Antitrust Law Daily Wrap Up, ANTITRUST NEWS: European Commission Reaches Agreement with Apple and Major Publishers Concerning Sale of e-Books, (Dec 13, 2012)

The European Commission has accepted legally binding commitments from Apple and four major international book publishers, resolving the Commission’s antitrust investigation into agreements between Apple and the publishers with respect to the sale of e-books. The commitments will require the Apple and the publishers to terminate their present agency agreements, impose a bar on new agreements containing “most favored nation” clauses, and prohibit them from preventing e-book retailers from setting their own prices for the books or from offering discounts on them.

On December 1, 2011, the European Commission, following unannounced inspections of the premises of entities involved in e-book publishing, announced that it had opened antitrust proceedings concerning possible illegal activity by Apple and the publishers HachetteLivre, Harper Collins, Simon & Schuster, Penguin, and Verlagsgruppe Georgvon Holzbrinck (owner of inter alia Macmillan). The Commission’s present decision renders legally binding commitments given by Apple and four of the publishers, closing the proceedings as to those parties. The Commission remains in negotiations with Penguin.

The Commission’s investigation had arisen out of its concerns regarding agency agreements between Apple and the publishers, under which publishers would set the prices of e-books, and Apple would sell the books in exchange for a commission on each sale. This contrasted with the “wholesale model” previously employed in the industry, under which the publishers would sell books at a set price to retailers, and then the retailers would charge a price they found appropriate.

Of most concern to the Commission were provisions in the agreements between Apple and the publishers, known as “most favored nation” clauses, that would permit a sales agent, such as Apple, to charge a lower retail price than any other retailer offered. In the Commission’s view, these clauses were intended to provide an incentive to the publishers to compel retailers to change to an agency model like that maintained with Apple, since otherwise the retailers would have to permit Apple, and other sales agents, to charge any lower price offered by a retailer outside the agency model.

The publishers’ joint agreement to switch to the agency model on the same terms at the same time permitted them to present a united front to coerce retailers into adopting the agency model. Publishers would refuse to sell books to retailers that had not agreed to that model. Once the retailers had conformed, the publishers could raise prices for the e-books they sold.

According to the Commission, the publishers’ actions were prompted by the low e-book prices previously offered by Amazon, at that time the dominant retailer of e-books. The publishers took the opportunity presented by Apple’s market entry to attempt to realign their relationship with retailers like Amazon, and eliminate the problem posed by the low prices.

“While each separate publisher and each retailer of e-books are free to choose the type of business relationship they prefer, any form of collusion to restrict or eliminate competition is simply unacceptable, said Joaquín Almunia, Commission Vice-President in charge of competition policy, in a press release announcing the decision. “The commitments proposed by Apple and the four publishers will restore normal competitive conditions in this new and fast-moving market, to the benefit of the buyers and readers of e-books.”

The Commission decided to confirm the commitments given by Apple and the publishers following a market test. In a statement, the Commission has stated that it considers that the commitments given by Apple and the publish market testers will provide an appropriate resolution to its concerns, given the “nascent and very fast-moving” e-book market.

News: Antitrust