U.S. District Judge Denise Cote could not have sent a stronger message to Apple, Penguin, and Macmillan in an opinion Tuesday denying their motions to dismiss a private e-books antitrust class action: E-books collusion claims, in both the private case and the Justice Department's antitrust suit, are not going away unless the defendants agree to settle them. The judge, who is presiding over all of the e-books antitrust litigation, roundly rejected the legal defenses Apple and the publishers advanced and brushed aside their suggestions that Amazon is the real monopolist villain in the e-books market.

The publishers were hoping that the class action didn't meetthe high pleading standard for antitrust complaints under the U.S. Supreme Court's ruling in Bell Atlantic v. Twombly, but Cote found there were plenty of the specific, well-supported allegations of collusion that Twombly demands. (As an aside, Cote's ruling, which cites a 2nd Circuit Court of Appeals decision from April and other recent Twombly interpretations, is more evidence that the Supreme Court ruling isn't as daunting a standard as the antitrust bar once thought.) Cote cited, in particular, a passage from Walter Isaacson's biography of Steve Jobs, in which Jobs describes the publishing industry's distress at Amazon's pricing policies and its concerted attempts to break Amazon's grip; various publishers' meetings with Amazon to complain about its policies; and publishers' apparently concerted attempts to withhold books from Amazon before Apple entered the business. Those added up to a plausible case of collusion, Cote found.

No one thought the DOJ's case, which includes lots more specifics about the allegedly collusive conduct of the publishers, would be easily disposed of on Twombly grounds, so it's more interesting to look at Cote's discussion of the "rule of reason" defense Apple raised in its motion to dismiss the private class action. That was considered a potentially more potent defense to the Justice Department case. In a 2007 case called Leegin Creative Leather v. PSKS, the U.S. Supreme Court explained that there's a distinction between two kinds of antitrust cases. One category involves price-fixing agreements that are so clearly anticompetitive -- usually, so-called "horizontal" price fixing across an industry -- that they are illegal per se. The other category is cases where the allegedly collusive agreements are less overtly anticompetitive. To determine if those violate antitrust law, the judge must apply a "rule of reason" analysis and consider the impact of the allegedly collusive agreements on the market.

Apple had argued that because it is not a publisher, its agreements with publishers to change the pricing structure for e-books cannot be considered under the per se standard. (In antitrust lingo, Apple made vertical agreements with the publishers.) Instead, it asserted that Cote had to apply a rule-of-reason analysis of the e-books market.

All of the defendants considered rule-of-reason their best answer to the Justice Department since it's their route to portraying Amazon as the e-books villain. They've asserted that if Cote considered the actual market impact of their agreements with Apple, she would see that Apple's agency pricing model, which replaced Amazon's favored wholesale pricing, actually led to increased market competition and lower overall cost to consumers, not price restraints. The real-life market for e-books, they planned to argue, is much healthier and more competitive since Apple broke Amazon's near-stranglehold on the business.

But in Tuesday's ruling, Cote said she doesn't have to apply the rule of reason. The judge concluded that the class action alleges a per se restraint of trade, in which Apple aided the publishers' horizontal collusion. "Unlike those vertical restraints that are subject to the rule of reason, this agreement 'has nothing to do with enhancing efficiencies of distribution from the manufacturer's point of view,'" the judge wrote. "Rather, it has everything to do with coordinating a horizontal agreement among publishers to raise prices, and eliminating horizontal price competition among Apple's competitors at the retail level."

Assuming that Cote will apply the same reasoning in the Justice Department case -- and there's absolutely no reason to think she won't -- Apple and the publishers don't have a quick out by blaming Amazon and pointing to increased competition.

Steve Berman of Hagens Berman Sobol Shapiro told me in an email that "we could not have asked for a better ruling" than the one Cote gave them Tuesday. The judge's opinion certainly vindicates class counsel from Hagens Berman and Cohen Milstein Sellers & Toll, which fought hard to win the right to lead the case months before the Justice Department even entered the fray. But even a terrific motion-to-dismiss ruling can't protect the plaintiffs' lawyers from state attorneys general, who are busily negotiating settlements with some of the publishers that could resolve just about all of the claims in the class action. Berman told me he's "trying to reach agreement" with the state AGs so they won't "be the low bidder (defendants) can run to." Does that mean they're talking directly to the AGs, I asked. "Maybe," Berman replied.

Penguin is represented by Akin, Gump, Strauss, Hauer & Feld. Macmillan has Sidley Austin. Apple is represented in the class action by Gibson, Dunn & Crutcher and in the DOJ case by O'Melveny & Myers.

(Reporting by Alison Frankel)

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