The Worm in the Apple Speaks

Michael Bromwich has issued his first report. Bromwich is the antitrust monitor empowered by a federal court to “reform” Apple Inc.’s corporate culture from within. Be afraid . . . be very afraid.

Here’s the background: Last year, federal judge Denise Cote found Apple guilty of violating the Sherman Antitrust Act of 1890 by “conspiring” with the nation’s five biggest publishers to “fix” the prices of electronic books. What really happened is that Apple encouraged the publishers to set the prices at which retailers like Apple and could sell their ebooks. Because Apple and the publishers talked amongst themselves about what a great business strategy this was, the Department of Justice called it a “conspiracy” to “fix prices,” with Apple as the “ringleader.”

Apple is appealing Judge Cote’s liability decision to a higher court, but the “remedy” phase of the case continues in full swing. Money damages are expected to approach a billion dollars, but Judge Cote devised a much more insidious punishment than mere payment of money. She ordered that an antitrust monitor be embedded into Apple’s place of business, for the express purpose of altering its corporate culture.

Michael Bromwich, Esq., has now delivered his first written report, which runs to 77 single-spaced pages. Here are highlights:

First, Bromwich recites his marching orders from the court. Judge Cote ordered Apple to make a “sincere commitment to reform its culture . . . to one that includes a commitment to understand and abide by the requirements of the law.” Elsewhere, the judge said: “I believe that it is in Apple’s long-term interest to make these reforms and change its culture to one that includes a commitment to understand and abide by the requirements of the law.” (Emphasis added).

Of course, this all sounds reasonable to any law-abiding American. What could be wrong with legal compliance? Well, plenty. Because antitrust laws are vague, rubbery statutes than can be interpreted to make virtually any business activity illegal, antitrust “compliance” bears no resemblance to compliance with laws against assault, embezzlement, fraud or other actual evils.

Antitrust compliance consists essentially of replacing a company’s independent business judgment with the opinions of lawyers and regulators, who grant or withhold permission to grow, to strategize, to innovate. Case in point: the antitrust-forced “reboot” of Microsoft’s corporate culture that transformed a fiercely competitive powerhouse into a “kinder and gentler,” socially conscious team player that operates in antitrust “safe mode.” Now picture Bromwich “reforming” the Apple corporate culture that brought us iPods, iTunes, iPhones, and iPads, and you start to realize that “reform” can be a euphemism for “destroy.”

Second, Bromwich’s report summarizes his court-granted powers to spy on Apple’s private, proprietary decision making processes. He boasts of having power to:

  • “[I]nterview, either informally or on the record, any Apple personnel, who may have counsel present; any such interview to be subject to the reasonable convenience of such personnel and without restraint or interference by Apple.”
  • “[I]nspect and copy any documents in the possession, custody, or control of Apple.”
  • “[R]equire Apple to provide compilations of documents, data, or other information, and to submit reports to the External Compliance Monitor containing such material, in such form as the External Compliance Monitor may reasonably direct.”

Third, Bromwich is starting to smell fear, which means he’s succeeding. This is from conclusion of his report:

The initial stages of this monitorship were far more difficult and contentious than we anticipated. That is regrettable and was avoidable. . . .

Nonetheless, starting in late February, there has been a shift of tone in our relationship . . . . We have started to receive more information, we have seen a greater commitment to resolve lingering disputes, and we are starting to see the original pledges of cooperation and collaboration, which for many months were at odds with the company’s actions, fulfilled. If that continues, the reset this Court sought will have taken place, and we will be on a path to fulfilling the important role the Court appointed us to perform. (Emphasis added).

When I call Bromwich the “worm in the apple,” it’s hardly a metaphor — it’s pretty close to a literal description. Like the worm that feeds on a healthy fruit, Bromwich is a parasite whose exorbitant legal fees are paid by the very company he’s attacking. Like the worm that does its damage from inside, Bromwich enjoys full court-ordered access to Apple’s private and confidential strategies and communications, access that’s designed to have a corrosive effect on Apple’s competitive aggressiveness. And like the fattened worm that leaves an ugly pulp behind, Bromwich will crawl to another host once he and the court have rendered Apple’s celebrated corporate culture unrecognizable.