UNITED STATES V. APPLE – Ghosh Review

Vol. 10 No. 1 (September 2020) pp. 11-14 

UNITED STATES V. APPLE: COMPETITION IN AMERICA, by Chris Sagers.
Harvard University Press, 2019. pp. 336, Hardcover, $29.95. 

Reviewed by Shubha Ghosh 
Syracuse University 
College of Law 
Sghosh01@law.syr.edu 

That Professor Sagers has written an ambitious book is demonstrated in its subtitle. “Competition in America” covers a lot of ground, from the stock market to the football field. Competition fuels America, moving it forward. But competition also can slam on the brakes suddenly and frighteningly, as with deep economic downturns or failures to respond to crises, like a pandemic. These tensions are at the heart of this engaging and important book. 

Professor Sagers uses the 2012 antitrust prosecution against Apple and the major book publishers as the catalyst for his exegesis on competition. The United States Department of Justice (along with the attorneys-general of several states) alleged that Apple and the book publishers had conspired to raise the price of e-Books, violating the Sherman Act’s prohibition against restraints of trade. While the publishers settled, Apple proceeded to trial where the district court ruled in favor of the government.¹ According to Judge Denise Cole, Apple had orchestrated a conspiracy among publishers to implement a set of contractual terms in its agreements with authors that would raise the price of e-Books. These terms were a per se violation of the Sherman Act. 

The Second Circuit affirmed in a 2-1 decision whose rationale was divided.² Judge Debra Ann Livingston, writing for the majority, found Apple liable under a rule of reason analysis, which entails a balancing of anticompetitive and procompetitive effects. Judge Raymond Lohier concurred with the result and the factual findings but would have affirmed on the district court’s per se ruling. Finally, Judge Dennis Jacobs dissented, reasoning that Apple had acted pro-competitively and therefore did not violate the Sherman Act. 

Professor Sagers provides context for these various judicial decisions for those not fully familiar with antitrust doctrines. Standards for liability, whether rule of reason or per se, reflect compromises over interpretations of the phrase “restraint of trade,” starting with Judge Taft’s famous decision in Addyston Pipe & Steel on illegal and ancillary restraints.³ Economic justification for these standards developed through economic thinking in the nineteenth and twentieth centuries. Professor Sagers presents these economic developments in great and, for some, familiar detail. His presentation is relatively clear and accurate while being critical of some of the underlying assumptions. There is a lot to be said about how economics translates into law and policy, and the book suggests some of the problems. Professor Sagers alludes to the limitations in a brief discussion of the German Historical School in the late nineteenth century. Some readers may be disappointed by this attention, short relative to the pages devoted to the more well-known marginalist analysis. But, as I suggest below, what the book may lack in theoretical discussion is compensated for in some very engaging institutional and historical discussion of the publishing industry. 

In focusing on marginalist economic theory, with its emphasis on the centrality of price as determined by free markets, Professor Sagers highlights limitations in our understanding of competition. Antitrust economics relies on the mantra of voluntary transactions negotiated through price among many actors on the seller and buyer sides of the market. These transactions translate into marginalist terms of utility, revenue, and cost, which in turn imply the benefits of competition, quality products provided at affordable prices. These idealized transactions are abstracted from real world business decisions and market dynamics. Competition’s virtues are gauged by results; if prices are low, competition is functioning. 

The Apple litigation shows why this abstracted view of competition is limiting and misleading. Apple and the publishers sought to counter the perceived threat from Amazon, a company that was selling inexpensive e-books while limiting compensation for authors. By agreeing not to sell e-books below a set price, the practice termed “minimum resale price maintenance”, the publishers and Apple were seeking to promote competition in publishing by supporting authors and bringing quality new books to readers. Contrary to these competitive goals, the Second Circuit, applying antitrust law, focused on the increased prices by Apple and competitive virtues of Amazon, namely lower prices for consumers. Consequently, Apple’s agreement with the publishers must violate the Sherman Act, the Court reasoned. 

Professor Sagers dissects the Second Circuit’s logic by pointing to contemporary public attitudes about Amazon, markets, and competition. Consumer purchases attest to Amazon’s popularity. At the same time, there is a wariness, perhaps more among some antitrust theorists than among consumers, about Amazon’s ubiquity in the marketplace. The company’s size raises concerns about its dominance and its possible anticompetitive practices. These concerns in turn reflect doubts over markets and economic theories of competition as benefitting consumers. Instead, public perception is that markets lead to scaling up and size to the detriment of consumers despite the dubious predictions of marginalist economics. Apple’s agreement with publishers is a competitive response to the anticompetitive conduct of Amazon. Its low prices do not result from Amazon’s competitive superiority but from predatory conduct, a rapacious form of competition. 

Conflicting public attitudes towards competition belie assessments of United States v. Apple. Society appreciates competition but deplores competitiveness. There is the Greek ideal of agon, which is the competition of the sports field and of battle that stems from an internal conflict among ambition, aspiration, and discontent. But there is the reality of greed, selfishness, and rivalry. What Professor Sagers reveals, at least to me, is how the ambiguous appeal of competition leads to confusion within antitrust law as to means and ends. Antitrust law may not know its goals or how to reach them. 

But from this disconcerting message, to be fair perhaps only Professor Sagers’ subtext, grows some constructive messages. The best part of this book is the detailed history of the publishing industry in the United States. Some of the details are familiar, but most demonstrate a valuable integration of institutional and economic analysis. Professor Sagers teaches us about actual business practices but provides an effective theoretical explanation for why these practices were adopted and their implications for publishers, authors, and readers. This portion of the book makes up for the scant attention to the German Historical approach to economics, mentioned too briefly. The slight is made up for by illustration. Professor Sagers’ discussion of book publishing shows the German Historical School in action, and the illustration brings to life the competition in the book market with its dysfunctions. I was reminded of a forthcoming book chapter by Professor Robert Spoo on the tacit agreement regarding the publication of James Joyce’s poems among US book publishers in the early Twentieth Century.⁴ Both Professors Sagers and Spoo are exemplars of how to communicate about specific markets and business practices in nuanced and insightful ways. 

Within antitrust law, all competitive markets are the same while anticompetitive markets are different in their own ways. It is the differences that are hard to respond to. The appeal of marginalist economic analysis in antitrust law is how amenable it is to rule-like application. A per se rule against price fixing follows from the theoretical benefits of price competition. Rule of reason rests on careful analyses of pricing, marginal costs, and deadweight loss, each of which can be diagrammed and statistically discerned. 

By contrast, an historical analysis is open ended without a clear “ought” to guide legal decision making. I finished Professor Sagers book with a mixed feeling of enjoyment and doubt. The Apple litigation reflects some deep confusions within antitrust law. But what, short of a wholesale rewrite of history, including doctrines, statutes, and treatises, can provide a cure? Professor Sagers wants to expand the normative criteria that currently inform antitrust analysis. For example, he discusses how the Second Circuit should have considered benefits to authors from the Apple agreements. Such benefits would be excluded from current antitrust analysis which focuses exclusively on benefits to consumers from reduced prices. In addition, Professor Sagers argues that the court failed to consider the importance of book publishing to developing a literary culture, an ambition not countenanced within marginalist economic analysis. These broader normative concerns with non-consumer interests and cultural values are arguably more consistent with historical and institutional analyses of markets. Although Professor Sagers touches upon these points, further elaboration, perhaps in subsequent scholarship, would be welcome. 

But there is a certain degree of ad hocness to normative considerations. The alignment between current antitrust law and marginalist economic analysis may be resistant to change. There is an iron logic to the connection, made stronger by strains of conservative and liberal politics in the United States. This rigidity goes beyond the Apple case, surfacing in labels of hipster antitrust, merger decisions that increase market concentration, and debates over how antitrust authorities should deal with the tech sector. Professor Sagers ignores the politics splitting antitrust law, preferring the abstraction of “popular attitudes.” Avoiding an analysis of politics is understandable given the illusion of neutrality within legal methodology. Professor Jonathan Baker’s recent book on antitrust attempts to engage with the perilous political issues while extolling the traditional emphasis on economic efficiency.⁵ Antitrust politics summon the ghost of Thurman Arnold, a prominent antitrust enforcer and scholar whom Professor Sagers does cite, as does Professor Baker. But neither embraces Arnold’s whole-hearted commitment to the practical realities of antitrust enforcement, perhaps because Arnold seems to have ended his career disillusioned.⁶ 

Professor Sagers has written an ambitious book. Do not be fooled by his emphasis on a single case. His sights are much broader, as his scholarship engages in healthy competition with many academics and practitioners struggling over antitrust’s present and future by grappling with its past. Active thinkers in antitrust, intellectual property, business law, and innovation policy will finish reading this book enriched. Professor Sagers’ own agonistic interaction with the law teaches us about competition, its ambiguities, and its elusiveness for antitrust law. 

Suggested Citation: 10 The IP Law Book Review 11 (2020).

© 2020 Shubha Ghosh

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1. United States v. Apple Inc., 952 F. Supp. 2d 638 (SDNY 2012).
2. United States v. Apple Inc., 791 F.3d 290 (2d Cir 2015).
3. United States v. Addyston Pipe & Steel Co., 85 F. 271 (6ht Cir 1898), affirmed 175 U.S. 211 (1899).
4. Robert Spoo, The Lawful Piracy of James Joyce’s Poems in Shubha Ghosh, ed., Forgotten Comparative Intellectual Property Lore (forthcoming 2020).
5. Jonathan Baker, The Antitrust Paradigm: Restoring a Competitive Economy (2019). See my review at https://lawprofessors.typepad.com/antitrustprof_blog/2019/05/shubha-ghosh-on-the-antitrust-paradigm-restoring-a-competitive-economy.html.
6. See Spencer Weber Waller, Thurman Arnold: A Biography (2005).