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E-Books Pricing: Far from the End of the Story

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E-book pricing is under antitrust review on both sides of the Atlantic.  The U.S. Department of Justice filed suit against two publishers and Apple on 11 April 2012 in the Southern District of New York Federal Court, while settling with three other publishers (the settlement was approved by the court on 6 September 2012).  On the other side of the Atlantic, the European Commission concludes its market-test today of commitments offered by four publishers (Harper Collins, Holtzbrinck/Macmillan, Simon & Schuster and Hachette) and Apple to settle an investigation that was opened in December last year. 

The European Commission took the preliminary view that the publishers may have colluded, with Apple’s facilitation, to jointly switch from a wholesale model to an agency model with the same key terms for the distribution of e-books.  (The agency model shifts retail pricing authority to the publisher, with the retailer taking a commission on the retail price as the publisher’s agent).  The Commission’s preliminary view is that the object of this concerted practice was to raise retail prices of e-books in the EEA or to prevent the emergence of lower prices in the EEA for e-books.  

The Commission alleges that, to implement their global strategy in the EEA, each of the four publishers signed with Apple agency agreements containing the same key terms (including a most favoured nation (‘MFN’) clause regarding price, maximum retail price grids and the agent’s level of commission) for the sale of e-books to consumers located in the EEA.  The same key terms, including in particular the MFN clause, in the agency agreements with Apple meant that, to avoid lower revenues and margins for their e-books on the iBookstore, the publishers had to pressure other major e-book retailers offering e-books to consumers in the EEA to adopt the agency model.

Apple and the four publishers have offered to terminate their agency agreements, and not to adopt price MFN clauses for five years.  The four publishers have also offered to commit not to conclude new agency agreements that would limit retailers’ pricing discretion for two years.  

The competition probe should be viewed in the context of the Commission’s policy efforts to facilitate the distribution of digital content within the European Union.  Digital Agenda Commissioner Neelie Kroes has advocated for an EU-wide e-books market, in which consumers would be able to purchase and access e-books across borders, platforms and devices.  In June, representatives of the European e-book industry endorsed this “no-barrier” principle, and called for a neutral VAT regime for e-books.  E- books have indeed given rise to a host of policy considerations.  While this antitrust chapter of the e-books story may be drawing to a close, the e-books story is far from complete.