Secretive Apple squirms in gaze of US monitor
Most companies are reluctant to open themselves to outside inspection. Yet Apple is even resisting someone who was appointed by a court to do exactly that, leading to an unusual public feud between the world's biggest technology company and the Justice Department.
In recent weeks, Apple has been campaigning aggressively against Michael R. Bromwich, a Washington lawyer who was appointed by a federal judge in October. His task was to make sure that Apple complied with antitrust laws after the company was found last summer to have conspired with five publishers to fix prices for e-books.
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Apple argues that Mr. Bromwich is intruding with its daily operations by demanding interviews with board members and with senior executives, even the chief executive, Tim Cook. Apple's court papers compare the monitor with an unchecked "independent prosecutor."
And it says that Mr. Bromwich, who is charging $1,100 an hour for his services, is using his appointment to embark on an inquisition to generate high fees for himself and his Washington consulting firm.
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The monitor, Apple says, will get in the way of the company's ability to innovate and develop new technologies.
Such resistance is not completely surprising. Silicon Valley technology companies routinely keep a tight wrap on their products and operations. But even among its peers, Apple, whose best-known products are the iPhone and the iPad, stands out for its level of secrecy.
At Apple headquarters, some unreleased products are kept draped in black cloth. And employees are prohibited from sharing details about the products they are working on with anyone outside their own team. Even their own family members can't know. Those caught leaking information about Apple's plans have been fired. But the judge who appointed the monitor has now taken issue with Apple's arguments.
At a hearing Monday afternoon in United States District Court in Lower Manhattan, the judge, Denise Cote, told Apple and its lawyers to stop wasting time and start cooperating with the monitor. She said if there were problems with Mr. Bromwich, the company needed to work them out with the monitor and lawyers from the Justice Department, which sued Apple in 2012, accusing the company of price-fixing in the market for e-books.
The judge said that after several months of delay and objections to Mr. Bromwich's requests for interviews and documents to review, Apple needed to "restart" its relationship with the monitor.
That is not likely to happen anytime soon, however. The hearing ended with Apple's lawyer telling Judge Cote that the company intended to continue its fight to unseat Mr. Bromwich with an appellate court.
The appointment of monitors is not uncommon in litigation that results in rulings that are intended to change a company's behavior. In pleading guilty to securities fraud charges last November, for example, the hedge fund SAC Capital Advisors is being required to hire an outside monitor to oversee some of its operations for a period of time.
In the case of Apple, the very arrangement of a monitor is at issue. The company contends that it should not be forced to open its door to a court-appointed monitor as a way of proving to Judge Cote that it is changing its ways.
On Monday, the judge said she had been reluctant to appoint a monitor but decided it was necessary to make sure the company did not engage in price fixing again. The judge said she was sensitive to not interfering with Apple's business, which is why she rejected the Justice Department's request to put a monitor in place for 10 years. But she said the move was already having a positive impact, noting that Apple has retained outside lawyers to put in place procedures for ensuring the company complies with antitrust principles.
Judge Cote reminded Apple and its lawyers that itdid not have much bargaining room when it came to the role of the monitor.
"Apple is no position to define the scope of the monitor's duties," said Judge Cote, who said she would soon issue a written decision that would amplify on her ruling at the hearing. "I want the monitorship to be a success for Apple."
It is not clear how Apple will fare at the appellate level. The company is not only appealing the judge's decision to appoint Mr. Bromwich, it also seeks to stop him or any other monitor from doing any work until the appeal on the legality of Judge Cote's decision is determined.
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Apple contends that given the length of time it can take an appellate court to rule, it is unfair for the company to continue to pay Mr. Bromwich's salary and make its executives and board members available for interview with him during that time.
In court filings, Apple has made much of the $1,100 hourly fee charged by Mr. Bromwich, who runs his own consulting firm and is also a litigation partner with Goodwin Procter.
The company points to the $138,432 legal bill Mr.Bromwich submitted for his first two weeks of work as evidence he is using his appointment to run an unwieldy and unfair investigation. The company notes that because Mr. Bromwich's consulting firm is separate from Goodwin Procter, he has to hire lawyers from other firms to work with him and also charge a 15 percent administrative fee for his services.
But Judge Cote observed on Monday that "lawyers get paid a lot of money."
She also pointed to a recent article in The National Law Journal that said it was not uncommon for top lawyers at a large law firm to bill clients at a rate of $1,000 an hour. Judge Cote noted that one lawyer at Gibson Dunn, one of the firms representing Apple, billed at a rate of $1,800 an hour.
In an attempt to resolve the fee dispute, she directed Apple and lawyers with the Justice Department to mediate the issue with a United States magistrate.
The company especially took issue with Mr. Bromwich, a former federal prosecutor who has served as court appointed monitoron three previous occasions, with moving too quickly to request interviews and meeting with some of Apple's board members and senior executives. The company pointed to his repeated insistence on interviewing former Vice President Al Gore, an Apple board member. The company argued that board members like Mr. Gore had little involvement with the company's pricing policies.
Apple's lawyers argue that Mr. Bromwich continues to press for the meetings even after he was told that some of the people the monitor wanted to meet with had nothing to do with the antitrust procedures.
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For his part, Mr. Bromwich said in a court filing that Apple was providing him with "far less access" and cooperation than he had received in previous monitoring experiences.
Mr. Bromwich, who has a son who is a news assistant with The New York Times, was not available for comment and did not attend Monday's hearing.
Apple had argued the court filing by Mr. Bromwich should disqualify him from serving as monitor because he displayed a bias by disputing some of Apple's complaints about his activities. But Judge Cote rejected that line of argument.
Earlier in the proceeding, Lawrence Buterman, aJustice Department lawyer, told Judge Cote that Apple's attacks on Mr. Bromwichwere consistent with the company not wanting to work with any monitor.
"They don't want anyone checking their work," Mr.Buterman said.