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Does the Wall Street Journal know anything about compliance?

Written by Theodore L. Banks

A few days ago, the Wall Street Journal published an editorial about the government’s case against Apple for price fixing of e-books.  Apple lost the case, and the court appointed a monitor to ensure compliance with the court’s decision and the antitrust laws.  But even granting the publication a little leeway for editorial writing, a few things about that editorial struck me that just didn't sit right.  (Disclaimer: I am a compliance monitor for the FTC and the Canada Competition Bureau, and these opinions are my own. My reactions to the WSJ editorial are based on public documents, which I presume are the same ones that the Journal read.)

The federal case was brought based on Apple’s successful attempt to get publishers of e-books to switch their pricing method from one that fit the Amazon method of distribution, based on a set price, to one that fit the Apple iTunes method of distribution, based on a commission.   The net result was that prices for many (if not most) e-books rose, but there was a major new distribution stream for e-books, the iPad.  There was extensive debate about whether Apple’s communications with the publishers constituted an illegal conspiracy under the antitrust laws, and whether there was any justification for Apple’s actions since it created a competitive alternative to an alleged monopolist, Amazon.

The judge found that Apple's conduct violated the Sherman Act, and ordered Apple to stop.  In order to enforce its order, it appointed a monitor to oversee Apple’s compliance.  Unusual, yes, but hardly outlandish.  Apple acted as if this was outrageous, and the editorial writers at the WSJ seem to agree. Frankly, I wondered why Apple resisted the idea of a monitor so strongly.  Why did it object to having an antitrust compliance program?  As far as I can tell based on reading the two reports from compliance monitor, Michael Bromwich, Apple was not asked to do anything beyond what it should have been doing already under the Federal Sentencing Guidelines.

Apple's justification for its initial resistance to Bromwich's requests seemed transparently weak.  Was it unreasonable to request an organization chart so that the corporate structure could be better understood and an effective compliance program developed?  These and other inquiries made by Bromwich hardly seem like the "quasi-prosecutorial investigations" identified by the WSJ.  The Journal criticizes Bromwich's inquiries into various Apple business units stating "None of this is relevant to antitrust."  How does the Journal know?   How would Bromwich know unless he asked?

The Federal Sentencing Guidelines make it clear that a compliance program should be risk-driven. You do a risk assessment to identify areas of legal risk, and then develop programs to mitigate those risks.  The editorial writers at the Journal don't seem to be familiar with the Sentencing Guidelines – or with compliance programs in general -- since they are outraged at the thought of doing a risk assessment.

Apple may legitimately dispute the court's ruling about its conduct.  So it is appealing.  But its resistance to a compliance program strikes me as a carryover of the Steve Jobs "reality distortion" era discussed in the Walter Isaacson biography.  Apple’s initial opposition to a compliance program only exacerbated the intrusiveness of the monitor since it naturally raised the question: "What are you trying to hide?"

The court's order included some directives as to what Apple could not do with regard to negotiating contracts with publishers.  Unless and until the order is overturned, employees need to know what they can and cannot do under the order.  Presumably, the rest of the antitrust compliance program is what every other antitrust compliance program contains - and this shouldn't be impacted one way or the other by the disposition of the case.  Every major company should have an effective antitrust compliance program, and this seems to be what Bromwich was looking for.

The Journal objected to Bromwich’s fees.  Yes, he charges a lot of money, but so do Apple's lawyers and other big law firms.  Care to figure out what percentage of Apple's market cap that this represents?

Ted Banks concentrates his practice on antitrust, compliance and life science. Mr. Banks has extensive experience with corporate litigation, including responsibility for contested mergers, environmental contamination, advertising, insurance coverage, products liability, employment law, consumer protection, and packaging and recycling.