Kobo just won the first battle in their month-old fight to keep price competition out of the Canadian ebook market. The Canadian Competition Bureau announced on Tuesday that they were delaying the settlement that 4 publishers had agreed to in early February 2014.
According to the Financial Post, the Competition Tribunal has pushed back the deadline on that settlement agreement until after Kobo’s challenge can be heard. “Given the test for a stay, it is clear that the Tribunal agreed with Kobo that there are serious questions that need to be answered about the terms of the [deal],” said Nikiforos Iatrou, counsel for Kobo Inc. “The Tribunal has given Kobo the green light to proceed with its challenge, so long as it proceeds swiftly.”
The settlement, which was negotiated by 4 publishers (Hachette, HarperCollins, Macmillan, and Simon & Schuster) and the Canadian Competition Bureau, would have required those publishers to renegotiate their contracts with ebook retailers, including Kobo, as well as give up control of the retail price of their ebooks (more details here). The settlement was intended to increase competition in the Canadian ebook market. It would have ended agency pricing in Canada for these 4 publishers, and it closely mirrored the similar settlement that the 5 US publishers agreed to in the US.
While it does not imply that the publishers did anything wrong, this agreement is a sign that the Canadian govt thought that the market lacked competition. The settlement agreement was due to go into affect on Wednesday, but it has been indefinitely postponed.
Kobo objected to the settlement because they do not believe they can compete on price. According to their filing:
The losses would impact Kobo’s ability to compete in the Canadian market. By analogy, in the US, when Agency Lite was brought into existence, Kobo saw its net revenues steadily decline. Kobo has since stopped investing in marketing in the US, closed its office in Chicago and is focusing on other markets. Its market share and revenues are now negligible there.
And now Kobo will have the chance to argue their case.
Will Kobo win? Maybe.
They can still maintain the pretense of being a Canadian company, even though they are owned by Rakuten now, and Canada has at times taken a protectionist position when it comes to industry and trade. Canada has in the past protected their local market against international competition, and Kobo might be able to turn that to their advantage.
Of course, what we really have here is a subsidiary of a Japanese retail giant which objects to having to actively competing against the subsidiary of an American retail giant, so it’s not like there’s a need to protect a Canadian company. Arguably Rakuten doesn’t deserve help any more than Amazon, so I would hope that the Competition Tribunal rules against Kobo.
But at this point it is too early to say.