Michigan Judge Rules Against Bankruptcy Push

A judge in Ingham County, home to Michigan’s capital, Lansing, ruled that Mr. Snyder’s action had violated the state Constitution because it could cut the pension benefits of retired public employees. The judge, Rosemarie Aquilina, said pensions were protected under state law, and issued an order that the bankruptcy filing be withdrawn.

 
Her ruling was immediately challenged by Michigan’s attorney general, who appealed to the state’s Court of Appeals on the grounds that the Chapter 9 bankruptcy filing stayed all legal proceedings related to Detroit’s debt obligations.

 
While the ruling may be overturned, it underscored the mounting tension in the city and the legal battles ahead as bondholders, retirees and other creditors attempt to recover money owed them by the city.
Mr. Snyder and Detroit’s emergency manager, Kevyn D. Orr, estimate the city’s debt and other long-term obligations at $18 billion.

 
After weeks of mostly unsuccessful negotiations with creditors to settle debts, Mr. Orr recommended a bankruptcy filing to Mr. Snyder this week. The city then filed for Chapter 9 on Thursday, minutes before Judge Aquilina was to hold a hearing on the employee pension funds’ constitutional challenge to a potential bankruptcy proceeding.

 
The president of one public employees’ union hailed the judge’s decision on Friday. “There is too much at stake to play political games with the hard-earned retirement security of Detroit’s public workers,” said Lee Saunders, head of the American Federation of State, County and Municipal Employees union.
But at a joint news conference on Friday, Mr. Snyder and Mr. Orr were resolute on the need for a bankruptcy filing.

 
Mr. Snyder, a Republican who has pushed a pro-business agenda in the state, said Detroit had no other options to deal with its debts and improve city services ranked among the nation’s worst.

 
“This is the time to say enough is enough in terms of the downward decline of the city of Detroit,” he said.
Now that the city has filed, Mr. Snyder and Mr. Orr said they wanted to reassure Detroit’s 700,000 residents that police, fire and other essential services will continue to function.

 
Mr. Orr, who was appointed by the governor, predicted that residents might start to see improvements soon, saying that the bankruptcy filing offers “breathing room” and will allow Detroit to use its limited resources to put more police cars and ambulances into service.

 
Depending on the outcome of the appeal of Judge Aquilina’s order, the initial bankruptcy hearings could begin as soon as next week.

 
On Friday, Judge Steven W. Rhodes was picked to oversee the case. Mr. Rhodes is a hometown selection, having served for 28 years as a bankruptcy judge in the Eastern District of Michigan.
The initial stages of the case will consist of Mr. Orr and possibly state officials showing that there was no available remedy for Detroit’s troubles other than bankruptcy.

 
“We didn’t make this decision in haste,” Mr. Orr said. “This is a decision that has been winding its way through the city for the better part of six decades.”

 
Employee unions and creditors may argue otherwise — either by challenging the size of Detroit’s debt, or Mr. Orr’s assertions that he bargained in good faith to reach out-of-court settlements with bondholders, retirees and others.

 
Some labor unions had accused Mr. Orr of using bankruptcy as a threat during negotiating sessions.
Mr. Orr said that despite marathon talks with creditors, there was little or no movement toward settlements.
“We are finally at a point where we simply can’t kick this can down the road any further,” he said.
There is no blueprint for Detroit’s recovery at this point. In the short term, Mr. Orr said that a deal with two secured creditors, Bank of America and UBS, to accept 75 cents on the dollar for $340 million in liabilities would free up casino revenues that could be used for city services.

 
The arrangement would provide the city with about $11 million a month in casino receipts. That cash is critical to keep the city safe and functional during a drawn-out bankruptcy process.
Mr. Orr said he expected Detroit to emerge from bankruptcy before his term as emergency manager ends in 14 months.

 
For Mr. Snyder, placing the state’s largest city in bankruptcy is a calculated risk that its decline could be reversed under court supervision.

 
He said that he did not anticipate any direct state or federal money would be needed in the effort, but that government grants to help remove abandoned buildings and improve Detroit’s infrastructure would be essential to the city’s comeback. 

Icahn wants judge to appraise Dell buyout offer

Billionaire US investor Carl Icahn says he will go to court to get a better price for his stake in the computer manufacturer Dell.

For several months, Carl Icahn has been fighting a $24.4bn buyout offer from a group led by the company’s founder Michael Dell.

In attempt to get back control of the company and take it private, Michael Dell has partnered with private equity group Silver Lake to offer shareholders $13.65 a share.

Michael Dell is seeking to regain majority control so he can pursue his plan to retool the struggling company as a maker of datacentre equipment and software for corporations.

But Icahn and Dell’s biggest shareholders are unhappy with the deal, which is well below their estimation of company’s value at $24 a share.

Having failed to put together a successful rival offer, Icahn now says he will ask a judge to assess whether the offer, supported by Dell’s board, represents a fair price.

He is urging other shareholders to demand a court appraisal too, according to the BBC.

Carl Icahn entered the fray over Dell's sale in support of the unhappy shareholders, at first teaming up with private-equity group Blackstone in March 2013.

But in April 2013, Blackstone withdrew because of concerns over an unprecedented drop in PC sales and Dell reduced its operating income projections for the year to $3bn, down from $3.7bn.

Icahn then teamed up with Southeastern Asset Management, offering to pay $12 a share in cash or stock and let investors hold on to equity in the computer maker.

In the latest appeal to other Dell investors, Icahn said in a letter: "We believe if you seek appraisal, you will receive more."

However, the appraisal process will take time, which will prolong the period shareholders will have to wait until they can offload their shares.

Shareholders are scheduled to vote on the offer led by Michael Dell on 18 July 2013.

Apple Conspired To Set E-Book Prices, Judge Rules

Apple Inc. "conspired to raise the retail price of e-books," a federal judge ruled Wednesday as a civil lawsuit brought by the Justice Department reached its conclusion.

As Bloomberg News reminds its readers, "the U.S. sued Apple and five publishers in April 2012, claiming the maker of the iPad pushed publishers to sign agreements letting it sell digital copies of their books under what's known as the agency model. Under that model, publishers, and not retailers, set prices for each book, with Apple getting 30 percent."

In December 2011, news editor Sarah Weinman from Publishers Marketplace explained the Justice Department's concerns to NPR's Lynn Neary. From an "investigative body's standpoint," she noted, "just the very idea that there could be this uniform price might send up some red flags."

According to The Associated Press:

"In her ruling U.S. District Judge Denise Cote said Apple knew that no publisher could risk acting alone to try to eliminate Amazon.com's $9.99 price for the most popular e-books so it 'created a mechanism and environment that enabled them to act together in a matter of weeks to eliminate all retail price competition for their e-books.' "

Cote also wrote that "the evidence is overwhelming that Apple knew of the unlawful aims of the conspiracy and joined the conspiracy with the specific intent to help it succeed."

During the trial, Apple attorney Orin Snyder said the judge would set a "dangerous precedent" if she concluded that Apple manipulated e-book prices.

The Wall Street Journal calls Wednesday's ruling "a stern rebuke" for Apple. It notes that the five publishers Apple was accused of colluding with "have all since entered into settlements with the Justice Department, as well as in a separate lawsuit by a group of state attorneys general. But Apple refused to settle and decided to go to trial."

Apple, the Journal adds, "argued at trial that it engaged in hard-fought negotiations with the publishers and denied that it engaged in any collusion."

Judge Cote has not yet assessed damages.

Update at 10:40 a.m. ET. The Ruling:

We've put a copy of the judge's ruling here, and in the box below. Click on the title to pop up a larger view.

Update at 10:20 a.m. ET. "Victory For Millions Of Consumers," Justice Says; Apple Plans To Appeal:

"This result is a victory for millions of consumers who choose to read books electronically," Assistant Attorney Gen. Bill Baer writes in a statement e-mailed to reporters. "After carefully weighing the evidence, the court agreed with the Justice Department and 33 state attorneys general that executives at the highest levels of Apple orchestrated a conspiracy with five major publishers — Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster — to raise e-book prices. Through today's court decision and previous settlements with five major publishers, consumers are again benefiting from retail price competition and paying less for their e-books."

Meanwhile, Apple spokesman Tom Neumayr says:

"We did not conspire to fix e-book pricing and we will continue to fight against these false accusations. ... We've done nothing wrong and we will appeal the judge's decision."

Judge rules Apple colluded with publishers to fix ebook prices

Turns out it doesn’t hurt any less when the book the judge throws at you is an ebook.

U.S. District Judge Denise Cote on Wednesday handed down her ruling in the case between the Department of Justice and Apple over ebook price-fixing, saying that Apple conspired with the five major publishers to raise rates. A trial on damages will be held to decide how much relief the U.S. government and a coalition of U.S. states are entitled to.

The five major publishers—Hachette, Macmillan, HarperCollins, Simon & Schuster, and Penguin (which has since merged with Random House)—all chose to settle the case with the government and states before the trial kicked off last month; as part of the settlement, they are now required to submit for approval any ventures undertaken in collaboration with other publishers. Apple was the only defendant to go to trial, but the company maintained that it had done nothing wrong.

“We’re not going to sign something that says we did something that we didn’t do, so we’re going to fight,” said CEO Tim Cook during an interview at the D11 conference in May.

The trial itself had its ups and downs, with testimony coming from Apple executives like Eddy Cue, publishers like Penguin CEO David Shanks, and even Amazon personnel like Russell Grandinetti, the retailer’s vice president of Kindle content.

However, the ruling was itself presaged by comments made by Cote before the trial began, in which she said she believed “that the government will be able to show at trial direct evidence that Apple knowingly participated in and facilitated a conspiracy to raise prices of ebooks.”

Still unclear, of course, are the long-term ramifications of the decision. Most likely to benefit is Amazon, who was alleged to be the target of the collusion between Apple and publishers. But some reports suggest that Amazon has already started to raise prices.

Apple, for its part, won’t take the judgment lying down. “Apple did not conspire to fix ebook pricing and we will continue to fight against these false accusations,” Apple spokesman Tom Neumayr told Macworld. “When we introduced the iBookstore in 2010, we gave customers more choice, injecting much needed innovation and competition into the market, breaking Amazon’s monopolistic grip on the publishing industry. We’ve done nothing wrong and we will appeal the judge’s decision.”

After closing arguments, Apple's fate in e-book antitrust case goes to judge

“Word games,” an “overreaching narrative” and a “case of inferences” were a few choice phrases used by attorney Orin Snyder Thursday in closing arguments for Apple in the U.S. Department of Justice’s antitrust, ebooks price fixing case against the tech giant.

 

The DOJ brought the case against Apple and five of the largest book publishers in the U.S. for allegedly conspiring to limit price competition and raise prices in the ebook market in 2010 in an effort to stop Amazon from pricing their best-selling electronic books at $9.99 each.

 

Both the DOJ and Apple are making their closing arguments Thursday before Judge Denise Cote, who will decide the outcome of the antitrust suit. The five large publishers also named in the DOJ suit have already settled for a cumulative $164 million, leaving Apple to defend its practices in court. Cote presided over the three-week, non-jury trial in the U.S. Southern District Court of New York in Manhattan.

 

For Apple’s summation, Snyder characterized the interactions that Apple had with the five publishers as typical conversations and negotiations that accompany any business agreement. At no point did Apple try to coordinate the activities of the publishers in an attempt to fix the prices of electronic books for the market. “The evidence does not show this,” Snyder told the court, arguing that the DOJ made this case solely on “overreaching” interpretation of electronic documents.

 

Snyder focused on the timeline between December 2009 and January 2010 to rebut the DOJ’s assertions over what took place between Apple and the publishers. He noted that at the time there was “turmoil” in the ebook market and that Apple executives, who had no prior knowledge of this market, were speaking with publishing heads just to hear their concerns. He also offered multiple examples of disagreement between Apple and the publishers over the proposed contracts, this contention serving as proof that the parties were not acting in unison to fix retail prices.

 

The case stems from contracts that Apple made with the publishers in 2010, just before the company launched its iPad mobile computing device. In January of that year, each publisher—HarperCollins, Penguin, Hachette, MacMillan, and Simon & Schuster—agreed to let Apple sell their electronic books in a relatively novel business model, one in which Apple would sell their books at the prices the publishers had set, and reap 30 percent of the retail price.

 

This approach, called the agency model, differed from the standard decades-old wholesale model of book selling, in which the retailer, not the publisher, set the book prices. With the new agency approach, retailers “lost their ability to compete on price, including their ability to sell the most popular ebooks for $9.99 or for other low prices,” charged the DOJ in its complaint.

 

According to the testimony of Apple Senior Vice President Eddy Cue, publishers immediately expressed a desire to move electronic book sales to the agency model when he initially approached them in December 2009 to secure electronic book rights for the iPad.

 

The publishers saw the agency model as the solution to the issue of Amazon pricing the electronic versions of best selling books for $9.99, less than what the online retailer paid for these titles in many cases. The publishers worried that Amazon, which enjoyed a 90 percent share of the electronic book market in 2009, was lowering the perceived price point of books in consumers’ eyes, as well as laying plans to cut publishers out of Amazon’s book sales altogether and to deal with authors directly. The publishers had met throughout 2009 to discuss the issue, according to Apple.

 

Cue proposed the agency model to then Apple CEO Steve Jobs, who liked the idea, given that Apple was already using the agency model for its iTunes media store and the company’s App store. So, in early January, Apple proposed an agency model agreement with all the publishers, in which Apple would in effect get a fixed 30 percent commission for each sale.

 

Apple also added a number of additional provisions to the contract. It established a tier of price points for books. Best sellers, for instance, could be priced at $12.99 and $14.99 and, later at the publishers’ insistence, $16.99 and $19.99. Apple mandated caps, or limits to how much publishers could charge for electronic books. It prohibited publishers from both withholding best-selling titles from electronic release, and delaying the release of some titles in electronic form, a practice known as windowing.

 

Finally, Apple added what it called a “most favored nation” (MFN) clause. The MFN stipulated that the publishers must offer their electronic books to Apple at 70 percent of the lowest price offered on the retail market elsewhere. In this way Apple could match the lowest price of ebooks elsewhere and still make its 30 percent cut.

 

The DOJ had argued that MFN was proof that Apple was trying to set the prices for ebooks not just for itself, but for the entire industry. Snyder argued Apple was only looking out for its own best interest. Apple did not care what prices the publishers would charge, as long as Apple got its 30 percent cut. “If books were sold at $1.99, we’d make a ton of money,” he said.

 

Snyder also pointed out that after Apple settled on the idea of including an MFN in its contract, it had no preferences as to whether the book publishers signed other retailers such as Amazon to an agency model. He showed a number of different pieces of correspondence that Cue and Jobs had had with publishers to back this point.

 

Five of the six largest book publishers all signed Apple agency contracts within a few days of one another in January (the sixth and largest publisher, Random House, abstained). Over the next few months, the publishers had set up other agency agreements with other retailers as well, such as Amazon.

 

Immediately after the contracts took effect in April 2010, and publishers moved all their retailers to the agency model, and prices of electronic books offered by both Amazon and Barnes & Noble increased by almost 20 percent, the DOJ calculated.

 

In his summation, Snyder made the case that the publishers, and even other retailers such as Barnes & Noble and Google, were already considering the use of the agency model before meeting with Cue. He noted for instance that Barnes & Noble had also approached the publishers in January 2010 with an agency model to sell ebooks for its Nook reader. This was proof, he asserted, that the whole industry was about to undergo a transformation in how electronic books were sold to retailers.

 

While the DOJ had highlighted the many talks Cue had with publishing executives as evidence that they were coordinating activities, Snyder asserted that these meetings were simply introductory meetings and, later, individual contract negotiations. Snyder cast doubt on the idea of a price fixing conspiracy given that the publishers had already been in talks for more than a year about dealing with Amazon. “How can Apple be a ringmaster before the iBookstore was even a twinkle in Apple’s eyes,” he rhetorically asked, referring how up until late December 2009, Jobs wasn’t even interested in entering the electronic book market.

 

At one point, Cote asked Snyder if Apple was aware that the publishers may have been colluding among themselves. “We don’t have an opinion on that. It’s not our burden” to disprove that type of assertion in court, he responded. He also pointed out that the contract negotiations between Apple and the publishers were far too contentious to be considered collusion. As of mid-January Apple didn’t have any agreements with the publishers and each publisher had taken issue with different parts of the proposed agreement, such as the MFN clause, or the price caps. If there was a secret agreement already in place, the negotiations would have gone far more smoothly, he asserted.

 

When making its case, the DOJ had to prove anticompetitive behavior in a number of ways. It had to show that the publishers had conferred with one another in order to set up a new cross-publishing company pricing model that would limit retailer price control, and that Apple helped exchange information among the publishers. It also had to show that the publishers had attempted to conceal their communications. In addition, it had to show that consumers were harmed by this collusion.

 

Whether the DOJ has made its case sufficiently to Cote remains to be seen. Early reports indicated that she believed that the government had a strong case. Thus far, the DOJ has compiled a copious amount of email and other electronic documentation that it feels points to how the different parties worked with one another.

 

Legal observers, however, have doubted that the DOJ documentation is sufficient, and that its case relies too heavily on inference.

 

For the government's summation, DOJ director of litigation Mark Ryan challenged Snyder's idea that difficult negotiations between Apple and the publishers constituted proof there was no conspiracy.

 

"Sure, there was some dispute ... about what the price should be," he said. "But disagreement among a cartel doesn't mean there isn't a cartel." He urged the court to look beyond the discussion of the agency model, MFN and other details, and to focus on how book prices immediately changed after the agency agreements went into play.

 

Ryan described the events of early 2010 as "the publishers acting as a group, and Apple bringing that group along." There was a "fairly brazen price-fixing element to this," he said.

 

He discounted the fact that Apple was a new entrant -- and not yet a powerhouse -- in the e-book market, asserting that the Sherman Antitrust Act, the law on which the suit is based, made no distinctions for new entrants. "There is no court decision saying that because you are new you can organize the suppliers of the market. This is not a defense," Ryan said.

 

Ryan also noted that Apple, in its talks with book publishers, stressed how moving to the agency model would solve "the industry's" problems with Amazon. Less often did Cue and Jobs talk about how it would help an individual publisher.

 

Cote asked if Apple, in talking about the Amazon issue, wasn't just making a sales pitch. Perhaps Apple recognized the difficulties publishers were having and proposed a solution like any new business might, she posited. Ryan countered that part of Apple's pitch was to help all the publishers confront Amazon in unison, which was an antitrust violation.

 

Apple put the MFN in place with one goal in mind, Ryan argued: to get Amazon to move to the agency model. Without Amazon doing so, Apple could not compete on price. But it was essential for the major book suppliers to act in unison to get Amazon to agree to an agency model, or so the publishers thought at the time. In a free market, Ryan said, each publisher would work out their issues with Amazon independently.

 

It was the "collective force" of the publishers that prompted Amazon to adopt the agency model and stop offering $9.99 best sellers, Ryan said.

 

"Apple was simply indifferent to customers paying higher prices," Ryan said.

 

Cote is expected to reach her decision within a few weeks.