In United States v. Apple, Cleveland State law professor Chris Sagers cuts through this noise with a careful look at America’s antitrust history as well as the publishing business in the United States. To some extent, the title of the book should emphasize “competition” because, at times, the Apple case is only tangential to the author’s larger argument that antitrust has failed because American politicians “doubt markets extensively.”
For the uninitiated on the Apple litigation, the firm is alleged to have engaged in an unlawful price-fixing scheme in which it and five major book publishers conspired to fix and raise the price for electronic books in a bid to compete against Amazon. When Amazon learned of these agreements, it sent a letter to the Federal Trade Commission asking regulators to investigate. The publishers quickly bailed on the agreements and settled the case with regulators, but Apple has fought on, defending the legality of its arrangements.
To date, all the courts that have heard the case have found that Apple violated the Sherman Antitrust Act by conspiring with the publishers to fix and raise electronic book prices. However, many commentators have scoffed at the decisions, arguing they effectively knocked out Amazon’s largest competitor in the electronic book market. They claimed the decisions were anticompetitive because they grant Amazon an effective monopoly in the market.
For interested readers, Sagers’s work is more about the evolution and dynamics of antitrust law than a comprehensive dive into the Apple case. The details of the litigation don’t appear until about midway through the book. Prior to that is an extensive history of U.S. antitrust law, the publishing business, and even a history of electronic books beginning in 1930. (Apparently, an entrepreneur named Bob Brown envisioned a “reading machine” that would facilitate high-speed reading via microfilm.) Those eager to tackle the intricacies of the publishing business and antitrust will find Sagers’s work offers plenty of specific detail.
On antitrust, perhaps the reason the Apple case receives relatively little attention in the book is because the conspiracy was regarded as a horizontal price-fixing scheme. Under precedent, these arrangements are per se illegal no matter how reasonable the prices were when fixed. Although some argued Apple’s arrangement was solely designed to compete against Amazon, it allegedly was not “competition on the merits.” Rather, Sagers argues Apple conspired with publishers to fix prices in a bid to weaken Amazon’s business. Lower courts noted the price-fixing scheme also raised electronic book prices, costing consumers money. As the Supreme Court has written, “Price and competition are so intimately entwined that any discussion of theory must treat them as one.”
Broadly, for policymakers and the public, many assume being large or having a “monopoly” is de facto illegal. Of course, generating a monopoly through innovation is hardly illegal, and indeed many Americans praise the technological developments companies deploy on a routine basis. Acting in a monopolistic fashion or anticompetitively is what triggers policymakers and regulators. There are pages and pages of antitrust scholarship largely devoted to whether installing a default internet browser or acquiring too many “competitors” should trigger antitrust scrutiny — all issues Sagers covers in U.S. v. Apple.
Fixing v. growing / The claims against Apple stand in stark contrast to the myriad of antitrust claims now floating around Capitol Hill. Today, growing large and staying big are seemingly deemed the worst crimes American companies can commit. Foreign regulators have a field day leveling fines against “bigness”; federal and state regulators are actively involved in investigations over “bigness” today and Capitol Hill holds oversight hearings nearly every week on the subject of antitrust. The United States appears to be turning a major corner on antitrust law without any real indication of where we are going next.
Sure, slapping down a per se price-fixing scheme and awarding millions of dollars in damages might seem like an easy remedy under existing law. With current rhetoric, however, vows to “break up” a big firm are uttered without much thought of how, when, what will be left, and how consumers would be affected by these actions. Even today, the notion of “consumer benefit” is being abandoned in public discourse.
The Supreme Court addressed some of these developments in its 2018 decision in Ohio v. American Express. In that case, the Court examined the effect of American Express’s prices not only on merchants, but also on consumers. So-called two-sided markets are common in the United States and the Court found American Express’s business practices, as a platform between consumers and merchants in a two-sided market, did not violate antitrust law even though prices rose for merchants. On the other side of the market, the Court found consumers largely benefited.
Following that decision, virtually every tech platform and many other companies are clamoring to claim they operate in two-sided markets. After all, defining the relevant market is key in antitrust law. Perhaps a company operated anticompetitively on one side of the market, but if the other side produced pro-competitive effects, who can complain? For those reasons, the Amex case remains unpopular for those who want to fundamentally change antitrust law in the United States. This is one of many reasons there are proposals to undo Amex through legislative means.
Competition v. collusion / For Sagers, the Apple case might be somewhat less interesting given the title of the book and his determination that Apple was on the wrong side of current antitrust law. According to him, the government needed to show only two major elements for the courts to rule against the company: that the defendants conspired with each other and that Apple coordinated the conspiracy. That is, Apple worked with the publishing companies to agree on prices. The courts were convinced on both counts.
Companies frequently partner and deploy their comparative advantages to compete and gain market share. Faced with Amazon’s Kindle and its dominant position in the bookselling market, it’s easy to see why potential competitors might join to conjure another option for consumers. According to the courts, however, this solution from book publishers and Apple was a joint agreement on prices, which is per se illegal under federal law.
Sagers notes that many legal observers were critical of government intervention in Apple because, when regulators acted to break up the business model, they made the market more concentrated. He rejects this criticism and notes that Apple and its allies fixed prices above what Amazon had set despite Apple having a great deal of infrastructure already in place. For example, the publishers were willing to work with Apple and it needed only to develop an electronic book app on its iPad — also already in place to compete at scale. Sagers argues forcefully that just because Apple entered the market as a competitor does not mean it improved the market. He claims new entrants are only helpful if they can lower prices for consumers or raise quality so that the quality-adjusted price is lower than before.
Perhaps this is why comparisons to current antitrust law are so difficult. Yes, in certain segments of the economy there are dominant market players, but proving consumer harm is nearly impossible when countless services are free. How would a new competitor offering similar services — free to consumers — improve consumer welfare? For critics of the status quo, what distinguishes two market players that each offer free services and control half the market from one player that controls the whole market?
Yet, people get an “icky” feeling about monopoly, so perhaps the lack of provable consumer harm is prompting politicians to shift to privacy policy as a way to tame perceived leviathans. By creating a privacy right in consumer data — and some libertarians might argue such a right should be protected — policymakers can start to regulate around antitrust law. However, regulators might forget that complex regulatory regimes often benefit the incumbent players, so we’re back to square-one on taming big companies for the sin of being too big.
Sagers does lob several notable charges against current antitrust policy. In the early portion of the book, he laments that antitrust policy failed when it allowed these companies to grow too large in the first place. During recent congressional hearings, witnesses and policymakers have asked Americans to imagine a world without the Instagram acquisition, without the Whole Foods acquisition, and without the sale of Zappos. One set of hypotheticals deserves another: Imagine a world where U.S. regulators break up the largest and most successful companies because they grew too large, after which foreign companies enter and dominate the U.S. market. What assurances exist that consumers would benefit from such forced teardowns of several trillion dollars’ worth of market cap? Until policymakers answer that question, antitrust law might be “broken,” but so are populist attempts to fix it.
Conclusion / Sagers’s work is an intriguing and well-researched dive into the evolution of antitrust law in the United States and the broader publishing business. As his history recounts, there have been plenty of twists and turns in antitrust over the last century.
In today’s environment, the more important issue might be where antitrust policy is going. To many, even some conservatives and libertarians, there is a strong desire to alter the current policy. The details really haven’t been worked out yet, but few can doubt there are profound implications for American competitiveness, consumers, and millions of employees if policymakers get it wrong.
