Expert Economist’s Regression Analysis Withstands Daubert Challenge in E-Book Antitrust Litigation

By Joshua Fruchter, Esq
Two important decisions relating to expert testimony were recently issued by the New York federal court overseeing antitrust lawsuits filed by the Department of Justice, multiple states, and a class of private plaintiffs against Apple, and five leading publishers, alleging that the defendants conspired to raise and fix e-book prices in violation of the antitrust laws.

The first decision (reported at 2014 WL 1282293), which is the subject of today’s post, denied Apple’s motion to exclude the opinion of plaintiffs’ antitrust economics expert, Dr. Roger G. Noll (“Noll”), filed in connection with plaintiffs’ motion for class certification. Noll had used a complex regression analysis to confirm anticompetitive harm to consumers from the alleged conspiracy on a class wide basis, and to calculate class damages. Apple attacked Noll’s opinions on various grounds.
The second decision, which will be the subject of a future post, granted plaintiffs’ motion to exclude the opinions of Apple’s experts.

Background

With its launch of the Kindle in 2007, Amazon quickly became the leading seller of e-books. At the time, e-books were sold under a “wholesale” model pursuant to which Amazon purchased e-books from publishers and resold them to consumers at prices set by Amazon. However, book publishers soon became disenchanted with Amazon’s discount pricing strategy, which featured e-book versions of newly released hardcover books and New York Times best-sellers for $9.99. However, try as they might with various pressure tactics, leading publishers were unable to persuade Amazon to abandon discounted e-book pricing.

In 2009, in connection with the launch of the iPad, Apple decided to open its own e-bookstore, the iBookStore.  Together, Apple and leading publishers devised a new model for e-book sales under which retailers such as Apple would act as agents to sell e-books at prices set by the publishers. During their negotiations, Apple and the publishers also agreed to e-book prices that exceeded the $9.99 price that Amazon had been charging. After signing agreements with Apple embracing the so-called “agency” model and the new pricing, the publishers demanded that Amazon switch to the agency model as well.  Amazon capitulated. Subsequently, with the launch of the iBookStore in 2010, e-book prices jumped dramatically as the agency model took hold.

Litigation

In August 2011, several class actions were filed alleging that Apple and five leading publishers conspired to fix e-book prices, and thus damaged consumers who purchased e-books sold by those publishers. The DOJ and various states filed their own lawsuits.

The publishers all settled with the plaintiffs, but Apple elected to fight. After a bench trial, Apple was found liable for violating Section 1 of the Sherman Antitrust Act, and the court scheduled a damages trial.

In support of their motion for class certification, plaintiffs presented the expert opinion of Noll, which consisted of a multivariate regression analysis that determined what the price for given e-books would have been “but for” the illegal price-fixing. The analysis showed that the anticompetitive conduct of defendants was the primary cause of the sharp rise in e-book prices beginning in April 2010, after controlling for various other factors that might influence an e-book’s price. Noll’s analysis also calculated class damages by calculating the percentage elevation in prices for various e-books due to defendants’ collusion.

Apple attacked Noll’s opinion on several highly technical grounds with the general tenor being that Noll’s model opinion failed to meet professional standards, and was unreliable.

The court rejected Apple’s challenges. Among other things, the court found that the variables selected by Noll for inclusion in the regression analysis were appropriate, and that Noll’s methodology was sound.

Concerning specific objections, Apple argued, for example, that Noll’s model failed to predict e-book prices “but for” collusion at or near the $9.99 that Amazon had been charging. However, as the court noted, Amazon charged $9.99 only for certain e-books, not all e-books. At best, the court concluded, Apple could cross-examine Noll on this issue at trial.

As another example, Apple contended that Noll’s model failed to explain the variation in the prices of a particular e-book. However, as the court observed, the purpose of the regression analysis was “not to explain the variation in the pricing of an individual title . . . [but] to estimate the effects of collusion on e-book prices.” As noted, the analysis demonstrated a substantial impact on pricing from such collusion.

An economics expert retained by Apple, Dr. Joseph P. Kalt, further contended that Noll’s analysis yielded “millions of false positives.” However, the court agreed with Noll’s rebuttal of this challenge, which pointed out that Kalt’s analysis misidentified many e-book transactions as false positives that were not accurately characterized as such.

Based in part on its rejection of Apple’s Daubert challenges, the court granted plaintiffs’ motion for class certification.

Have any readers previously worked with economics experts? If so, have you defended your expert against a Daubert challenge? Feel free to share details of your own experience.
Avatar

Joshua Fruchter, Esq

An NYU School of Law graduate, Joshua has been practicing as a litigator for over twenty five years. Joshua has published regularly on legal marketing topics in numerous law-related periodicals, and presented on legal marketing technologies to various bar and legal marketing associations.   Mr. Fruchter is a recognized voice in litigation commentary, who has discussed issues ranging from Daubert analyses and inventor testimony in patent litigation, to predictive coding in document reviews.

Get the best expert

Fill out the form and one of our representatives will be in touch with you shortly. Or, you can call or email us directly.