Judge Examines Fairness of Apple's E-Books Settlement

Are consumers getting enough? That depends on perspective.
AP Images
Apple CEO Tim Cook

Let's talk class-action math. A boring subject, perhaps, but at stake is whether millions of e-book customers are getting a fair deal in a proposed settlement meant to address a judge-determined pricing conspiracy.

On July 16, New York's attorney general Eric Schneiderman and others put out a press release announcing the settlement of antitrust claims. What was highlighted, "Settlement With Apple Could Result In Payments To Consumers Of Up To $400 Million."

Soon, many news outlets such as The New York Times reported that Apple could be paying $400 million to settle claims. Except it wasn't quite accurate. Under the terms of the deal, Apple would be paying up to $450 million. What was missing in the press release — and what probably caused confusion — was that if an appeals court upholds U.S. District Judge Denise Cote's July 2013 findings that Apple had unlawfully colluded with publishers to inflate e-book prices from April 1, 2010 through May 21, 2012, Apple would be also be paying $50 million into the coffers of the 33 states that sued as well as lining the pockets of the class-action attorneys in the case.

To be generous, Schneiderman's office just wanted to highlight the benefit of the settlement to consumers. Less charitably, news of the settlement was spun to downplay the tens of millions of dollars going elsewhere.

But there's more to this: The settlement that was worked out provided that if the Second Circuit rejects Judge Cote's ruling and remands the case for further proceedings, the amount of money going to consumers would dip from $400 million to just $50 million. That's a 87.5 percentage drop. Meanwhile, the money going to states and lawyers would decline from $50 million to $20 million. That's a 60 percentage drop.

At a July 24 hearing, Judge Cote compared the percentage decreases and expressed her concern about the scenario in which an appellate court reverses, perhaps on a minor technicality instead of a broad overhaul of her findings. Her responsibilities now include weighing the fairness of the settlement and so she's asked the attorneys involved to address this issue and others such as interest accrual during the pendency of Apple's appeal.

On Wednesday, one of the plaintiff's lawyers sent a letter to the judge saying that the parties couldn't reach an agreement to adjust terms. And then, in the letter, the lawyer attempted to justify the settlement that had already been worked out.

Yeah, a comparison of the percentages doesn't look good when one considers what might happen if the Second Circuit doesn't affirm Judge Cote's ruling, but look at it another way: "Plaintiffs structured the proposed settlement with Apple so that the percentage of state and class payments decreases as the consumer award increases," wrote Steve Berman at Hagens Berman Sobol Shapiro.

And then more class-action math.

Berman asked the judge to consider "the total payments potentially provided to consumers in the entire litigation," which meant adding the $166 million being paid by five large publishers, which some media outlets like NBC News have mistakenly translated as "$166 million for e-book purchasers." No, consumers got $97 million of that amount. Lawyers got about $11 million. The rest went to expense reimbursements or payments to states.

"The total amount of state and class payments as a percentage of the total payments by all defendants would equal 12.2 percent under the first scenario and 18.4 percent under the second scenario," stated Berman, before adding a footnote that if only consumer relief is factored, the second scenario equals 22.6 percent.

Of course, he has a rationale for the current math as "relative to the other defendants, Apple disproportionately increased the litigation resources Plaintiffs expended in the case."

Certainly, lawyering isn't free. Then again, if Apple prevails at the Second Circuit, and more litigation resources are needed, one could make an argument that the plaintiffs' lawyers didn't do quite as good a job at the appellate level. Their share of the spoils would increase nevertheless.

Email: Eriq.Gardner@THR.com
Twitter: @eriqgardner