Judge Denise Cote of the U.S. District Court for the Southern District of New York ruled on Wednesday that Apple Inc. conspired with five of the “Big Six” publishing houses—Hachette Book Group, Inc., HarperCollins Publishers LLC, Holtzbrinck Publishers LLC d/b/a Macmillan, Penguin Group (USA), Inc., and Simon & Schuster, Inc.—to raise the prices of electronic books (“e-books”) in violation of antitrust law.

The civil suit of U.S. v. Apple Inc. was brought in April 2012 by the Antitrust Division of the U.S. Department of Justice (DOJ) and the attorneys general of 33 states.  It arose from the arrangement adopted by Apple and the publishers to have the publishers set the retail prices for their own e-books instead of having them set by e-book retailers like Amazon and Apple.

The court found that Apple convinced the publishers to move from a “wholesale” model—under which “a publisher receives its wholesale price for each e-book and the retailer sets the retail price”—to an “agency” model, under which “a publisher sets the retail price and the retailer sells the e-book as its agent.”  From December 2009 to January 2010 the publishers switched from the wholesale model—under which Amazon had been selling e-books at $9.99—to the agency model, under which the retailers set e-book prices at $12.99 to $14.99.

The DOJ and plaintiff-states alleged that the agency model was the result of a conspiracy among Apple and the publishers to raise prices for e-books.  The publishers settled with the DOJ and the states prior to the trial, and the case against Apple was tried to Judge Cote without a jury from June 3 to June 20, 2012.

Judge Cote held that the DOJ proved its allegations of conspiracy.  The court found that the publishers and Apple conspired to raise e-book prices.  Judge Cote rejected all of Apple’s arguments, including that Apple had not colluded on prices but had only sought to secure e-book publishing deals in time for Apple’s launch of the original iPad, which Judge Cote acknowledged to be a “revolutionary” innovation.

Apple has stated that it will appeal.

Click here to read Judge Cote’s 160-page opinion.

Click here to read the Associated Press’s much shorter article in which Constantine Cannon partner Ankur Kapoor was quoted on the decision.

The European Court of Justice (“ECJ”) has held that neither a decision from a national antitrust court nor reliance on the advice of counsel protected a company from European Union (“EU”) antitrust liability.  

The ECJ made its ruling in Bundeswettbewerbsbehörde v. Schenker & Co. and Others, a case dealing with an Austrian freight company that joined 30 other freight companies to form a special interest group known as Spediteur-Sammelladungs-Konferenz (“SSK”).  The group sought to obtain better road and rail freight rates, and argued that consumers and shippers would benefit from its joint price agreements. 

In 1996, Austria’s antitrust court granted SSK’s application to register the group as a “minor cartel.”  In 2005, SSK retained counsel to advise it on Austria’s new cartel laws and to maintain its “minor cartel” status. 

In 2007, however, the European Commission launched unannounced inspections into the group’s members and found SSK in violation of the EU’s antitrust laws.  The Higher Court in Vienna weighed in and decided in favor of SSK, noting that SSK had relied on Austria’s antitrust court and on the advice of counsel.  The case eventually moved to Austria’s Supreme Court which asked the ECJ for its advice.

Despite the ruling of Austria’s Supreme Court, the ECJ found that a company that infringes EU antitrust laws may not escape a fine where the infringement results from the company “erring as to the lawfulness of its conduct on account of terms of legal advice given by a lawyer or of the terms of a national competition authority.”

In SSK’s case, the ECJ determined that SSK was aware of its anticompetitive conduct, and that it could not validly use reliance as a defense unless it had been given “precise assurances by the competent authority.”  The ECJ found that SSK could not rely on Austria’s antitrust court because that court did not have the power to adopt a “negative decision” or, in other words, to determine that infringement had occurred.  The ECJ added that “legal advice given by a lawyer cannot, in any event, form the basis of a legitimate expectation.”  The ECJ also noted that Austria’s antitrust court and SSK’s counsel appeared to address national law only, not EU law.

A contractor has filed a class action complaint in the United States District Court for the Middle District of Pennsylvania alleging that Graco Inc. and its distributors harmed a class of contractors through anticompetitive conduct in the market for fast-set spray foam equipment, which is used by contractors for the installation of foam insulation in residential and commercial buildings.

Insulate SB, Inc., a contractor that purchases and uses fast-set equipment, alleges in Insulate SB, Inc. v. Abrasive Products & Equipment, et al., that Graco Inc., Graco Minnesota (collectively “Graco”) and co-conspirator distributors violated the Sherman Act, the Clayton Act and various state antitrust, consumer protection and unfair competition laws. 

Insulate’s suit follows the settlement of a similar action brought by the Federal Trade Commission (“FTC”).  In April of this year, the FTC filed a complaint alleging that Graco violated antitrust laws by buying its two closest competitors in the fast-set equipment market, Gusmer Corp. and GlasCraft, Inc.

Fast-set equipment is a highly pressured, foam spray system almost exclusively used by building contractors to install foam insulation in residential and commercial buildings and to apply protective coating on structures such as bridges, holding tanks, pipelines and marine hulls.  It is considered to be “green” technology because of the superior insulating capabilities of the foam.

The FTC’s complaint alleged that after Graco’s acquisition of its primary competitors in the fast-set equipment market in North America, Graco raised its prices on the equipment, reduced its product options, reduced innovation and raised barriers for entry for any fast-set equipment manufacturers through exclusivity requirements in contracts with its distributors.  When the FTC filed its complaint against Graco, Graco agreed to a consent order requiring it to end its exclusivity policies with its distributors.

Insulate ’s complaint alleges a “hub-and-spoke conspiracy,” in which Graco—which controls over 90% of the fast-set equipment market in North America—used exclusivity agreements with its distributors to suppress competition in the market.  This conspiracy allegedly deprived the purported class of contractors fair access to innovations in the equipment, better quality, and lower-priced equipment that allegedly could have been provided by potential new market entrants.

The plaintiff alleges that after Graco purchased Gusmer and GlasCraft, it closed the manufacturing facilities of these two companies and withdrew a less expensive and more reliable fast-set foam installation system from the market.  Graco then allegedly contracted with its distributors to exclusively sell its product with sophisticated electronics and hard-to-access mechanical parts that require expensive repairs by service professionals.  These contracts, the complaint alleges, enabled the distributors to charge contractors anticompetitive prices for the equipment.  Graco is also alleged to have maintained its monopoly by granting distributors substantial rebates, discounts, market share incentives, and geographic control of sales territories in exchange for excluding new fast-set equipment market entrants.

The suit seeks class certification, trebled damages and injunctive relief declaring that Graco’s and the distributors’ actions violate the Sherman Act, the Clayton Act, and various state antitrust, consumer protection and unfair competition laws.