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Apple and four publishers agree measures to resolve e-books price collusion concerns

Apple and four major publishers have reached a settlement with the European Commission over claims that the companies had engaged anti-competitively in relation to the sale of electronic books (e-books).14 Dec 2012

The Commission said that Apple, Simon & Schuster, Harper Collins, Hachette Livre and the German owner of Macmillan had agreed on "legally binding" commitments over how e-books will be sold in the future, marking the end of the Commission's investigations into whether the companies had entered into anti-competitive agreements.

Apple entered into agreements with the four publishers whereby it would distribute the e-books as an agent of each publisher. The contracts formed forced the retail price of titles up, and in some countries the contracts prohibited the sale of e-books at lower prices, the Commission said.

The companies have agreed to stop using 'agency model' agreements for the sale of e-books within the European Economic Area, whilst Apple has also agreed to end its agency agreements with Pearson/Penguin. The Commission said it is still in talks with the UK publisher to resolve the concerns it has over its conduct in the e-books market.

The Commission said that it had not made a ruling that agency agreements in general could be considered anti-competitive under EU law.

"The compliance of any new agency agreement, generally speaking, with Article 101 TFEU is likely to require a case-by-case assessment," the Commission said in a statement. "As for any other agreement or practice, the responsibility for assessing their compatibility with EU antitrust rules (Articles 101 and 102 TFEU) remains with the companies concerned. The Commission does not take issue with the use of agency agreements as such or the use of a specific business model, if the relevant agreements and business practices comply with EU law."

Under the TFEU certain "agreements between undertakings" are prohibited if they negatively impinge on competition.

Commission guidelines on vertical agreements provide that a reseller will be regarded as an agent for competition law purposes if they bear no or only insignificant financial or commercial risk in relation to the sale of the books. In that case, the principal and the agent are regarded as one and the same entity, and there is therefore no “agreement between undertakings” to be caught by the competition rules. 

Under the terms of their legally binding commitments the four publishers will have to exit from agency agreements formed with retailers other than Apple if the agreements prevent those retailers from setting the retail price of e-books, from offering discounts or promotions, or if the agreements contain a 'Most Favoured Nation' (MFN) contract clause, the Commission said.

Apple and the four publishers face a five year ban on using MFN clauses in "any agreement for e-books" under the terms of their commitments, the Commission said.

MFN clauses, in this case where the publishers agreed to match Apple’s iBookstore price for e-books with the lowest price offered by any competitor of Apple such as Amazon, are also generally not unlawful unless the party that has the benefit of the obligation is dominant.  However, the use of MFN clauses across a market can lead to anti-competitive effects. In particular, the Commission said in September that in the e-books case the MFN clauses in question protected Apple from competition and led to a situation where “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”.

In September the Office of Fair Trading published a report which explores the competition implications arising from price relationship agreements such as 'price match' or 'lowest price' guarantees, including MFN clauses. It didn't conclude that MFN clauses were always anti-competitive but that they could lead to a softening of price competition in certain circumstances.

The regulator also said that the four publishers are banned from restricting e-book retailers from setting the retail price of titles, offering discounts or promotions for two years. It said there will be limited scope for the publishers to influence how heavily titles can be discounted.

"If these four publishers choose to enter into new agency agreements, they will be able to limit the total discount that a given retailer is allowed to grant on sales of e-books to the aggregate amount of commissions that a given publisher has paid to that retailer over a 12 month period in connection with the sale of its e-books to consumers," the Commission said.

The market will "reset itself" to the benefit of consumers now that the legally binding commitments have been imposed, the Commission said.

The companies could face sanctions if they breach the terms of the commitments during the five years that they apply, it warned.

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