracy does notamount to a per se violation. In anotherage, the Supreme Court treated such ahub-and-spokes conspiracy as a per se vio-lation. See Interstate Circuit, Inc. v. Par-amount Pictures Distrib. Co., 306 U.S.208, 226–27, 59 S.Ct. 467, 83 L.Ed. 610(1939). But the per se rule has been insteady retreat.

The most recent and explicit signal isgiven in Leegin, which explains that ‘‘the


Sherman Act’s prohibition on ‘restraints oftrade’ evolves to meet the dynamics ofpresent economic conditions,’’ such that‘‘the boundaries of the doctrine of per seillegality should not be immovable.’’ 551U.S. at 899–900, 127 S.Ct. 2705 (alterationsomitted). Leegin held that a manufacturerdid not commit a per se violation of § 1when it agreed with several retailers on aminimum price that the retailers couldcharge—a holding that overruled a centu-ry-old principle articulated in Dr. MilesMedical Co. v. John D. Park & Sons Co.,220 U.S. 373, 31 S.Ct. 376, 55 L.Ed. 502(1911). See Leegin, 551 U.S. at 881, 127S.Ct. 2705. Leegin reasoned that Dr.Miles had ‘‘treated vertical agreements amanufacturer makes with its distributorsas analogous to a horizontal combinationamong competing distributors,’’ but that,‘‘[i]n later cases, TTT the Court rejectedthe approach of reliance on rules govern-ing horizontal restraints when definingrules applicable to vertical ones.’’ Leegin,551 U.S. at 888, 127 S.Ct. 2705. Dr. Mileswas held to be inconsistent with ‘‘[o]urrecent cases[,] [which] formulate antitrustprinciples in accordance with the appreci-ated differences in economic effect be-tween vertical and horizontal agreements,differences the Dr. Miles Court failed toconsider.’’ Id.

Although the express holding of Leegindoes not extend beyond the overruling ofDr. Miles, the Court’s analysis reinforcesthe doctrinal shift that subjects an ever-broader category of vertical agreements toreview under the rule of reason. TheCourt first stated the subsisting scope ofper se liability:

A horizontal cartel among competingmanufacturers or competing retailersthat decreases output or reduces compe-tition in order to increase price is, andought to be, per se unlawful.

Leegin, 551 U.S. at 893, 127 S.Ct. 2705.The Court then rejected per se liability forhub-and-spokes agreements, in wordingthat prescribes rule-of-reason review ofvertical dealings that facilitate per se un-lawful horizontal agreements (the type ofagreement that the district court foundApple had undertaken):

To the extent a vertical agreement set-ting minimum resale prices is enteredupon to facilitate either type of cartel[among manufacturers or among retail-ers], it, too, would need to be held un-lawful under the rule of reason.

Id. (emphasis added). After Leegin, wecannot apply the per se rule to a verticalfacilitator of a horizontal price-fixing con-spiracy; such an actor must be held liable,if at all, ‘‘under the rule of reason.’’ Id.

Leegin is animated by the ‘‘appreciateddifferences in economic effect betweenvertical and horizontal agreements.’’ Id.at 888, 127 S.Ct. 2705. Since every chal-lenged restraint is thus classified as ei-ther horizontal or vertical, one may drawcertain reliable inferences: vertical agree-ments are not presumptively subject toper se liability; the vertical nature of theagreement is its salient feature; the in-fluence of a vertical arrangement on ahorizontal cartel (on another plane ofcompetition) does not render the verticalarrangement per se unlawful.

Our only sister circuit to have consid-ered this wording from Leegin arrived atthe conclusion I draw. In Toledo MackSales & Service, Inc. v. Mack Trucks, Inc.,530 F.3d 204, 225 (3d Cir.2008), a manufac-turer used its contracts with distributorsto facilitate and enforce a horizontal con-spiracy (among the distributors) that wasitself illegal per se. See id. at 210. TheThird Circuit held that Leegin’s instruc-tion—that the vertical arrangement ‘‘wouldneed to be held unlawful under the rule ofreason’’—prescribed the rule of reason as


the proper analysis for whether the verti-cal conduct violated § 1. See id. at 225.

Taking the opposite tack, the majorityopinion on this appeal insists that a verti-cal facilitator of a horizontal conspiracy isliable per se, even after Leegin. In sup-port of that argument, the majority citesseven cases that pre-date Leegin.3 Op. ofJudge Livingston, ante, at 322–24 (for theCourt). The majority cites only one post-Leegin case that considers this question:namely, the Third Circuit’s analysis of aconspiracy that involved both vertical andhorizontal relationships, concluding thatthe horizontal relationships violated § 1per se and that pursuant to Leegin thevertical relationships ‘‘would have to beanalyzed under the traditional rule of rea-son.’’ 4 In re Ins. Brokerage AntitrustLitig., 618 F.3d 300, 318 (3d Cir.2010).

The majority’s holding in this casetherefore creates a circuit split, and putsus on the wrong side of it.

‘‘[H]orizontal agreements as a class de-serve stricter scrutiny than TTT verticalagreements,’’ because horizontal agree-ments ‘‘pose the most significant dangersof competitive harm.’’ 11 Areeda & Ho-venkamp, supra, ¶ 1902a, at 232. Horizon-tal price conspiracies are illegal per sebecause motives of horizontal players arealigned and dominant and create irresisti-ble temptations. See, e.g., Adam Smith,The Wealth of Nations 207 (Collier 1902)(1776) (‘‘People of the same trade seldommeet together TTT, but the conversationends in a conspiracy against the public, orin some contrivance to raise prices.’’).

Collusion among competitors does notdescribe Apple’s conduct or account for itsmotive. Apple’s conduct had no elementof collusion with a horizontal rival. Itsown rival in competition was (and presum-ably is) Amazon; and that competitiontakes place on a horizontal plane distinctfrom the plane of the horizontal conspiracyamong the publishers. All Apple’s ener-

3. The cases are cited by the majority in thisorder: Klor’s, Inc. v. Broadway–Hale Stores,Inc., 359 U.S. 207, 79 S.Ct. 705, 3 L.Ed.2d741 (1959); United States v. General MotorsCorp., 384 U.S. 127, 86 S.Ct. 1321, 16L.Ed.2d 415 (1966); Toys ‘‘R’’ Us, Inc. v. FTC,221 F.3d 928 (7th Cir.2000); Denny’s Marina,Inc. v. Renfro Productions, Inc., 8 F.3d 1217(7th Cir.1993); United States v. MMR Corp.,907 F.2d 489 (5th Cir.1990); Business Elec-tronics Corp. v. Sharp Electronics Corp., 485U.S. 717, 108 S.Ct. 1515, 99 L.Ed.2d 808(1988); NYNEX Corp. v. Discon, Inc., 525U.S. 128, 119 S.Ct. 493, 142 L.Ed.2d 510(1998).

Just as unhelpfully, the majority cites dictafrom a Sixth Circuit case affirming the dis-missal of a lawsuit that alleged a hub-and-spokes conspiracy. See Total Benefits Plan-ning Agency, Inc. v. Anthem Blue Cross & BlueShield, 552 F.3d 430 (6th Cir.2008). Themajority cites the case as if its holding sup-ports the continued legitimacy of the hub-and-spokes theory after Leegin, a flawed interpre-tation given the Sixth Circuit’s disposition onthe hub-and-spokes claim. Id. at 435 (hold-ing that plaintiffs inadequately alleged a hori-

zontal conspiracy and that, after Leegin, ‘‘allvertical price restraints are to be judged un-der the rule-of-reason standard’’ (emphasisadded)).

4. The Third Circuit analyzed a network ofrestraints, including a conspiracy among in-surance brokers, a conspiracy among insur-ers, and agreements that connected the bro-kers and insurers. The court explainedLeegin’s impact this way:

Under the Supreme Court’s jurispru-dence, virtually all vertical agreementsnow receive a traditional rule-of-reasonanalysis. See Leegin, 551 U.S. 877, 127S.Ct. 2705. In the factual context of thiscase, a horizontal agreement means TTT

an agreement among either the brokersor the insurers in the global conspiracy.Agreements between brokers and insur-ers, on the other hand, are vertical andwould have to be analyzed under the tra-ditional rule of reason.

In re Ins. Brokerage Antitrust Litig., 618 F.3d300, 318–19 (3d Cir.2010) (internal citationand footnote omitted).


gy—all it did that has been condemned inthis case—was directed to weakening itscompetitive rival, and pushing it aside tomake room for Apple’s entry. On the onlyhorizontal plane that matters to Apple’s e-book business, Apple was in competitionand never in collusion. So it does not doto deem Apple’s conduct anti-competitivejust because the publishers’ horizontal con-spiracy was found to be illegal per se.

‘‘[V]ertical agreements are a customaryand even indispensable part of the marketsystem’’ and so do not represent the samepresumptive threat to competition. 11 Ar-eeda & Hovenkamp, supra, ¶ 1902d, at240. Even a vertical agreement designedto decrease competition among competi-tors does not pose the threat to marketcompetition that is posed by a horizontalagreement, for two reasons: (1) marketforces (such as countervailing measures bycompetitors) are categorically more effec-tive in countering anti-competitive verticalagreements, and (2) vertical agreementsare so fundamental to the operation of themarket that uncertainty about the legalityof vertical arrangements would imposevast costs on markets. Id. at 240–41.Such market realities are driving the evo-lution of antitrust law, which has ‘‘rejectedthe approach of reliance on rules govern-ing horizontal restraints when definingrules applicable to vertical ones.’’ Leegin,551 U.S. at 888, 127 S.Ct. 2705.

The present case illustrates why per setreatment is not given to vertical agree-ments that facilitate horizontal conspira-cies. Assuming (as is uncontested on ap-peal) that the publishers violated § 1 perse through their coordination, Apple’s pro-motion of that horizontal conspiracy waslimited to vertical dealings.

The per se rule is inapplicable here foranother independent reason: The per serule does not apply to arrangements withwhich the courts are not already well-

experienced. Leegin, 551 U.S. at 887, 127S.Ct. 2705. As the government concededat oral argument, no court has previouslyconsidered a restraint of this kind. Sever-al features make it sui generis: (a) a verti-cal relationship (b) facilitating a horizontalconspiracy (c) to overcome barriers to en-try in a market dominated by a single firm(d) in an industry created by an emergenttechnology.

As I undertake to show in my analysisunder the rule of reason, below, the re-strictive market conditions Apple facedand the pro-competitive results of Apple’sconduct make its vertical dealings categor-ically reasonable. Even if one tests thatconclusion under the rule of reason, theanalysis is sufficiently complex and yieldssuch substantial pro-competitive resultsthat per se liability is an abdication of theduty to distinguish reasonable restraintsfrom those that are unreasonable.

II

Having concluded first that Apple’s con-duct was anti-competitive per se, corollaryerrors followed when the district courtturned to the rule of reason. Once a courtfinds that a party acted unreasonably perse in a set of transactions, an epiphany isrequired for the court to conclude that thesame party acted reasonably doing thesame acts in the same role at the sametime. The influence arising from the dis-trict court’s per se accusation of wrongdo-ing infected all analysis that followed.Once Apple was deemed to have joined aconspiracy that was illegal per se, its goal,motive, and conduct seemingly needed(and got) no additional scrutiny—legal ormoral or economic.

Having confirmed Apple’s per se liabilityby conflating the horizontal plane of com-petition among publishers with the hori-zontal plane of competition among retail-


ers, the district court committed the sameerror in its rule of reason analysis. Thusthe district court (as explained below)overstated the anti-competitive nature ofApple’s vertical dealings and overlookedthe pro-competitive effects on retail com-petition—the horizontal plane on whichApple does e-book business. ‘‘The districtcourt did not analyze the state of competi-tion between ebook retailers,’’ as the ma-jority concedes. Op. of Judge Livingston,ante, at 311 (for the Court) (emphasisomitted). Exactly.

Judge Livingston’s opinion succumbs tothe same fallacy by declaring the majori-ty’s own per se analysis so overwhelmingthat full rule-of-reason scrutiny requiresno more than a ‘‘quick look.’’ Quick-lookanalysis is an appropriate tool only when‘‘an observer with even a rudimentary un-derstanding of economics could concludethat the arrangements in question wouldhave an anticompetitive effect.’’ Cal. Den-tal Ass’n v. FTC, 526 U.S. 756, 770, 119S.Ct. 1604, 143 L.Ed.2d 935 (1999). Quick-look analysis is not a tool for cutting cor-ners. Judge Livingston’s opinion justifiesquick-look analysis by referring to e-bookprice increases that form the majority’searlier argument for the application of theper se rule, see Op. of Judge Livingston,ante, at 330—price increases that, at anyrate, are the expected result when monop-olistic below-cost pricing dissipates.

In form and substance, Judge Living-ston’s analysis demonstrates that whenone starts with a finding of unreasonable-ness per se, the rule of reason analysis istainted. It is called confirmation bias.The characterization of Apple’s conduct as‘‘vigilantism’’ is telling. Op. of Judge Liv-ingston, ante, at 297–98 (for the Court),332. Use of that word either assumes theconclusion that the conduct is illegal, orelse confuses it with self-help (which usedto be a virtue).

III

On this appeal, we have reached no ma-jority as to the rule of reason. JudgeLivingston writes for herself alone that, asan alternative to the per se rule, she wouldalso affirm under the rule of reason; with-out a second judge supporting this conclu-sion, it is dicta, because our affirmance isbased on the per se theory adopted by twojudges. Unlike my colleagues, I must ad-dress the rule of reason, because my voteto reverse depends on my conclusion thatthis alternative theory of liability is everybit as untenable as liability per se.

Analysis under the rule of reason—whether conducted in full or by an un-tainted quick look—compels the conclusionthat Apple did not violate § 1 of the Sher-man Act. The issue is decided by compar-ing (a) the restrictive effect of Apple’sdealings with (b) the pro-competitive resultof deconcentrating a market that had beendominated by a monopolist and insulatedfrom competition through below-cost pric-ing.

Under the rule of reason, the initialburden rests with the plaintiffs ‘‘to demon-strate the defendants’ challenged behaviorhad an actual adverse effect on competi-tion as a whole in the relevant market.’’Geneva Pharms. Tech. Corp. v. Barr Labs.Inc., 386 F.3d 485, 506–07 (2d Cir.2004)(internal quotation marks omitted). Uponplaintiffs’ showing of such an effect, ‘‘theburden shifts to the defendants to offerevidence of the pro-competitive effects oftheir agreement,’’ and then ‘‘the burdenshifts back to the plaintiffs to prove thatany legitimate competitive benefits offeredby defendants could have been achievedthrough less restrictive means.’’ Id. Thereasonableness of the restraint then boilsdown to whether the dominant effect ofthe agreement is to promote competitionor restrain it. Id.


Analysis begins with an accounting ofanti-competitive effects. Apple’s verticalconduct consisted of negotiating the termsof its own contracts. Of course, everycontract is a restraint of trade to someextent, see Nat’l Collegiate Athletic Ass’nv. Bd. of Regents of Univ. of Okla., 468U.S. 85, 98, 104 S.Ct. 2948, 82 L.Ed.2d 70(1984); so this fact alone is neither herenor there.

The agency agreement that Applesigned with each publisher was innocuous:as the parties agree, each term—includingthe agency structure, MFN clause, andprice caps—is absolutely legal. The dis-trict court so found expressly:

The Plaintiffs do not argue, and thisCourt has not found, that the agencymodel for distribution of content, or anyone of the clauses included in the Agree-ments, or any of the identified negotia-tion tactics is inherently illegal. Indeed,entirely lawful contracts may include anMFN, price caps, or pricing tiers.

Apple I, 952 F.Supp.2d at 698. The mainrestraint resulting from Apple’s verticalconduct was the shifting of pricing powerfrom e-book retailers to e-book publishers.And this effect operated as a restraint onlyin the sense that Amazon faced pressure toadopt an agency model and to chargeprices set by the five publishers, which ofcourse remained in competition with eachother, and with the publishers who accountfor the remaining 52 percent of the indus-try.

The district court opinion and the plain-tiffs’ briefs fixate on the idea that Appleended Amazon’s $9.99 price for most newreleases and bestsellers, and that consum-ers would have preferred a lower price.But the consumer’s near-term preference

for low prices is not an object of antitrustlaw. See Brooke Grp. Ltd. v. Brown &Williamson Tobacco Corp., 509 U.S. 209,237, 113 S.Ct. 2578, 125 L.Ed.2d 168(1993). The district court charts theshort-term price developments, treatingthe end of below-cost pricing as anti-com-petitive and observing with disapproval thenatural tendency for prices to rise to com-petitive levels. The rule of reason pro-motes competition; it can be safely as-sumed that if competition sharpens, priceswill take care of themselves.

As to the pro-competitive effects, therule of reason must take account primarilyof the deconcentrating of the e-book retailmarket. The benefit of increasing the num-ber of firms in a market derives from the‘‘inverse correlation between concentrationand competition.’’ Eleanor M. Fox, Eco-nomic Concentration, Efficiencies andCompetition: Social Goals and PoliticalChoices, in Industrial Concentration andthe Market System 137, 149 (Eleanor M.Fox & James T. Halverson eds., 1979). Asthe district court found, Apple was weigh-ing its entry into the retail e-book market,and the agency structure was the only wayApple would enter the market. Nobodyhas proposed—before or since Apple’s en-try—any ‘‘less restrictive means’’ by whichApple could have achieved the same com-petitive benefits. See Geneva Pharms.,386 F.3d at 507 (plaintiffs’ burden to proveviable and less restrictive alternative).Apple’s challenged conduct broke Ama-zon’s monopoly, immediately deconcentrat-ed the e-book retail market, added a plat-form for reading e-books, and removedbarriers to entry by others. And removalof a barrier to entry reduces for the longterm a market’s vulnerability to monopoli-zation.5 These effects sound in the basic

5. Generally speaking, entry barriers permitmonopolization and monopoly power allows afirm to erect entry barriers. See, e.g., Port

Dock & Stone Corp. v. Oldcastle Ne., Inc., 507F.3d 117, 125 (2d Cir.2007); United States v.Microsoft Corp., 253 F.3d 34, 82 (D.C.Cir.


goals of antitrust law. Even if only quick-look analysis were appropriate in this case,these effects would vindicate Apple’s con-duct. (Judge Livingston’s opinion dis-counts this pro-competitive effect by not-ing the open question whether ‘‘below-costpricing is unlawfully anti-competitive,’’thereby suggesting that Apple’s disman-tling of the entry barrier could be pro-competitive only if the barrier was itself aSherman Act violation. Op. of Judge Liv-ingston, ante, at 331–32. But it is nomatter whether the insuperable barrierthat Apple tore down had been raised law-fully or not.)

Another pro-competitive effect is the en-couragement of innovation, a hallmark andbenefit of competition. Apple began re-tailing e-books in conjunction with its re-lease of the iPad, a device that integratedcutting-edge functions and applications,just one of which was the capacity forusers to buy and read e-books. It is im-possible to know the likely course of inno-vation, and pro-competitive effects of inno-vation cannot be measured; nevertheless,the encouragement of innovation must beafforded considerable weight under therule of reason. See generally 2B Areeda& Hovenkamp, supra, ¶ 407. Apple’s busi-ness is not the technology of the clothes-pin.

The restraint of Apple’s vertical conductwas no more than a slight offset to thecompetitive benefits that now pervade therelevant market.6

How else could the competitive benefitshave been realized in this market? In thecourse of this litigation, three theorieshave been offered for how Apple could

have entered the e-book market on lessrestrictive terms. Each theory misappre-hends the market or the law, or both. Theabsence of alternative means bespeaks thereasonableness of the measures Appletook.

Theory 1: Apple could have competedwith Amazon on Amazon’s terms, usingwholesale contracts and below-cost pric-ing. This was never an option. The dis-trict court found as fact that: a new en-trant into the e-book retail market ‘‘wouldrun the risk of losing money if it tried orwas forced to match Amazon’s pricing toremain competitive,’’ Apple I, 952F.Supp.2d at 658; Apple was ‘‘not willing’’to engage in below-cost pricing, id. at 657;and Apple could have avoided this money-losing price structure simply by forgoingentry to the market, see id. at 659. Evenif Apple had been willing to adopt below-cost pricing, the result at best would havebeen duopoly, and the hardening of theexisting barrier to entry. Antitrust lawdisfavors a durable duopoly nearly asmuch as monopoly itself. See 6 Areeda &Hovenkamp, supra, ¶ 1429.

Theory 2: Apple could have entered thee-book retail market using the wholesalemodel and charged higher prices thanAmazon’s. The district court foreclosedthis theory as well; it found that Applerefused to impair its brand by charging‘‘what it considered unrealistically highprices.’’ Apple I, 952 F.Supp.2d at 659.Even if Apple had been willing to tarnishits brand by offering bad value for money,the notion that customers would actuallyhave bought e-books from Apple at thehigher price defies the law of demand.

2001) (en banc); see also Mobil Oil Corp. v.Fed. Power Comm’n, 417 U.S. 283, 302 n. 23,94 S.Ct. 2328, 41 L.Ed.2d 72 (1974). Each isless likely to arise when the other is absentfrom a market.

6. Amazons’s below-cost prices also threat-ened the market for hard-copy books, see Ap-ple I, 952 F.Supp.2d at 649, and thus theroyalties of authors, who may well considerthat they have some role in this industry.


Higher prices may stimulate sales of cer-tain wines and perfumes—not e-books.7

Nor could Apple justify higher prices forthe e-books by competing on the basis ofits new hardware, the iPad, because thereis inter-operability among platforms. Andif Apple had attempted to pursue thishardware-based competition by program-ming its iPad to run the iBookstore but toreject Amazon’s Kindle application, Applemight have been exposed to an entirelydifferent antitrust peril. See UnitedStates v. Microsoft Corp., 253 F.3d 34, 50–80 (D.C.Cir.2001) (en banc); Google An-droid, No. 40099 (Eur. Comm’n Apr. 15,2015) (antitrust proceedings brought byEuropean Commissioner for Competitionagainst Google for favoring Google’s ownapplications on mobile devices that useGoogle’s operating system).

Theory 3: Apple could have asked theDepartment of Justice to act against Ama-zon’s monopoly. Counsel for the UnitedStates actually proposed this at oral argu-ment. At the same time, however, heconceded that the Department of Justicehad already ‘‘noticed’’ Amazon’s e-bookpricing and had chosen not to challenge itbecause the government ‘‘regarded it asgood for consumers.’’ Any request fromApple would therefore have been futile.True, Apple could not have known that theAntitrust Division would have adopted theposition that below-cost pricing is not aconcern of antitrust policy: who could haveguessed that the government would adopta policy that is primitive as a matter ofantitrust doctrine and illiterate as a matterof economics? Nevertheless, hindsight re-veals that government antitrust enforce-ment against Amazon was not an option.

More fundamentally, litigation is not amarket alternative. This observation hasespecial force in markets that are under-going rapid technological advance, wherethe competitive half-life of a product isconsiderably more brief than the span ofantitrust litigation. A requirement thatpotential market entrants litigate insteadof enter the market on restrictive (butlegal and reasonable) terms, would licensemonopoly for the duration.

* * *

Apple took steps to compete with a mo-nopolist and open the market to more en-trants, generating only minor competitiverestraints in the process. Its conduct waseminently reasonable; no one has suggest-ed a viable alternative. ‘‘What could bemore perverse than an antitrust doctrinethat discouraged new entry into highlyconcentrated markets?’’ In re Text Mes-saging Antitrust Litig., 782 F.3d 867, 874(7th Cir.2015).

Application of the rule of reason easilyabsolves Apple of antitrust liability. Thatis why at oral argument the governmentanalogized this case to a drug conspiracy,in which every player is a criminal—atevery level, on every axis, whether big orsmall, whether new entrant or recidivist.The government found the analogy use-ful—and necessary—because in an all-criminal industry there is no justificationor harbor under a rule of reason.

IV

Because I see no antitrust violation, Ineed not consider Apple’s separate chal-lenge to the injunction itself. My col-

7. In economic terms, e-books are subject tothe law of demand and therefore have nega-tive price elasticity of demand. See generallyN. Gregory Mankiw, Principles of Economics67 (6th ed.2012). E-books are neither Veblengoods nor Giffen goods, nor do they have

perfectly inelastic demand. See id. at 92–93,453–54, 835; Laurie Simon Bagwell & B.Douglas Bernheim, Veblen Effects in a Theoryof Conspicuous Consumption, 86 Am. Econ.Rev. 349 (1996).


leagues, for their own good reasons, do notreach that challenge either. Yet the in-junction and its shortcomings bear uponthe institutional interest of the courts; andApple’s challenge deserves some response.In my view, the injunction warps the roleof a neutral, court-appointed referee intothat of an adversary party, with predicta-ble consequences.

The monitor is an arm of the districtcourt, and owes loyalty in that directiononly. See Fed.R.Civ.P. 53(a). But theinjunction redirects the loyalty of the mon-itor to Apple’s chief adversary in the litiga-tion, the Department of Justice. Underthe injunction, the DOJ recommends themonitor (Injunction ¶ VI(A)), approves themonitor’s fees (id. ¶ VI(I)), and mediatesdisputes between the monitor and Apple(id. ¶¶ VI(E), (H)). Thus the injunctionfirst creates a neutral fact-finding office,and then gives an adversary the ability todecide who holds the office, how much hegets paid (out of the other side’s pocket),and how broadly he may reach and in-quire. Reciprocally, the monitor is direct-ed to inform the government if he ‘‘discov-ers or receives evidence that suggests’’further antitrust violations, whether or notrelated to this litigation. (Id. ¶ VI(F).)This is a device that must misfire.

As events have happened (and wereseemingly fore-ordained) the monitor hasreason to look to the DOJ with gratitudeand loyalty. The DOJ recommended Mi-chael Bromwich as monitor, and the dis-trict court appointed him. United Statesv. Apple Inc., 787 F.3d 131, 134–35, 2015WL 3405534, at *2 (2d Cir. May 28, 2015).Without a meaningful cap on his fee,Bromwich proposed that defendant Applecompensate him at $1,265 per hour—aneye-popping rate for service as an agent ofa court. Id. at 136, 2015 WL 3405534 at*3. (Because Bromwich lacks antitrust ex-pertise, he proposed to add an actual anti-

trust lawyer to the team at $1,025 an hour.Id.) When Apple challenged that tariff asunreasonable, Bromwich explained thatthe injunction gave Apple no standing toobject: ‘‘the fees and expenses to be paidto the monitor and his team are not set byApple; they are set by the monitor, withapproval reserved for the DOJ and thePlaintiff States.’’ Id. (quoting Bromwich).Bromwich was right, which is telling: theinjunction contemplated no role for thejudge.

Once the Department of Justice selectedhim and approved his hourly fee, Brom-wich drew up his own mandate. Althoughthe injunction contemplated that the moni-tor would check sufficiency of an antitrustpolicy that Apple was to prepare in 90days (and Apple’s compliance with it),Bromwich started his inquiry immediatelyon his appointment; he multiplied inter-views, document inspections, and discon-tents; he demanded to interview Appleexecutives without the presence of Apple’schosen counsel; and he took aim at thecompetitive culture of the corporation gen-erally—a culture that is obviously aggres-sive, but just as obviously no business ofthe courts. See id. at 134–36, 140–41, 2015WL 3405534 at *2–3, *7.

Having thus been selected by an adver-sary party, paid at a rate approved by theadversary party, and directed to look tothe adversary party for the mediation ofdisputes, Bromwich was (in every respectimportant to a lawyer) retained and run bythe adversary. Apple had an unenviablechoice: it could accept scrutiny by a law-yer whose incentives were corrupted bythe injunction that created his office, orattack the fee and the widening scope ofinquiry, thereby sharpening the confronta-tions created by the mechanics of the in-junction

A magistrate judge has cut Bromwich’shourly fee. Id. at 139 n. 4, 2015 WL


3405534 at *6 n. 4. And a panel of thisCourt has construed narrowly the scope ofthe monitor’s inquiries. Id. at 136–38,2015 WL 3405534 at *4. But the structuraldefect of the injunction remains: allowingan arm of the court to serve as agent of anadversary party. It would take strongstuff for a lawyer to transcend the worldlyincentives of this injunction: unlimitedwork at the (now cut) rate of $1,000 anhour, paid by a solvent party that mayexpect retaliation for protesting, in orderto perform a monitorship subject to exten-sion by the court for reasons that will beinfluenced by input from the monitor him-self.

An injunction that thus blurs the lines ofthe adversary system does no good for thereputation of the courts.

,

William R. HENDRICKSONand Patricia Hendrickson,

Plaintiffs–Appellees,

v.

UNITED STATES of America,Defendant–Appellant.

No. 14–1958–cv.


Argued: March 25, 2015.

Decided: June 30, 2015.

Background: Claimants brought actionagainst federal government to enforce set-tlement agreement providing compensa-tion for injuries sustained in automobileaccident. Claimants moved for summaryjudgment. The United States District

Court for the Western District of NewYork, Michael A. Telesca, J., 2014 WL1224715, granted motion and, 2014 WL2112575, denied reconsideration. Govern-ment appealed.

Holdings: The Court of Appeals, DebraAnn Livingston, Circuit Judge, held that:

(1) district court lacked ancillary jurisdic-tion;

(2) district court lacked statutory jurisdic-tion; and

(3) transfer to Court of Federal claimswas warranted in interest of justice.

Vacated and remanded with instructions totransfer matter to Court of FederalClaims.

1. Federal Courts O3581(1)Court of Appeals reviews de novo a

district court’s legal determination regard-ing its own subject matter jurisdiction.

2. Federal Courts O2015Federal courts are courts of limited

jurisdiction that possess only that powerauthorized by Constitution and statute.

3. Federal Courts O2553District court does not automatically

retain jurisdiction to hear a motion to en-force a settlement agreement simply byvirtue of having disposed of the originalcase.

4. Federal Courts O2553Because a motion to enforce a settle-

ment agreement is fundamentally a claimfor breach of a contract, part of the consid-eration of which was dismissal of an earlierfederal suit, such motion requires its ownbasis for jurisdiction.

5. Federal Courts O2542‘‘Ancillary jurisdiction doctrine’’ allows

a district court to decide matters that arefactually interdependent with another mat-

290 791 federal reporter, 3d series · 290 791 federal reporter, 3d series 1 united states of...

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