Posts belonging to Category Motion Practice



US v. Apple: eBook Antitrust Ruling Reveals Conspiracy Between Apple and Publishers, Efficacy of Antitrust Enforcement

In a particularly vivid exemplar of the renewed potency of antitrust enforcement, District Judge Denise Cote, of the influential Southern District of New York, recently ruled that Apple had violated antitrust law by conspiring with publishers to raise retail prices of eBooks and to eliminate retail price competition. See United States v. Apple, Inc., No. 12-2826, Opinion & Order (S.D.N.Y. July 10, 2013) (available here).

As Judge Cote summarizes, “Apple and the Publisher Defendants shared one overarching interest — that there be no price competition at the retail level,” and the plan was largely successful. Opinion at 11. The crux of the problem, as Apple viewed it, was that Amazon’s pricing was too low for Apple to make a profit. “Through the vehicle of the Apple agency agreements, the prices in the nascent e-book industry shifted upward, in some cases 50% or more for an individual title. Virtually overnight, Apple got an attractive, additional feature for its iPad and a guaranteed new revenue stream, and the Publisher Defendants removed Amazon’s ability to price their e-books at $9.99.” Opinion at 12.

Apple thus set in motion a plan to conspire with publishers to force Amazon to raise its prices. To do so, Apple proposed that publishers adopt the “agency model” for eBooks, by which a publisher sets the retail price of the book, and the eBook store would then take 30 percent of that price. The agency model is reflected in the frequent apology seen at eBook sites such as Apple’s, noting that “prices are set by publishers” — a statement that is stunningly disingenuous in light of the close, conspiratorial relationship between Apple and the publishers.

After negotiating deals with Apple, five major publishers approached Amazon simultaneously with an offer it couldn’t refuse — either Amazon could move over to the new, higher-priced agency model, or it would have to wait months to begin selling best-selling titles in its store. See Opinion at 64-72. Only by colluding could the play work, because if any single publisher approached Amazon, Amazon could have balked and removed that publisher’s titles from the Kindle Store. Id.

The opinion documents Apple’s plan to undermine the dominance of Amazon and its Kindle in the emerging e-book technology, and with reference to astonishingly candid evidence including internal Apple emails and memos. In its initial meeting with publishers to discuss the conspiracy to fix prices, Apple outlined a strategy categorically at odds with U.S. antitrust laws, stating that the company “cannot tolerate a market where the product is sold significantly more cheaply elsewhere.” Opinion at 33.

Originally, the federal government had sued Apple along with the five other publishers — Lagardere SCA’s Hachette Book Group Inc and Macmillan, News Corp’s HarperCollins Publishers LLC, Pearson Plc’s Penguin Group (USA) Inc and CBS Corp’s Simon & Schuster Inc —in April of 2012. However, while the publishers settled with the government, Apple insisted they had done nothing wrong—a stance that Apple continues to hold in the wake of this week’s ruling, vowing to appeal to the Second Circuit.

Glatt v. Fox Searchlight Pictures: Federal Court Rules Against Unpaid Internships

Unpaid internships, a staple ritual for ambitious resumé builders, were dealt a blow this week, as a New York federal judge ruled that Fox Searchlight Pictures violated minimum wage and overtime laws when it failed to pay interns who worked on the movie Black Swan. See Glatt v. Fox Searchlight Pictures, No. 11-6784 (S.D.N.Y. June 11, 2013) (order re summary judgment and certification motions, available here).

While numerous other cases have argued that interns ought to be paid, Glatt appears to be the first decision to adopt this argument, after rigorously reasoning through the applicable six-part test. See order at 20-26. While not every factor weighed strongly in favor of finding the plaintiffs entitled to pay, Judge William H. Pauley III concluded that the plaintiffs “were classified improperly as unpaid interns and are ‘employees’ covered by the FLSA,” and that “[t]he benefits they may have received—such as knowledge of how a production or accounting office functions or references for future jobs—are the results of simply having worked as any other employee works, not of internships designed to be uniquely educational to the interns and of little utility to the employer.” Order at 26.

Though the decision arose in the context of the entertainment industry, where unpaid internships have for some time gained neophytes entrée to an elite field with virtually limitless long-run income prospects, the decision’s wide media coverage suggests that a major re-think might be underway in all fields that make use of unpaid interns, including politics, high tech, and fashion. Interns who have gone on to major accomplishments in diverse fields include Steve Jobs (Hewlett-Packard), Bill Gates and Patrick Ewing (U.S. Congress), Anderson Cooper (CIA), and Steven Spielberg (Universal Studios).

Eric Glatt, the lead plaintiff, has an MBA from Case Western Reserve University and is currently in law school at Georgetown University. No doubt having already helped shape a major legal issue will assist Glatt in the increasingly competitive atmosphere around landing highly-paid summer associate positions during law school.

Kosta v. Del Monte: Federal Court Upholds Food Labeling Claims

A California federal judge has largely rejected efforts by food giant Del Monte to dismiss the claims in a consumer class action alleging violations of California’s Food, Drug, and Cosmetics Act (FDCA). See Kosta v. Del Monte Corp., No. 12-1722 (N.D. Cal. May 15, 2013) (order on motion to dismiss, available here). The plaintiffs allege FDCA violations based on Del Monte’s packaging and labeling of pasteurized and chemically preserved fruit (typically found in opaque cans on supermarket shelves) in transparent containers and with a deceptive “Must Be Refrigerated” label. The company is also accused of labeling vegetables containing calcium chloride as having “No Preservatives”, and labeling as “natural” tomatoes containing citric acid. See Order at 2-3.

Del Monte sought to foreclose these issues from ever being assessed on the merits with a motion to dismiss based on standing, preemption, and abstention. See Order at 4-6. While District Court Judge Yvonne Gonzalez Rogers formally denied in part and granted in part the motion, as a practical matter the motion was denied, as the claims emerged nearly fully unscathed.

Del Monte’s basis for dismissal with perhaps the broadest resonance was its theory that the named plaintiffs lacked standing by not having plead injury-in-fact. See Order at 15-17. Specifically, Del Monte argued that the diminution in value alleged by the plaintiffs (i.e., the quantum by which the products were priced above their true market value owing to the deceptive labeling) was insufficiently tangible and particularized to satisfy Article III standing requirements. Id. Additionally, Del Monte contended that the plaintiffs failed to satisfy purportedly more exacting standing requirements under California’s Unfair Competition Law. Id. The court sided with the plaintiffs, however, holding: “Plaintiffs allege they paid a premium for Del Monte’s products which they otherwise would not have paid but for Del Monte’s misrepresentations. As with Article III standing, the Court finds that Plaintiffs have alleged economic injury resulting from Del Monte’s alleged unfair competition and false advertising.” Order at 17.

Del Monte had argued that the claims are preempted by federal food-labeling legislation, the determination of which turned on whether the plaintiffs’ claims seek to impose labeling requirements in excess of those mandated by federal law. Order at 7. Judge Rogers held that there was no federal preemption, as the plaintiffs sought to impose labeling requirements coextensive with federal law. Order at 10-11. Additionally, Judge Rogers rejected Del Monte’s theory of implied preemption. Order at 13.

No more availing was Del Monte’s abstention theory, based on the primary jurisdiction doctrine, which allows trial courts to stay cases pending resolution of the same issues by an administrative agency with special competence in the issue being litigated. See Order at 13-14. Del Monte posited the FDA to be the federal agency with special food labeling competence, but because the plaintiffs’ claims did not encroach on the FDA’s role in promulgating regulations, and merely sought to enforce what the FDA and California law both already required, the abstention theory of dismissal was also rejected. Order at 15.

Both Sides Rebuffed in Netflix Closed Captioning Fee Dispute

Donald Cullen, a deaf college student, filed suit against Netflix over alleged violations of the Americans with Disabilities Act (ADA) and California’s Disabled Persons and Unruh Civil Rights Acts, claiming that Netflix failed to provide adequate closed captioning and made misleading statements about the availability of closed captioning in Netflix’s streaming movies and TV shows. While Cullen’s suit was pending, the National Association of the Deaf (NAD) filed and settled a similar action against Netflix, which resulted in a consent decree requiring that Netflix provide closed captioning in all streaming video by September of 2014. As a result, Cullen opted to dismiss his ADA claims.

Although Cullen’s suit did not directly generate the settlement resulting in the consent decree, it was likely among the constellation of forces — a “catalyst” under pertinent doctrine — that compelled Netflix to agree to precisely the relief that Cullen sought in his earlier-filed case. As such, Cullen’s attorneys sought fees of $250,000 based on that theory, noting that Cullen effectively prevailed in his litigation aims (insofar as his claims were virtually identical to those in the NAD lawsuit) and that in the course of litigating the case, Cullen and his counsel contributed to negotiations and decisions that ultimately led to the settlement with the NAD. However, Netflix’s counsel, San Francisco-based Morrison & Forster, not only opposed the attempt by Cullen’s counsel to recover fees, but argued that Netflix should be awarded $165,000 to pay Morrison & Forster for efforts spent defending against Cullen’s suit.

On May 1st, U.S. District Court Judge Edward J. Davila issued a decision denying both fee motions. Cullen v. Netflix, No. 11-1199 (N.D. Cal. May 1, 2013) (order denying plaintiff’s and defendant’s motions for attorneys’ fees, available here). Judge Davila held that Cullen had not successfully argued for application of the catalyst theory, finding that he failed to establish the requisite causal connection between his suit and the NAD-negotiated consent decree. Order at 4-5. In rejecting the Netflix fee motion, Judge Davila found that Netflix fell well short of establishing the criteria for a prevailing party entitled to fees, and hinted that the Cullen fee decision was a close call, since Cullen filed his claims “not only to rectify an alleged harm on his own behalf, but also to serve a greater purpose in the form of establishing certain civil rights standards and thresholds on behalf of a class of disabled individuals.” Order at 7.

Ultimately, that greater purpose will be served by the consent decree that will eventually provide for full closed captioning of Netflix streaming videos. Whether Cullen’s fee motion might have been granted in the absence of Netflix having filed its own fee motion cannot be known.