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Amazon’s Bogus Anti-Apple Crusade

Behold tech's fiercest legal battle: Price-fixing, conflicts of interest, and two very hungry lawyers.
 
 
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Photo Credit: Andrey Bayda / Shutterstock.com

 

Apple attorneys are set to meet on Monday with U.S. District Judge Denise Cote, the latest chapter in a strange and nonsensical legal battle.

The case in question involves another of America’s biggest companies, Amazon, and its contention that Apple has been colluding to keep e-book prices artificially high. Antitrust lawsuits are never friendly, but the animosity between some key players in this battle of tech giants is extraordinary — and for good reason.

You may remember that Amazon helped persuade the U.S. Department of Justice  to sue Apple in April 2012, claiming that Apple conspired with five of the nation’s largest publishers to fix the price of e-books at a level different than what Amazon had set. Amazon, the web’s biggest retailer, had been selling published books at a money-losing rate of $9.99. Why? To get us to buy its Kindle e-book reader, and to dominate the e-book market. Amazon’s strategy worked. According to court documents, the firm soon controlled 90 percent of the e-book market.

This meant that publishers — who had invested in the writing, production, promotion and distribution of these books — couldn’t sell their wares at the recommended retail price of $14.99. Nor could brick-and-mortar stores match Amazon’s money-losing discounts. Amazon’s product-dumping and predatory pricing helped bankrupt many small-town bookstores. Yet, neither publishers nor independent booksellers sued Amazon, even though they might have had a good case (as we’ll soon see).

So how did this wacky e-book case get so far?

It started in the  Rainier Tower in Seattle, home of Steve Berman and his law firm,  Hagens Berman Sobol Shapiro LLP. The gifted litigator works in a blue-gray steel building designed by one of Seattle’s native sons, Minoru Yamasaki (also the architect of the World Trade Center in Manhattan). He built the tower atop an 11-story concrete base that, like an inverted pyramid, widens as it ascends. The effect is disorienting. Visitors swear it has at least 40 stories, but insiders know that the tower supports only 29 floors, all balanced on an extremely narrow pedestal.

Berman works in a long, narrow office lined by windows. Visiting his suite can be unsettling: You either gaze straight out at the birds cartwheeling through the clouds, or glance down thousands of terrifying feet to Seattle’s noisy streets. Berman is a calm man who made his name serving as a special assistant attorney general for 13 states in the Big Tobacco case. He was one of two private attorneys on the negotiating team, which produced a $206 billion settlement for states. Over the years, he’s devised sound legal strategies to sue Blue Cross, Microsoft and Visa in class-action suits.

Yet every industry has its own patois and whenever Berman files a new case, he tends to master a new language. Take his 2001 price-fixing suit against Merck, Pfizer and dozens of other drugmakers. Berman claimed that Big Pharma had long engaged in “a cartel and a conspiracy” by reporting fictitious drug prices. But he couldn’t break the code. It was only after he hired an ex-drug rep to translate the industry’s terms that Berman cracked the case. He won about $500 million for pensioners, consumers and his firm.

In the Amazon case, Berman has alleged that Apple and the publishers colluded against consumers. His case rests on the assumption that the “correct” price of the Kindle editions of published books is $9.99. (That’s like saying that the discounted price of a Mustang automobile on Cal Worthington’s lot is the only “right” price, not the sticker price listed at Ford dealerships.)

Berman’s analysis used price as a means of charging violations of the Sherman Antitrust Act. “The real issue,” explained Dan Crane, professor of law at the University of Michigan, “is whether Apple orchestrated agreement among publishers, or whether it just negotiated a hard deal with them.”