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EU asks for feedback on Amazon proposals for publishers' contracts

The European Commission has asked for feedback on proposed changes to Amazon's contracts with e-book publishers to resolve concerns over antitrust rules and reduced competition.25 Jan 2017

The changes relate to 'parity clauses' in Amazon's contracts with publishers. These clauses are sometimes called 'most favoured nation' or MFN clauses and require publishers to tell Amazon about any different terms that they offer to Amazon's competitors, and to offer the same or similar to Amazon.

"These clauses make it harder for other e-book retailers to compete with Amazon by developing new and innovative products and services. Such clauses may also limit competition between different e-book distributors and reduce choice for consumers," the Commission said.

The clauses may violate EU antitrust rules that prohibit abuses of a dominant market position and restrictive business practices, it said.

Amazon has offered not to enforce any clause requiring publishers to offer it similar terms and conditions as those offered to its competitors, or any clause requiring publishers to inform it about these, in agreements made in the European Economic Area (EEA) for the next five years.

It has also offered to allow publishers to terminate contracts that contain a 'discount pool provision' clause that links discount possibilities for e-books to the retail price of a given e-book on a competing platform. Publishers would be allowed to terminate the contracts with 120 days' advance written notice.

Any new e-book agreement with publishers in the EEA over the next five years would not contain any of these clauses, Amazon said.

The Commission opened a formal antitrust investigation into Amazon's practices in June 2015.

Competition expert Angelique Bret of Pinsent Masons, the law firm behind Out-Law.com said: "This is a predictable end to the Commission’s investigation into Amazon’s MFN clauses. Amazon has agreed to drop these clauses to avoid a drawn-out investigation involving complex legal and economic evidence and, ultimately, to avoid the possibility of a formal decision by the Commission establishing Amazon as dominant and imposing fines for abuse."

"This approach is consistent with Amazon’s agreement back in 2013 to abandon price parity clauses in relation to its Marketplace retail platform. These clauses prohibited sellers from selling products which they offer on Amazon more cheaply on any other online sales channel. Amazon agreed not to enforce these clauses in the face of a number of investigations by a number of national competition authorities, including the UK’s CMA," Bret said.

"The Commission will also welcome this result as it avoids the need for it to formally establish dominance and abuse, which could have been tricky, particularly if there was little evidence of companies in fact being foreclosed from the market as a result of these clauses," she said.

Amazon is currently the largest distributor of e-books in Europe. The investigation focused on e-books in English and German as these are the largest markets for e-books in the European economic area.

This is not the first time that the Commission has investigated the e-books sector under anti-trust rules. In December 2011 it opened proceedings based on concerns that Apple and five publishing houses, namely Penguin Random House, Hachette Livres, Simon & Schuster, HarperCollins and Georg von Holtzbrinck Verlagsgruppe, may have colluded to limit retail price competition in e-books. The companies issued commitments that addressed the Commission's concerns.

The European Commission also announced in January that it was conducting an "in-depth investigation" into Amazon's tax arrangements in Luxembourg, saying that these may have counted as illegal state aid.

The investigation is considering a ruling granted by Luxembourg in November 2003 concerning the royalty payable by Amazon's EU operating company, Amazon EU Sarl. The royalty is paid to a Luxembourg partnership of which two Amazon US companies are members. However, it is not taxable in Luxembourg and the Commission said it may not be subject to tax in the US either.