A clause with claws

Can Amazon be allowed to contractually enforce arrangements that secure its hegemony?

In 2011 the European Commission opened an investigation into e-book price-fixing that led to settlements with five publishers and Apple. Last week it announced that it was conducting an anti-trust probe into Amazon and its use of restrictive Most Favoured Nation clauses in e-book contracts (pp04–05). Unlike in 2011, the trade welcomed this investigation—particularly the Booksellers Association, which had sent a dossier to the UK’s Competition & Markets Authority detailing how Amazon leverages its “dominance”.

The Bookseller first reported that the EC had been making preliminary inquiries into Amazon last year, after publishers highlighted unwelcome new contract clauses. Of these, MFNs are the most limiting, giving Amazon the right to be informed when publishers sign alternative terms with a competitor, and the right to be offered those terms. Want to know why publishers are reluctant to support new digital start-ups, and even when they do, only on very generous terms for the publisher? Look no further. Think of it another way: imagine if every football player transferred into the Premier League first had to be offered to champions Chelsea: there would be a hue and cry. 

The EC wants to know if such clauses “decrease competition between different e-book distributors to the detriment of consumers”. The “if” here is redundant, but it is the second part of that statement that is important. Amazon will argue that the clauses allow it to deliver e-books to its customers at prices (and in ways) that they know won’t be bettered elsewhere—and many believe that this is Amazon’s right as the prime innovator in this sector. 

But can Amazon be allowed to contractually enforce arrangements that secure its hegemony in markets that are—at best—fragile and yet to be fully understood? The disrupter that demands to be undisrupted. As I noted when blinkbox books folded, the e-book market is dysfunctional. With Amazon’s share of it at around 90%, it is almost impossible for any rival to gain even a toe-hold (remember Sony?). We would not accept this were it to occur on the high street—never mind in football. So why the difference online?

In 2012 the EC pressed publishers and Apple to settle, and as part of that it ruled that those companies could not enter an  agreement with a “retail price MFN clause” for five years. Amazon says its terms are legal. This will run and run, but the least we can expect is that the EC is consistent. The irony is that Amazon could remove such clauses, and it would remain by far the dominant e-book vendor (and for many the best). But perhaps the EC ought to ponder why it is having to investigate this sector for a second time in five years.