Amazon Hit with EU Antitrust Probe into eBook Contracts

15936767768_a69dd77162_hIt seems the EU has suddenly taken an interest in the most-favored-nation clause found the contracts some  ebook retailers have signed with publishers

The European Commission opened a formal antitrust investigation into Amazon’s ebook business on Thursday, opening yet another front in mounting EU scrutiny of America’s global tech giants. The investigation adds to the pressure on the online retailer in Europe, where it is already being investigated for the low tax rates it pays in Luxembourg. 

The Commission said it would look in particular into certain clauses included in Amazon’s contracts with publishers. These clauses, it said, required publishers to inform Amazon about more favorable or alternative terms offered to Amazon’s competitors, a means to ensure Amazon is offered terms at least as good as those of its competitors.

In the Amazon ebooks case, the Commission said it had concerns that such clauses may make it more difficult for other e-book distributors to compete with Amazon by developing new and innovative products and services.  "Amazon has developed a successful business that offers consumers a comprehensive service, including for ebooks," Competition Commissioner Margrethe Vestager said in a statement.

"Our investigation does not call that into question. However, it is my duty to make sure that Amazon’s arrangements with publishers are not harmful to consumers, by preventing other ebook distributors from innovating and competing effectively with Amazon."

So let me get this straight: Amazon is under investigation for a contract clause which it uses to make sure its prices can't be beat? The EU thinks a consumer can be harmed when retailers vie for the lowest price?

Okay. I do not see how that could be possible, so I am really looking forward to the report from this investigation.  Maybe the European Commission sees something I don't.

Update: A reader raised a few points which I overlooked:

If you can’t beat the price there is no reason trying to obtain better prices , a clause like this is in practice price fixing. Smaller players can be at a disadvantage too if they don’t have the leverage to include similar clauses in their contracts or if Amazon forbids such clauses with others.
And if you have an innovative business model that could put you ahead, you can’t keep the details secret. For the publishers, it allows for less flexibility , you can’t give someone a good quote for some new business model ( or just for the hell of it) if that would mean a huge contract with Amazon will have do be adjusted down too.

Thanks, jjj!

In a statement proved to the press, Amazon said that they are"confident that our agreements with publishers are legal and in the best interests of readers.  We look forward to demonstrating this to the Commission as we cooperate fully during this process." That of course doesn't mean anything other than the press office is not asleep on the job.

This is not the first time that the European Commission has delved into ebook contracts. In 2011 the Commission investigated the multi-party negotiations Apple conducted with Big Six publishers in 2010. That case did not result in fines or prosecution but it did lead to several of the publishers settling with the EU. They agreed to drop the fixed price requirements from their contracts for two years (that clause will expire later this year) and no MFN clause for five years.

image by johnlaudun

(the stub of this post is supplied by Reuters, with additional reporting and editing provided Nate Hoffelder)

14 Comments on Amazon Hit with EU Antitrust Probe into eBook Contracts

  1. “The Commission said it would look in particular into certain clauses included in Amazon’s contracts with publishers. These clauses, it said, required publishers to inform Amazon about more favorable or alternative terms offered to Amazon’s competitors, a means to ensure Amazon is offered terms at least as good as those of its competitors.”

    It’s simple – this makes life harder for Amazon’s competition, helps Amazon’s near-monopoly stay in place, which in the long run harms consumers.

  2. If you can’t beat the price there is no reason trying to obtain better prices , a clause like this is in practice price fixing .
    Smaller players can be at a disadvantage too if they don’t have the leverage to include similar clauses in their contracts or if Amazon forbids such clauses with others.
    And if you have an innovative business model that could put you ahead, you can’t keep the details secret.
    For the publishers, it allows for less flexibility , you can’t give someone a good quote for some new business model ( or just for the hell of it) if that would mean a huge contract with Amazon will have do be adjusted down too.
    It might help Amazon be competitive but it also doesn’t allow others to beat Amazon.
    So what Amazon does sounds rather iffy from the few details available but your default is to defend Amazon and here you just charge without thinking at all.
    Amazon might be afraid of being sabotaged by the publishers , this way they make sure they have the leverage and the publishers are unable to try and keep some balance in the market.
    Anyway, this is a “most-favored nation” clause , what Apple was doing was worse since it was about retail pricing but it’s nothing new for regulators to be bothered by such clauses. There are some situations where most-favored nation clauses are seen as a positive and it could turn out that it was a positive in this case too, if the publishers would collude to sabotage them and always set significantly higher prices for Amazon. It’s tricky keeping the balance in such a market since each book is a monopoly and the publishers have too much leverage, usually. Now Amazon seems to have too much power.
    One thing to remember, there are no good guys here, all are just corporations.

    • See, this is why I said that I was looking forward to the investigation. I could not tell whether my assumptions were tripping me up.

      That is exactly what happened. I missed nuances like the point that the MFN clause could give Amazon the ability to force publishers to sign up for Kindle Unlimited if they are already in Scribd or Oyster. That won’t work with the big 5 (no MFN clauses there) but it does tell us that Amazon can expand KU – if they wanted to match the contract terms of its competitors.

      • But couldn’t that get circular, especially for small publishers and indie authors? We can’t get into Kindle Unlimited unless we are exclusive to Amazon, which means we can’t be in Scribd/Oyster and KU at the same time. I’m certainly hoping Amazon can’t tell me to leave Scribd because by being in Scribd I have to be in KU, but I can’t be in KU and Scribd at the same time. Even writing this is starting to make my head hurt.

        • Amazon only has the option to pull you into KU if they match the terms of Scribd and Oyster. That means no exclusivity and higher payments, terms that Amazon has offered to a handful of authors and publishers.

          And to be clear, I’m not sure that the MFN clause in KDP can be used this way, but it would explain how for example Hugh Howey was offered a better deal.

        • To give you an example of what I meant in my last comment, the Harry Potter ebooks are in KU, but they’re not exclusive to Amazon.

          It’s my guess that the MFN cluase is how Amazon pulled that off.

          Or I could be wrong.

          • Okay, that’s how you’re looking at it. Makes sense. I’d be happy to sign up with KU if it gave me the same terms as Scribd and Oyster. Heck, I’d be okay with being in KU under its current payment terms if it meant I could also be in Scribd/Oyster.

            Not holding my breath…

          • I think it would be good to remind ourselves that that it is KDP Select that has an exclusivity requirement, while Kindle Unlimited is merely where KDP Select ebooks end up.

            I know that we don’t usually make a distinction, but I think we should.

  3. http://www.stevenpressfield.com/2011/10/leveling-the-playing-field/

    “Citing the Robinson-Patman Act, the ABA sued publishers in 1994 for unfair business practices. The legal “discovery” process—a defendant has to turn over all its correspondence, record keeping etc. to the court—soon revealed the obvious. The publishers knew they’d been caught, so they settled out of court and agreed to abide by the same terms of sale for all of their wholesale customers. Estimates place the ABA’s reparations from the publishers of upwards of $25 million.”

    The unfair business practices they sued over was offering better terms to the chains.

    But this would not be the first time that practices illegal in the US are encouraged or mandated on the other side of the pond.

  4. I always thought MFN was anti-competitive.

    I thought Amazon and Google still had MFN clauses with the Big 5 as they were not considered illegal during Apple’s court case.

  5. The weird thing is that so many European countries have laws limiting how much a given book can be discounted from list price. So it’s not like forbidding the MFN clause would make much difference there in any case.

    • Yes, they have laws controlling the retail price, but it’s less common than you think and doesn’t always apply to ebooks. I can recall a court case last year in Austria which settled that point.

      Also, the fixed price book laws affect the retail price. It doesn’t necessarily affect the deal between the publisher and the bookseller. I’ve been told that in Germany it’s common for larger retailers to negotiate deals with better terms.

  6. Publishers’ Lunch observes the EC wants to determine “whether such clauses may limit competition between different e-book distributors and may reduce choice for consumers”.

    It certainly does that with KDP. Countless indie authors either do not list with Google Play at all or price their titles much higher at Google Play because Google routinely discount titles.

    The KDP contract stipulates you may not list a title cheaper elsewhere than on Amazon. Amazon does not consider it defence if you meet that requirement and the retailer itself then discounts the list price below Amazon. The indie author gets the email from Amazon threatening delisting. As Amazon is the biggest player for most self-publishers, indie authors cannot risk losing the Amazon sales and so pull out of the other retailers or raise their prices on the other retailers still further.

    The only party this benefits is Amazon.

    Following a similar investigation into Amazon’s MFN policy for its Marketplace sector Amazon quietly dropped the MFN clause across the EU in 2013 pre-empting legal action.

    http://www.thebookseller.com/news/amazon-drop-marketplace-price-parity

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