Antitrust Law Daily Wrap Up, ANTITRUST—S.D.N.Y.: Battle of expert economists scaled back in e-book price fixing case, (Mar 31, 2014)

By Jeffrey May, J.D.

As the damages trial nears in an action against Apple Inc. for conspiring with publishers to fix the prices for electronic books or e-books, the federal district court in New York City has granted the motion of complaining States and class plaintiffs to exclude the testimony of Apple’s expert economist Joseph Kalt, Ph.D. In addition, the court has granted in part their motion to exclude the opinions of another Apple expert—Jonathan Orszag—except to the extent Orszag intends to testify regarding his re-running of a regression analysis performed by Roger G. Noll—an economics expert for the class plaintiff (In Re: Electronic Books Antitrust Litigation, March 28, 2014, Cote, D.).

The States, along with the U.S. Department of Justice, had already established at trial that Apple conspired with the publishers to raise e-book prices in violation of the antitrust laws. The court found that, as a result of Apple’s efforts, the industry moved from a wholesale model—where a publisher receives its designated wholesale price for each e-book and the retailer sets the retail price—to an agency model, where a publisher sets the retail price and the retailer sells the e-book as its agent. A final judgment and injunction was entered against Apple following the bench trial on liability; however, the states continue to pursue damages.

The class plaintiffs, who also seek to recover damages on behalf of millions of e-book purchasers, are attempting to rely on the doctrine of collateral estoppel to show Apple’s liability. A motion for summary judgment on the issue is pending. The class plaintiffs, as well as the plaintiff States and the Justice Department, have settled with each of the publisher defendants.

Apple attempted to offer Kalt’s testimony to refute the testimony of Noll—the plaintiffs’ expert economist. Kalt did not conduct his own econometric or statistical analysis of damages. However, he opined that the shift by the publishers to agency agreements with their e-retailers “demonstrably resulted in large numbers of titles’ prices declining.”

Kalt’s opinions were excluded in their entirety. According to the court, Kalt’s analysis was inadmissible because, among other things, it was based on “demonstrably false” or “unreasonable” assumptions” and it “avoided rigorous analysis.” The court concluded that Kalt’s testimony was unreliable and likely to confuse or mislead a jury. The court noted that it did not rely on the plaintiffs’ argument that Kalt was biased because he “never concluded in testimony or an expert report that a plaintiff can show impact or damages through common proof, despite addressing that issue in numerous cases.”

With respect to Orszag’s opinions, the court granted to the motion to exclude to the extent that the opinions objected to Noll’s damages model for failure to account for the purported procompetitive effects or benefits that consumers received due to the challenged conduct. The class plaintiffs and States successfully moved for the exclusion of Orszag’s opinions that: (1) but for the conspiracy, Amazon would have lowered e-reader prices less than it did; (2) the price fixing conspiracy increased the availability of self-published and free e-books; and (3) some e-books purchased through the iBookstore and Barnes & Noble’s Nook Book Store would not have been purchased in the but-for world. Even if these opinions weren’t irrelevant, these proposed “offsets” to damages for the asserted benefits of the conspiracy “would be independently excluded as unmoored from record facts and unsupported by any rigorous analysis,” it was decided.

The court rejected the class plaintiffs’ efforts to exclude Orszag’s opinion insofar as it challenged Noll’s regression analysis for improperly including small specialty publishers/self-publishers and for using data from too long a period. The class plaintiffs contended that Apple should be judicially estopped from making this argument, through Orszag, because one of Apple’s prior experts had already criticized the plaintiff’s failure to include all publishers and for not extending the time period. Judicial estoppel was inapplicable, however, because the court had not adopted the critique in its earlier liability opinion.

Remand. Apple also argued that the court should not decide motions to exclude its experts’ opinions for purposes beyond class certification. The company called for a stay, contending that the actions should be transferred to their original venues for a decision on summary judgment and trial, and that those courts should decide these motions. However, the court concluded that, whether the cases were ultimately remanded to separate venues for trial, it was in the interest of judicial efficiency, and consistent with the statute governing coordination of multidistrict litigation, for it to decide the motions to exclude Apple’s experts.

In a separate opinion granting class certification, the court denied Apple’s motion to exclude the opinions of the plaintiffs’ expert Noll.

The case is 11 MD 2293 (DLC), 12 Civ. 3394 (DLC).

Attorneys: Steve W. Berman, George W. Sampson, and Sean Matt (Hagens Berman Sobol Shapiro LLP); Jeff D. Friedman and Shana Scarlett (Hagens Berman Sobol Shapiro LLP); and Douglas Richards, Kit A. Pierson, Emmy L. Levens, and Jeffrey B. Dubner (Cohen Milstein Sellers & Toll PLLC) for class plaintiffs. Cynthia Richman, Theodore J. Boutrous, Jr., and Daniel G. Swanson (Gibson, Dunn & Crutcher, LLP) and Howard E. Heiss and Edward Moss (O’Melveny & Myers LLP) for Apple Inc. Robert L. Hubbard, Geralyn J. Trujillo, and Linda Gargiulo, New York Attorney General’s Office, for State of New York, Liaison Counsel for Plaintiff States. Gabriel Gervey, Kayna Stavast-Piper, and Eric Lipman, Texas Attorney General’s Office, for State of Texas.

Companies: Apple Inc.

Cases: Antitrust NewYorkNews