The European Commission has begun the process of dismantling the agency model after finding publishers HarperCollins, Simon & Schuster, Macmillan, Hachette Livre, and Apple "engaged in a concerted practice" to raise e-book prices or prevent the emergence of lower prices across Europe. The commission has reached agreements that will see those publishers and Apple terminate their agency contracts and commit not to restrict discounting on e-books for two years.
Penguin, not part of these agreements but also under investigation, could also be forced to give up its agency contract with Apple, as part of Apple's agreement with the commission.
According to to what it called its "preliminary" assessment, published today (19th September) in the Official Journal of the European Union, the commission found the publishers and Apple in "breach" of Article 101 of the TFEU and Article 53 of the EEA [European Economic Area] Agreement. It also found that the publishers had to pressure other major e-book retailers offering e-books to consumers in Europe to adopt the agency model.
The four publishers and Apple contested the EC's findings. "The four publishers and Apple do not agree with the commission’s preliminary assessment," the journal stated. However, they have offered commitments in order to meet the commission’s competition concerns.
The publishers and Apple have agreed for two years not to "restrict, limit or impede" retailers from reducing the price of e-books or offering discounts. They have also agreed not to enter into any e-book agreement that contains a the most favoured nation (MFN) clause for five years.
Penguin, part of the initial wave of publishers that entered into agency agreements in the US and EC, has not not reached an agreement with the EC. The commission said it was still investigating Pearson over agency. However, the European Commission has said that Apple must also "notify another major international e-book publisher" that it "may immediately terminate its agency agreement", but that if it does not then Apple
must terminate the agreement. A footnote indicates that this publisher is Penguin.
In addition, Apple must now inform any publisher with which it has an e-book agency agreement that it will not enforce a retail price MFN clause in any such agreement for a period of five years, a move that could impact a range of publishers beyond the original few who signed agency agreements in the first wave.
HarperCollins said it was "working with the EU to find a solution". Macmillan's parent Holtzbrinck said: "From the outset, the Holtzbrinck group has strongly denied all charges of collusion in relation to its ebook businesses. That said, we believe it is in the best interests of our European business to proceed towards a settlement and have agreed to this set of draft principles, ready for a period of market consultation." Hachette Livre said it "remains confident that it did not violate the antitrust laws, and has made no admission of liability, but added that the "costs, length, and distractions of the proceedings before the European Commission would be too disruptive to its business and to the development of e-book markets in general".
The other publishers and Apple have yet to comment. Penguin did not comment.
As expected the agreements borrow heavily on the settlements recently ratified in the US between the Department of Justice, and US publishers Hachette Book Group USA, Simon & Schuster Inc, and HarperCollins US. As in the US, the EC has sought to put a break on excessive discounting by insisting that the "aggregate value of the price discounts or promotions offered by any retailer should not exceed the aggregate amount equal to the total commissions the publisher pays to that retailer over a 12-month period in connection with the sale of its e-books to consumers", effectively disbarring any retailer from using an entire publisher's e-book list as a loss-leader. However, it is not clear if Amazon is obliged to agree to such a term, or how it would be enforced by the EC.
The EC is now road-testing the agreements and has called for observations to be submitted within one month, otherwise they will become binding shortly thereafter. If there are substantial changes to the commitments, a new market test will be launched. "Answers and comments should preferably be reasoned and should set out the relevant facts. If you identify a problem with any part of the proposed commitments, the commission would also invite you to suggest a possible solution."
Arguments can be sent to (COMP-GREFFE-ANTITRUST@ec.europa.eu), by fax (+32 22950128) or by post, to the following address: European Commission, Directorate-General for Competition, Antitrust Registry, 1049 Bruxelles/Brussel, BELGIQUE/BELGIË.