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From Antitrust Law Daily, June 5, 2014

Apple liable for civil penalties for state law violations in e-books case

By Jeffrey May, J.D.

The federal district court in New York City today confirmed Apple Inc.'s liability under the civil penalty statutes of 24 states for facilitating and executing a conspiracy among publishers to fix retail prices for electronic books, or e-books. The states are seeking approximately $9 million in civil penalties; however, the amount of the penalties will be determined by the court after a trial set to begin next month on the amount of damages owed to 33 states and U.S. territories, as well as a class of private plaintiffs. The civil penalties will be imposed in addition to any treble damages that might be awarded to the plaintiffs by a jury under Section 4 of the Clayton Act (In re Electronic Books Antitrust Litigation, June 5, 2014, Cote, D.).

In July 2013, Apple was found liable for violating the Sherman Act in actions brought by the U.S. Department of Justice and state attorneys general. Later, the court granted the government's request for injunctive relief against Apple. A damages trial was scheduled for July 2014.

Apple unsuccessfully argued that additional fact finding was necessary to determine whether it was liable under any of the state statutes that provided the bases for the award of civil penalties. The company had contended that the court's July 2013 finding of liability did not establish the legal basis for an award of civil penalties and that a state-by-state analysis was necessary to determine whether each penalty must be assessed by a jury or by the court. The court also rejected Apple's assertion that an award of civil penalties, in addition to Clayton Act treble damages, would be improper or would violate the U.S. Constitution.

The court had already ruled that Apple was liable for state civil penalties under state statutes that were congruent with Section 1 of the Sherman Act. The states demonstrated the congruence of state civil penalty statutes with Section 1 of the Sherman Act for 24 claims.

The court dispensed with Apple's argument that two of the state civil penalty statutes required factual findings beyond what was found at the June 2013 liability trial. Apple contended that Connecticut Unfair Trade Practices Act and the Virginia Antitrust Act required a finding of “willfulness” that was not required to establish liability under the Sherman Act. However, liability was established under both statutes. The earlier finding that Apple engaged in a violation of the Sherman Act included a finding that Apple acted with scienter, the court explained.

Civil penalties as a portion of treble damages. In rejecting Apple's argument that any state civil penalties should be assessed as a portion of the treble damages awarded at the damages trial under the Clayton Act, the court noted the imposition of both civil penalties and Clayton Act treble damages was not only proper but commonplace. Moreover, Apple was mistaken in its belief that the Clayton Act authorized taking state civil penalties out of a treble damages award. In addition, Apple failed to clearly articulate the basis for its suggestion that imposing state civil penalties on top of any Clayton Act treble damages was impermissible.

Constitutionality objections. Apple unsuccessfully argued that imposing civil penalties would violate its constitutional rights. The imposition of civil penalties, in addition to any treble damages, would not violate the Excessive Fines Clause of the Eighth Amendment to the United States Constitution, which applied to states through the Fourteenth Amendment, the court ruled. In addition, imposing civil penalties would not violate Apple’s Fourteenth Amendment due process right to fair notice of the severity of the penalty that a state may impose.

The states were seeking a total of less than $9 million in civil penalties from Apple. The requests fell within the ranges set by the relevant statutes. Moreover, these civil penalties would not be disproportionate in light of the “reprehensibility” of Apple’s participation in the price fixing conspiracy, Apple's “lack of remorse,” and the $155 million sought by the states for damages to their consumers, in addition to injuries to their general economies.

The following states are seeking civil penalties: Alabama, Alaska, Arizona, Colorado, Connecticut, Delaware, Iowa, Idaho, Illinois, Louisiana, Maryland, Michigan, North Dakota, Nebraska, New Mexico, New York, Ohio, South Dakota, Texas, Utah, Virginia, Vermont, West Virginia, and Wisconsin. The precise amount of civil penalties will be imposed following the damages trial.

This is Case 1:12-cv-03394-DLC-MHD.

Attorneys: Eric Lipman for Office of the Attorney General of Texas. Joseph Nielsen for Office of the Attorney General of Connecticut. Cynthia Richman, Theodore J. Boutrous, Jr., and Daniel G. Swanson (Gibson, Dunn & Crutcher, LLP) and Howard Heiss and Edward Moss (O’Melveny & Myers, LLP) for Apple Inc.

Companies: Apple Inc.

MainStory: TopStory Antitrust NewYorkNews

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