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From Antitrust Law Daily, April 15, 2014

Relationship between Apple and compliance monitor said to be “improving”

By Jeffrey May, J.D.

The External Compliance Monitor (ECM) appointed in the federal/state antitrust enforcement action against Apple Inc. has reported to the federal district court in New York City that “the relationship between Apple and the monitoring team has significantly improved over the past six weeks and has become more focused on achieving the goal of enhancing Apple’s Antitrust Compliance Program pursuant to the Final Judgment.” Yesterday, Monitor Michael Bromwich filed the first in a series of semiannual reports with the court, providing an initial assessment and recommendations. The ECM explained that, while “Apple has made a promising start to enhancing its Antitrust Compliance Program … [the company] still has much work to do” (U.S. v. Apple Inc., Case 1:12-cv-02826-DLC-MHD).

A contentious relationship developed between Apple and the ECM not long after the court appointed the monitor to oversee the company’s antitrust compliance policies. The remedy was part of a Final Judgment (2013-2 Trade Cases ¶78,506), which was imposed on Apple after it was found to have orchestrated a conspiracy among publishers to fix retail prices for electronic books or e-books. The Department of Justice Antitrust Division had called for the inclusion of the ECM requirement in the Final Judgment over Apple’s strenuous objections.

Earlier this year, Apple sought removal of the ECM. Apple questioned the ECM’s “impartiality.” The company also suggested that Bromwich had a personal bias or prejudice and was acting beyond his authority. In addition, Apple questioned the ECM’s efforts to make direct contact with company personnel outside the presence of counsel. The district court refused to disqualify Bromwich.

Shortly thereafter, the U.S. Court of Appeals in New York City weighed in and denied Apple’s request for a stay of the ECM obligations pending appeal. At that time, the appellate court instructed the ECM to conduct his activities within the bounds of the order, as interpreted by the government. The monitor was empowered to demand only documents relevant to his authorized responsibility as so defined, and to interview Apple directors, officers, and employees only on subjects relevant to that responsibility. The ECM is not authorized to investigate whether Apple employees are in fact complying with the antitrust or other laws.

According to the ECM, after the Second Circuit’s decision, attempts were made to “reset” the relationship and “[t]hose steps prompted constructive responses from Apple.” The ECM identified a “shift of tone” that was attributed to Apple’s designation of a new in-house principal point of contact and to changes Apple made in the outside counsel with whom the ECM deals.

The ECM explained that, in early March, Apple shared some progress on revising its antitrust compliance policies, procedures, and training. As part of its efforts, Apple has proposed a revised Antitrust and Competition Law Policy and Business Conduct Policy. The ECM called the revised antitrust policy an “improvement” over a 2009 version.

Apple also is developing a new online antitrust training course and internal antitrust compliance website. In addition, live antitrust training sessions are scheduled for Apple’s Board of Directors and executive team.

The report noted that Apple has appointed Deena Said to serve as internal Antitrust Compliance Officer and has retained Simpson Thacher, and specifically Kevin J. Arquit and Matthew J. Reilly, to assist the company in improving its antitrust compliance program. The ECM notes that the Simpson Thacher team should “contribute valuably to the enhancement of Apple’s Antitrust Compliance Program.”

Apple has not, however, provided all of the information needed to assess whether the company’s policies and procedures are “reasonably designed to detect and prevent violations of the antitrust laws” and whether Apple’s antitrust training program is “sufficiently comprehensive and effective,” in the ECM’s view. For instance, Apple has not provided information related to its current antitrust risk assessment process—a fundamental component of any antitrust compliance program, it was noted. The ECM also suggested that Apple could improve its record-keeping procedures for the Antitrust Compliance Program.

Because much of the information on Apple’s compliance efforts had been provided over just the last few weeks, the ECM said that it was difficult to assess the effectiveness of these actions at this stage. However, the ECM appeared hopeful that cooperation and collaboration would continue to enable him to fulfill his obligations under the Final Judgment.

Companies: Apple Inc.

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