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Kobo Wins Stay of Execution on the End of Agency Pricing in Canada

Kobo just Kobo_Mini_colors_1_610x334[1]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.

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fjtorres March 20, 2014 um 10:20 am

Wrapping yourself in the flag rarely fails, regardless of the country.
It worked beautifully for Indigo, for years. Kobo, being an Indigo spinoff obviously know which buttons to push.
Of course, those kinds of things are rarely factored in when people compare Amazon’s american and canadian subsidiaries…

Alexander Inglis March 20, 2014 um 1:38 pm

Actually, Indigo did not wrap itself in the flag … it fought to partner with Borders in Canada about a decade ago and was blocked but the federal culture ministry which has been strongly supportive of publishers (not booksellers).

The only reason the Agency Pricing deal was questioned in Canada is because of the US competition activity (the feds vs Apple); otherwise it would never have taken place here. I think it unlikely Kobo will win this but the court is doing due diligence to be sure. It’s a little weird to be arguing that you don’t want the right to set prices for your own products …

Nate Hoffelder March 20, 2014 um 2:04 pm

It’s not so weird. The term is called retail price maintenance, and it has in the past been promoted by retailers because they realize that it cuts down on the need to compete for customers.

fjtorres March 20, 2014 um 3:01 pm

Especially when you’re the dominant player in the market. It is a great way to cripple the competition. Price fixing benefits the top dogs.

That is why the early lawsuits into the US Price Fix conspiracy all named Amazon as part of the scam. And why Amazon (which knew it was coming) mounted such a visible and noisy public reaction when MacMillan approached them, to establish they weren’t willingly joining in. Which isn’t to say they didn’t find all sorts of ways to take advantage of the environment the conspiracy created, but they were obviously smart enough to do nothing illegal.

Random House was equally smart in staying out until Apple and co raised the *documented* pressure to where they can claim they were forced into Agency.

Julanna March 20, 2014 um 5:38 pm

The think that will really impace Kobo and their ability to compete is the campaign against their parent company for being the biggest online dealer of ivory and whale meat.

Whateveragain March 21, 2014 um 7:03 am

I enjoy Amazon’s drive to competitive pricing, but not at the cost of massive tax avoidance.

Anne March 21, 2014 um 9:51 am

To the best of my knowledge, Amazon has not ever paid the taxes it is legally required to. I know I try not to pay more than I’m required to and I suspect most people do the same.

Talk with your lawmakers if you don’t like the laws and loopholes that corporations and people take advantage of. They’re the only ones that can "fix" them.

Nate Hoffelder March 21, 2014 um 12:14 pm

Amazon has always paid the taxes they are required to pay, and you can even find outside accountants who will say as much.

Just because they have good accountants and great lawyers who manage to avoid paying very much tax doesn’t mean that Amazon isn’t staying within the law.

Anne March 21, 2014 um 1:00 pm

Hmmmm. I really should have a cup of coffee before posting or remember to check the edit function when available.

I meant to say that I have never heard of Amazon not paying any/all taxes that it is legally required to pay.

I personally find all the loopholes, credits, etc. irritating because so many seem to result from big money lobbying but I don’t expect taxpayers to not to take advantage of any available to them.

Nate Hoffelder March 21, 2014 um 4:07 pm

You know, I probably should have been able to figure that out from the way your later sentences don’t agree with the first. I wish I had read it more carefully.

oj829 March 21, 2014 um 5:43 pm

Awesome. Now time for me, Joe Taxpayer, to find an army of lawyers, lobbyists and accountants who will chop my tax bill.

We ALL get to play!!

"They’re doing the minimum legally required of them." doesn’t exactly inspire me as a consumer deciding where my money is best spent.

fjtorres March 21, 2014 um 11:06 pm

Do you willingly pay any more taxes than you have to?
Do you send income tax payments to a state you don’t live in?
Why does anybody expect Amazon to do either or both?

oj829 March 22, 2014 um 12:52 am

[can’t nest]

Point being, I (Joe Taxpayer) don’t have the resources to move the goalposts that Amazon has.

I’m not on equal footing with Amazon’s ability to lobby against local taxes, nor do I have a creative accounting team.

Of course I don’t pay more taxes then necessary. But I also can’t set tax policy. I do sometimes pay more at retail than is "necessary" to support local retailers because I want local retailers. YMMV, but I don’t see a future where we’re all greeters at WalMart or pickers at Amazon as a great leap forward in civilization.

fjtorres March 22, 2014 um 6:49 am

If you don’t want to deal with Amazon, don’t. Nobody is going to force you.
But don’t bring up irrelevancies to demonize them.
They are not doing anything illegal or unethical; they play by the rules of the system the same as the local retailers. They don’t pay any taxes they don’t have to nor do they collect sales taxes they don’t have to, either.

Don’t like the system? Blame the politicians you and everybody else put in place. Try some grass roots lobbying. But cluttering the internet with meaningless whines changes nothing.

Kobo’s whinging at least has a purpose and a fair chance of tilting the table even further against Amazon in Canada.

No, the Canadian Competition Bureau ISN'T Investigating Indigo, Kobo on eBook Prices ⋆ The Digital Reader January 20, 2015 um 10:26 pm

[…] that it can't compete with Amazon, Kobo won a court order which blocked the consent decree between the CB and the 4 publishers. That consent decree is still blocked at this time, and it is […]

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