The Apple Monitorship: Airing Dirty Laundry

This article was republished with permission from Michael Volkov’s Corruption, Crime & Compliance.

I am married to a lovely Sicilian-born woman. One thing her family has taught me: the value of family loyalty and love.

That same principle does not apply when it comes to the relationship between the Apple monitor and Apple. In a rare public filing, the external monitor for Apple recently filed his first report with the court overseeing Apple’s antitrust compliance program as part of the e-book publishing case. A copy is here.

The dirty laundry laid out in the report is unfortunate and shows the poor performance of Apple and the Apple monitor, as well as the overseeing court.

The history of Apple and its monitor shows that the pair are not a match made in heaven and reflects a company committed to resisting court supervision and the court-appointed monitor.

Apple needs to wake up, and it better do so soon. Antitrust enforcement usually focuses on arrogant companies that acquire market power. The last victim was Microsoft, which the government successfully prosecuted in the 1990s. Going back even further, AT&T suffered from antitrust enforcement in the 1970s and 1980s.

Apple is the next company to fall under scrutiny with its e-publishing most favored nation clause and its arrogant exercise of market power. Arrogant companies tend to hire arrogant lawyers and antagonize the government and the courts. In the end, the only one who gets hurt is the arrogant company. The arrogant lawyers make a lot of money from wasted fees.

The Apple monitor’s report details how Apple resisted meetings, basic information requests and even questioned the monitor’s ability to exercise its responsibilities in the immediate aftermath of the court’s decision finding Apple liable for antitrust violations. Apple’s response to the court filing is perhaps one of most horrible examples of responsible corporate governance and leadership.

What is even more troubling, however, is the failure of the court to intervene and remedy the situation. We do not know all of the legal filing details, but hopefully the Apple monitor apprised the court as soon as it started to experience problems with its relationship with Apple.

The supervising district judge, however, has failed to uphold an important principle: no business is above the law. I know a number of federal judges who would have responded with more speed and force to Apple’s resistance to following the court’s orders. The district judge in the Apple case finally woke up and acted. Apple eventually backed down and has now begun to cooperate, several months later.

For its part, the Apple monitor tried to push Apple to obtain access to information. Apple resisted and the monitor should not have put up with Apple’s contumacious behavior for so long – it should have apprised the court and brought Apple before the judge to explain its position.

For some reason, lawyers are too cautious and believe they need a slam dunk record before seeking enforcement – that is a mistake which the monitor will have to deal with in the months to come.

Apple won the skirmish. It delayed its cooperation, diminished the monitor’s authority and undermined the district judge’s ability to enforce the rule of law.

Apple may have won the battle, but you can bet it will lose the war. Apple’s leadership is suffering from the usual mistake of an arrogant monopolist – they ignore the historical reality going back to the early 1900s: every arrogant monopolist eventually loses after the government focuses its attention on enforcement of our nation’s antitrust laws and resources.