carnegie

I would say that 'defies reality' should be an apt description of the Commission's Ireland-Apple decision. Unfortunately, it doesn't really defy reality because the current reality is that the rule of law is regularly, and often blatantly, disregarded.

I don't expect Apple to win this case, but it should easily win it. Ireland is allowed to have the tax policies it wants, even if those policies are disfavored by the entire rest of the EU. This was not, as the Commission superficially alleges, a special deal (contrary to Ireland's generally applicable tax policies) which Apple was given. I've yet to find anyone who can identify what specifically Apple was allowed to do, in figuring its Irish taxes, which is contrary to Irish tax policy. The Commission's decision didn't identify any such thing.

The reality is that the Commission's qualms are with some of Ireland's unusual tax policies (which have since been changed) and the undesirable, in the Commission's view, results which they can, intentionally from Ireland's perspective, lead to. But the Commission doesn't have rightful authority to punish Ireland for those tax policies. So it pretended that it was going to demonstrate that Apple was allowed to violate those policies. That, however, is something it never did. It merely demonstrated that Ireland's tax policies are unusual (and disfavored by many) and lead to undesirable (in the Commission's view) results. Then it made the superficial assertion that it had demonstrated that Apple was allowed to do something otherwise not allowed by Irish tax policy.

The Commission's argument essentially boils down to this: Ireland's interpretation of its own tax policies would mean that Irish law allows for tax accounting methods which most of the developed world thinks are bad. And although Ireland would be free to have such laws and policies, we think the results of such policies are so out of line with what the rest of us think should be allowed that Ireland couldn't possibly have chosen those policies. So Ireland can't really have interpreted its own tax policies in the way it claims to have interpreted them. Yes, it would be free to have those policies and enforce those interpretations thereof, but we think those policies are so bad that Ireland wouldn't have actually chosen them. Never mind the fact that Ireland says that it did choose them.

The real issue was the unusual aspect of Irish tax law which only required that Irish income taxes be paid on the profits attributable to the Irish branches of domestic corporations. Irish income taxes didn't, at least in some circumstances, have to be paid on profits attributable to non-Irish branches of Irish corporations. But that unusual policy was clearly the chosen law of Ireland, so the Commission couldn't - as much as it might have wanted to - punish Ireland for that policy. So it tried to build a case around how Apple was allowed to allocate profits between non-Irish and Irish branches of Irish corporations. The problem is, there wasn't a legitimate case to be made on that issue. There's no there there in the Commission's decision. It's never able to demonstrate that the methods used to allocate profits were contrary to Irish tax policies in general. In what way does Irish law (or prior interpretations thereof) prohibit costs-plus-a-percentage as a way of determining the profits fairly attributable to a related party? That may not be the EU's preferred method for determining such profits, but under some circumstances its a reasonable method for doing so. More to the point, it doesn't seem to be a method which Irish law doesn't allow.

If I had to bet, I'd bet that Apple ultimately loses this case. But, if it does, that result will evince substantial disregard for the rule of law. The attitude is... to hell with the rules we've agreed to abide by, we should exercise power arbitrarily if we need to in order to achieve the results we think are proper. That impulse is understandable, or at least expected. It's always been strong; that's part of why the rule of law developed as a foundational ideal in come societies. But we shouldn't countenance indulgences of that impulse, even when given indulgences lead to results which we favor. It's dangerous. And it's wrong.

eriamjh said:

Lessee: $15,000,000,000 loses $18,000,000 in one year.  

That’s 0.12% if compounded annually (easiest math).   Sounds like a maintenance fee.  I know it’s only been 6 to 9 months.   

Ireland should have invested in Apple stock.   Or Tesla.  They could have done much better.  

This isnt Apple’s money anymore.  It’s Ireland’s money.  They invested conservatively and they lost money conservatively.   They could have done much worse.   

This isn't Ireland's money, not yet anyway. It's money that's been put into escrow, not money that has been paid to Ireland. Apple still counts it on its books as part of its cash and cash equivalents, just noting that it's in escrow and restricted from general use.

Apple had some leverage when it came to putting these funds into escrow. Ireland likely wanted to get Apple to agree that Ireland wouldn't be responsible if there were losses and it was ultimately determined that Apple would keep the money. So the parties needed to agree on how the funds would be invested, and they prioritized low risk over high return. It's just that right now, low-risk shorter-term (2-5 years) European sovereign debt means negative yields.

The 2-year German instrument is currently yielding around -0.8%. The 2-year French instrument is currently yielding around -0.7%. Their yields weren't that low last year, but they've both had negative yields for more than 4 years. If you want Germany or France to hold money for you for 2 years you, in effect (without getting lost in how bond markets work), have to pay them to do so. In Germany's case, even the 20-year Bund has a negative yield right now. For all intents and purposes, Germany can currently take out 20-year interest-free (marketable) loans.

It wouldn't have made much sense to blame Mr. Sewell and Apple's legal team for the ultimate result in the ebooks case. Apple should have prevailed. It was on the right side of the law, both when it came to the spirit of the law (i.e. its actions were intended to and likely did increase, rather than decrease, competition in the ebooks market) and when it came to the technicalities of how the law was, according to precedent, supposed to be interpreted (i.e. vertical pricing agreements are not per se illegal, they require the application of the rule of reason). Even accepting the findings of fact which Judge Cote made (other than those relating to the application of the rule of reason - and with regard to that consideration she wasn't upheld by the 2nd Circuit), an objective and precedent-versed observer should have expected Apple to ultimately win. I think it's reasonable to conclude that Apple ultimately lost only because Justice Scalia died in February 2016, just before the conference at which Apple's petition for cert was scheduled to be considered. I think that twist of fate, and the role it likely played in the ultimate resolution of the case, is lost on many.

I'm going to leave out a lot of nuance in my run through of what happened in the case and the important legal issue involved. If I didn't this post would run on far too long.

Apple was, as is relevant here, essentially accused of engaging in an illegal vertical pricing agreement - a violation of §1 of the Sherman Act. A vertical pricing agreement would be one between, e.g., a manufacturer and a retailer of that manufacturer's products. A horizontal pricing agreement would be one between, e.g., manufacturers whose products compete with each others. Under Supreme Court precedent, a horizontal pricing agreement is per se illegal as a violation of the Sherman Act. At one time the same could be said of vertical pricing agreements.

The Supreme Court in effect decided in 1911, in Dr. Miles Medical v John D. Park & Sons, that vertical pricing agreements were per se illegal. But over the years the Court cast doubt on the veracity of that principle, owing in part to a more developed understanding of market realities and the potential procompetitive effects of such pricing agreements. Then, in 2007 in Leegin Creative Leather Products v PSKS, the Court expressly overruled Dr. Miles Medical. It decided that vertical pricing agreements weren't per se illegal. If a court found there to be a vertical pricing agreement, it needed to apply the rule of reason to determine whether that agreement was a violation of the Sherman Act. The rule of reason basically means a consideration and balancing of the anticompetitive and procompetitive effects of certain conduct or agreements. The lineup of the 5-4 Leegin decision is important here, so I'll return to that in a minute.

The application of the rule of reason would have been important in the Apple ebooks case. Even when the 2nd Circuit upheld Judge Cote's decision, only one of the three judges on the panel agreed with Judge Cote that, even if the rule of reason needed to be applied, Apple would be found to have violated the Sherman Act. It upheld her decision because two of the three judges agreed that the rule of reason didn't need to be applied, that Apple's actions were per se illegal. In order to reach that conclusion those judges had to do a bit of pretzel twisting with the reasoning. Somehow Apple was involved in the agreements, which would have made them vertical pricing agreements and meant that, under Leegin, the rule of reason needed to be applied. But Apple wasn't actually party to the agreements, it just facilitated them - so they were actually horizontal agreements and per se illegal. The 2nd Circuit, in effect, created this new kind of violation - orchestrating, but not actually being part of, an illegal horizontal pricing agreement. Frankly, the 2nd Circuit's reasoning was in substantial conflict with the Supreme Court's decision in Leegin. At best it represented a novel  - and somewhat suspect - legal theory of anti-trust law.

So when Apple asked the Supreme Court to hear the case in October of 2015, I think a reasonable observer familiar with the Leegin decision should have considered it likely that the 2nd Circuit's decision would be overturned - either summarily or after the Court heard the case. Apple wasn't asking for a finding that it hadn't violated the Sherman Act, just a finding that the rule of reason needed to be applied - essentially a reiteration of the Court's finding in Leegin just 8 years prior. Apple likely was, and should have been, confident that it would prevail if the procompetitive effects of its actions were weighed against their anticompetitive effects.

Notably, a number of amici filed briefs in support of granting Apple's petition (i.e. in favor of the Supreme Court hearing the case) while none filed in support of the U.S. and states' opposition to Apple's petition. Among amici filing in support of Apple were authors, economists, legal scholars, and software associations. And they all cited Leegin. This really should have been a simple decision. You point at Leegin and ask the Court... does this decision, which you made less than a decade ago, still represent the law of the land?

In late January Apple's petition was scheduled to be considered at the Justices' conference on February 19th. As I consider the situation now, I think the most likely result would have been a cert grant and summary reversal of the per se finding, and a remand with instructions for the 2nd Circuit to reconsider its findings in light of the Court's Leegin decision. We see those kinds of summary decisions from the Supreme Court from time to time, when it's already made a decision which should have controlled a lower courts' reasoning but which, for whatever reason, wasn't followed by that lower court. It's, in effect, a scolding by the Supreme Court. It would have represented the Court telling the 2nd Circuit that it screwed up and instructing it to go back and apply the rule of reason to Apple's actions. Even if the Court didn't summarily reverse the 2nd Circuit, I think it likely that it would have granted cert and heard the case.

But then, on February 13th, Justice Scalia died. Here's where the line up from the Leegin decision becomes important. The 5 Justice majority consisted of Chief Justice Roberts and Justices Scalia, Kennedy, Thomas, and Alito. Those same 5 Justices were, as of February 12th, still on the Court. I don't have any reason to believe that they would have made a materially different finding than they had made in Leegin or even seen fit to weaken the principle they laid down in that case.

The 4 more liberal Justices - Justices Stevens, Souter, Ginsburg and Breyer - had voted in Leegin not to overrule Dr. Miles Medical. They would have had a vertical pricing agreement be considered per se illegal where the rule of reason need not be applied. Justices Stevens and Souter had since been replaced by Justices Sotomayor and Kagan. But I don't have reason to believe the new Justices felt materially different on the question.

With Justice Scalia's death there likely were no longer 5 votes to summarily reverse the 2nd Circuit and vindicate the principle laid down in Leegin. The 4 more conservative Justices could still have voted to grant cert (that takes only 4 votes), but what would have been the point? At best an 8-Justice Court would have heard the case and been split 4-4, meaning that the 2nd Circuit would be affirmed by an equally divided court. At worst a new Justice - one appointed by President Obama - would have been seated by the time the case was heard and there would have been a 5-Justice majority ready, and perhaps willing, to effectively overturn the Leegin holding - or, at least, to chip away at its import.

So... I think it's reasonable to conclude that Apple lost the ebooks case not because Mr. Sewell and Apple's legal team did a poor job, and not because Apple colored outside the (then-existing) legal lines, but rather because of a death that occurred in Texas in early February 2016 and which they couldn't have anticipated. I expect that many among Apple's legal team realized, when they got news of Justice Scalia's death, that they were suddenly more likely to ultimately lose the ebooks case. Up until that point, they had good reason to expect they'd ultimately prevail.

gatorguy said:

carnegie said:

That was pretty shady move by Commissioner Wilson writing that oped for the Wall Street Journal. Even if she - in good faith - disagreed with her agency's decision to pursue the case against Qualcomm, she probably shouldn't have written that oped.

That said, Judge Koh's decision was right on the law. An appeals court can always change how a given law is applied, and I wouldn't rule out the possibility that that will happen in relation to this case. But as it stands now - as Section 2 of the Sherman Act has been interpreted - this was an open and shut case. There's a reason that Qualcomm's witnesses - as Judge Koh effectively demonstrated - essentially lied so much in their testimony. The law wasn't on Qualcomm's side, its only hope - given that this wasn't a jury trial - was to try to muddy the facts enough to slide by that law.

The elements of a Section 2 violation were all there, and frankly I don't know how any of them could reasonably be argued against:

Relevant markets (e.g., at a minimum, a properly identified CDMA modem market): Check
Monopoly power: Check
Willful acquisition or maintenance of monopoly power - anticompetitive behavior lacking legitimate procompetitive justifications: Check, in spades.

We might argue (and I probably would) that U.S. antitrust law shouldn't work the way that it does. But given the way it does work, in my view this decision was a no-brainer.

Carnegie, according to the article the ultimate decision was based on some relatively obscure precedent that some legal experts feel was a stretch rather than the Sherman Act in general. 

Yes lots of evidence too that QC was a bit dishonest in testimony which won't help them. Still Judge Koh may well have inappropriately used "Aspen Skiing" as justification for her ruling. That's not yet clear and it may be a long time before it is. 

The ultimate decision in this case wasn't really based on Aspen Skiing. (I wouldn't agree that Aspen Skiing is an obscure case or precedent, btw.) The Aspen Skiing > Verizon v Trinko > Metronet Services (CA9) line of cases only really matters with regard to one of the ways in which Qualcomm was found to have engaged in anticompetitive behavior. Those cases relate to Qualcomm's refusal to deal with modem chip competitors. Judge Koh described many other ways in which Qualcomm violated the Sherman Act. Even if we accept that Judge Koh improperly applied the exception (to the general lack of an antitrust obligation to deal with competitors) which the Supreme Court identified in Aspen Skiing, that shouldn't affect the general disposition of this case. By way of analogy, it would mean that Qualcomm wasn't guilty of robbing one of the banks it was found guilty of robbing. So then it would only have been found guilty of robbing 6 banks (or whatever the number would be).

That said, even with regard to the refusal to deal (with modem chip competitors) issue, it isn't really Judge Koh's interpretation of Aspen Skiing which is at issue. It's her interpretation of Metronet Services. In Verizon v Trinko the Supreme Court clarified (and arguably limited) the import of Aspen Skiing v Aspen Highlands Skiing. Then, in Metronet Services v Qwest, the Ninth Circuit interpreted Verizon v Trinko. So, since FTC v Qualcomm was heard in the Ninth Circuit, Judge Koh was bound by what Metronet Services says as well as by what Verizon v Trinko and Aspen Skiing say. In other words, she didn't really (and shouldn't have) interpret(ed) Aspen Skiing. Rather, she interpreted how the Ninth Circuit has interpreted Aspen Skiing. She applied what she considered to be the essential findings of Metronet Services as that case is precedential (with regard to a potential antitrust duty to deal) in the Ninth Circuit.

Perhaps the Ninth Circuit will decide that she applied Metronet Services wrongly, though I wouldn't bet that it will. It's also possible that the Supreme Court will decide, in effect, that the Ninth Circuit (in Metronet Services) has applied Verizon v Trinko and Aspen Skiing wrongly. Regardless, I don't think Judge Koh's application of Metronet Services' interpretation of Aspen Skiing is a major stretch. It might be arguable, but in my view it isn't clearly wrong.

Anyway, coming  back around to the the important point, Aspen Skiing isn't all that important to the the general finding that Qualcomm violated the Sherman Act. Even if we excise the refusal to deal (with modem chip competitors) aspect of the decision, Judge Koh effectively lays out other antitrust violations. Her ultimate decision could easily have been reached - and justified - without her having ever referred to Aspen Skiing. She could be overruled with regard to the application of Aspen Skiing without her broader decision being jeopardized.

That was pretty shady move by Commissioner Wilson writing that oped for the Wall Street Journal. Even if she - in good faith - disagreed with her agency's decision to pursue the case against Qualcomm, she probably shouldn't have written that oped.

That said, Judge Koh's decision was right on the law. An appeals court can always change how a given law is applied, and I wouldn't rule out the possibility that that will happen in relation to this case. But as it stands now - as Section 2 of the Sherman Act has been interpreted - this was an open and shut case. There's a reason that Qualcomm's witnesses - as Judge Koh effectively demonstrated - essentially lied so much in their testimony. The law wasn't on Qualcomm's side, its only hope - given that this wasn't a jury trial - was to try to muddy the facts enough to slide by that law.

The elements of a Section 2 violation were all there, and frankly I don't know how any of them could reasonably be argued against:

Relevant markets (e.g., at a minimum, a properly identified CDMA modem market): Check
Monopoly power: Check
Willful acquisition or maintenance of monopoly power - anticompetitive behavior lacking legitimate procompetitive justifications: Check, in spades.

We might argue (and I probably would) that U.S. antitrust law shouldn't work the way that it does. But given the way it does work, in my view this decision was a no-brainer.