Antitrust Law Daily Wrap Up, TOP STORY—S.D.N .Y: Apple denied stay pending appeal of class certification in e-books price fixing case, (Apr 25, 2014)

By Linda O’Brien, J.D., LL.M.

In actions brought by the Department of Justice Antitrust Division and the attorneys general of 33 states and territories against Apple Inc. for conspiring with five major publishers to fix the prices for electronic books or e-books, the federal district court in New York City has denied Apple’s motion for stay pending appeal of its decision to grant class certification (In re Electronic Books Antitrust Litigation, April 24, 2014, Cote, D.).

The publisher defendants settled the federal and state charges in September 2012. In July 2013, the court found that Apple colluded with the publishers to fix e-book prices in per se violation of the antitrust laws. In advance of a damages trial set for July 2014, the plaintiffs moved for certification of a class of e-book purchasers, pursuant to Rules 23(a) and (b)(3) of the Federal Rules of Civil Procedure, which was granted by the court. The plaintiffs’ class notification plan was also approved. Apple moved to stay the class and states’ actions pending submission and review of its appeal of the class certification decision.

In evaluating a stay application, the court must determine (1) whether the applicant will likely succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether the issuance of a stay will substantially injure the other parties in the proceeding; and (4) where the public interest lies.

Irreparable injury. The court found that Apple made no persuasive showing of harm absent a stay. According to the court, Apple did not show any particular harm that distinguished the class certification notice from the two notices sent to affected e-book purchasers prior to the liability trial. The timing of the notice was due to Apple’s request to postpone class certification until after the liability trial, and Apple did not establish that it would suffer any harm from a third notice advising class members of the pendency of the action.

In rejecting Apple’s contention that the third notice differed from the prior two notices by stating that Apple violated antitrust laws, the court noted that the liability finding was mentioned only in the detailed notice to be provided upon express request and was also widely reported in the news. Moreover, the process of identifying class members and sending class notices did not infringe on class members’ privacy interests, since the publisher defendants had already sent them at least two notices regarding the settlements.

Likelihood of success on the merits. Apple did not establish a substantial possibility that its petition for interlocutory appeal would be granted and that, upon review, the appellate court would decertify the class. Under Federal Rule of Civil Procedure 23(f), leave to appeal will be granted when the petitioner demonstrates either (1) the certification order will effectively terminate the litigation and there has been a substantial showing that the district court decision is questionable, or (2) the certification order implicates a legal question for which there is a compelling need for immediate resolution. The class certification did not effectively terminate the litigation as the states’ action – which accounts for more than half of the alleged damages – will proceed to trial regardless of class certification. Nor did class certification threaten "ruinous liability" for Apple as the $106 million alleged class damages, even if trebled, would not seriously threaten a company reported by investors to have more than $150 billion cash on hand, the court noted. Further, the class certification opinion did not present a legal question for which there was a compelling need for immediate resolution since the opinion was based on well settled law applied to a conspiracy to set national e-book prices that inflated e-book prices for 99.8 percent of e-book sales during the class period.

Additionally, Apple failed to establish a substantial possibility that the appellate court would decertify the class, according to the court. The class, by definition, is composed solely of consumers who purchased an e-book from a publisher defendant during the time when the publishers were engaged in a conspiracy with Apple to fix e-book prices. The plaintiffs presented evidence that, in 99.8 percent of purchases of the publishers’ e-books during the class period, purchasers suffered overcharges as a result of Apple’s conduct. These allegations were adequate to support each class member’s standing to litigate his or her claims.

Apple’s argument that class certification was inappropriate because the damages model used by the plaintiffs’ expert was not capable of showing class-wide anticompetitive harm was rejected. The court noted that the expert’s well-constructed multivariate regression analysis calculated the same relative overcharge for each of the e-books in a given category and was not an attempt to measure class-wide damages. Damages will be awarded where individual transaction records identify the purchaser as someone who bought an e-book for which there was an overcharge.

The class certification order did not resolve key merit issues, according to the court. For purposes of class certification, the plaintiffs produced sufficient evidence that, according to their expert’s damages model, class members suffered overcharges in 99.8 percent of their purchases as a result of the price-fixing conspiracy. In rejecting Apple’s contention that the order was an attempt to "short circuit a jury trial by resolving merits questions unrelated to certification," the court stated that whether particular class members were in fact injured by Apple’s conduct remained a question for a jury.

Injury to plaintiffs and public interest. The court determined that a stay pending review of Apple’s petition would delay adjudication in both the class and states’ action if a joint trial was maintained, or require the states to move forward with a damages trial without the class. This result would cause substantial burdens on the states, class plaintiffs, and the court since the damages trials in both actions would be nearly identical. Moreover, the public interest favored a speedy trial and resolution of this matter. Finally, since Apple’s petition was unlikely to be granted, a chance of confusion by a corrective notice would be minimal, the court concluded.

The case is No. 11 MD 2293 (DLC).

Attorneys: Steve W. Berman, George W. Sampson, Jeff D. Friedman, and Shana Scarlett (Hagens Berman Sobol Shapiro LLP) and Douglas Richards, Kit A. Pierson, 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) for Apple Inc.

Companies: Apple Inc.

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