Apple and several major publishers have become the subject of antitrust investigations on both sides of the Atlantic for alleged anti-competitive practices, namely, the price fixing of e-books. The investigations were initiated by the Department of Justice (the “DoJ”) in the United States and the European Commission here in Europe.
The DoJ has alleged that executives from Apple colluded with certain publishers as early as mid-2009 to eliminate competition among publishers, ultimately increasing the price paid by the consumer. The issue to be examined at a European level is whether the agreements Apple entered into with the relevant publishers were “agreements between undertakings” and so were anti-competitive, or alternatively whether Apple, without any anti-competitive objective, genuinely sought to act as an agent of the publishers, in which case the agreements may be exempt from certain provisions of EU competition law.
Traditionally, publishing houses provide books on a wholesale basis to retailers or e-book vendors who are free to resell the products at whatever price they see fit. Under the Apple arrangement, publishers dictate the resell price and in return Apple receives a commission on the sales revenue. A particularly interesting and controversial aspect of Apple’s agreement with publishers is a so-called “most favoured nation clause”. The net effect of such a provision is that publishers are prohibited from offering their products to any other retailer at a lower price than that which they offer them to Apple. The DoJ alleges this arrangement caused an average increase of $2 to $3 in the price of e-books over a three day period in early 2010.
The allegations being pursued in the US are largely the same as those being pursued here in Europe and the Commission has been liaising closely with the DoJ in this regard. Curiously, Apple’s reaction to the respective investigations appears to differ greatly in each case. It rejected the allegations outright in the US, where it declared its intentions to break Amazon’s dominance of the e-book market. This side of the Atlantic, however, EU Competition Chief Joaquin Almunia has stated that he received settlement proposals from Apple and four publishers involved in the Commission’s investigation. Discussions about the possibility of an early resolution of the matter were described as “fruitful” by Commissioner Almunia.
Apple’s troubles appear to be only beginning, as 16 US States have brought lawsuits against it and several other publishers (including one publisher that had previously settled with the DoJ) in the US District Court for engaging in anti-competitive practices. The reaction from consumers has been largely positive, with many hoping for a drop in the prices for e-books if the regulatory authorities are successful. This is definitely one case where we all want to read more.