European Commission makes Amazon's removal of MFN clauses legally binding

European Commission makes Amazon's removal of MFN clauses legally binding

Amazon's offer to remove its controversial "Most Favoured Nation" (MFN) clauses from its e-book contracts has been accepted and made legally binding by the European Commission, in a development described by the Publishers Association as "a welcome step forward". But both the PA and the Booksellers Association said more needs to be done to ensure fair competition in both the print and digital markets. 

The EC's decision on MFN clauses concludes its antitrust investigation into the way Amazon distributes e-books and its relationship with publishers, first launched in 2015.  The MFN clauses, a particular point of focus during the investigation, required publishers to give Amazon either similar or better terms to those of its rivals and to inform Amazon what those terms were.

In January, Amazon made the offer to refrain from using the clauses in its contracts for the next five years, in response to the EC's investigation. That offer, with some amendments following feedback from interested parties, has now been accepted by Brussels, applicable to any e-book in any language distributed by Amazon in the EEA; should Amazon breach it, the e-tailer will now be required to pay a fine of up to 10% of its total annual turnover.

Commissioner Margrethe Vestager, in charge of competition policy, said the decision "will open the way for publishers and competitors to develop innovative services for e-books, increasing choice and competition to the benefit of European consumers". 

"Amazon used certain clauses in its agreements with publishers, which may have made it more difficult for other e-book platforms to innovate and compete effectively with Amazon. We want to ensure fair competition in Europe's e-books market worth more than one billion euros," she said.

As well as price, the MFN clauses covered other aspects a competitor might use to differentiate itself, such as an alternative business model, features of e-books, or promotion. The EC concluded such terms "may have led to less choice, less innovation and higher prices for consumers due to less overall competition in the European Economic Area (EEA) in e-book distribution".

Publishers are now at liberty to terminate agreements, on 120 days' advance written notice, should they contain a "Discount Pool Provision", a clause linking discount possibilities to the retail price of an e-book on a competing platform.

A spokesperson for Amazon commented: "We are pleased to have reached an agreement with the European Commission. We will continue working to help authors and publishers reach more readers, improve the digital reading experience, and bring our customers the best possible prices and selection."

Stephen Lotinga, chief executive of the Publishers Association, said: “We have been calling for competition authorities to look into the imbalance in the book retail market for some time now as it is clear that the routes to market for e-books are too narrow and too few. Today’s decision by the European Commission to accept the commitment from Amazon to alter its e-book contracts is a welcome step forward. However there is still more that needs to be done to ensure a healthy market for both print and digital so that consumers have a real choice about where they buy their books from.”

Tim Godfray, chief executive at the Booksellers Association, agreed, saying: "Whilst we are pleased that action will now follow in this particular area, we would remind the Competition Authorities, both in Brussels and the UK, that the formal complaint submitted by the BA in June 2015 contains other items related to breach of Competition Law." He urged "further investigations to be undertaken."

Giles Clifton, head of corporate affairs at the BA, said the body was "disappointed" that it had taken 20 months for the EC to reach the decision. "For a small commercial competitor of Amazon, the damage has already been done, and is difficult if not impossible to retrospectively make right," he said. "The BA complaint was by no means limited to the e-book market but covered the far larger, and more important, print book market. We renew our calls for the appropriate competition authority to look at this.”