The OFT and the European Commission have opened up an almost exam question issue of the rights of a copyright owner to control the use made of its copyright works which makes for an interesting heavyweight bout between copyright and competition laws.
These announcements gave a sharp jolt to the nascent market for e-books in Europe. In February 2011 the Office of Fair Trading (OFT) announced that it had opened an investigation “following a significant number of complaints” into the pricing of e-books. This was followed in March by an announcement that the European Commission had launched investigations following raids on publishers in France and Germany.
While there has been much talk of e-books as the coming thing over the last five years or so, they have until recently been very much the province of early adopters. One can speculate that the iPad and Kindle 2 have been the technologies to unlock the market for digital digestion of reading matter, but whatever has been the key, Amazon announced on 28 January 2011 that across its entire US book business it is “now selling more Kindle books than paperback books”. Whether this unit volume is translating into dollars is less clear.
The OFT’s review focuses on whether agreements between five major publishers and book retailers governing the conditions of sale (in particular pricing) of e-books by the retailers are compatible with competition law. The OFT announced that this move was a response to numerous consumer complaints about the so called “agency pricing model”. The agency model allows the publisher to set the retail price, a move that appears at first sight to hark back to the Net Book Agreement, decently interred in 1997 by the Restrictive Practices Court (now itself defunct).
One suspects the agency model has not been popular with Amazon – its site clearly displays where the price has been set by the publisher and in October 2010 it published an open letter criticising publishers’ adoption of the agency model for distribution of e-books. E-books are also subject to VAT, so in some cases prices are higher for e-books than for physical books.
The usual distribution model for any chattel, including books, would not permit the supplier (publisher in this case) to fix the price (or a minimum price) at which a retailer may resell its products. Resale price maintenance is a ‘hardcore’ infringement of competition law. Such agreement is automatically void, and may expose the parties to the agreement to financial penalties and damages actions by consumers.
Competition law exempts sales via agents from the rigorous prohibition on RPM. In an agency model the principal owns the goods and takes all the business risk. The agent is treated as an extension of the principal, as is consistent with agency law generally, provided there exists a genuine agency and agency is not used as a device to permit collusion between principals.
The clash of legal interests here centres around which which model - distribution or agency - is more apt for the retail of e-books. Understandably consumers, used to the free for all and discounting of books for the last 13 or so years, are suspicious of the publisher regaining the pricing decision, but it is far from clear that a wholesale distribution model is appropriate for e-book distribution.
E-books are not physical stock like real books; they are just electronic files, a piece of software. The sale of an e-book to a consumer involves the transfer of an electronic file prepared by the publisher, which the retailer has downloaded onto its servers with the publisher’s permission and then made available to the consumer to download in turn. The retailer never owns anything in this process. It has a licence from the publisher to copy the publisher’s copyright work, store it on the retailer’s servers and permit the public to copy the file over the internet, granting the consumer a sub-licence in the process.
This process of copying and recopying is exactly the right that the copyright owner is entitled to control. The grant by the publisher to the retailer of nothing more than a licence with the right to grant sub-licences to consumers permits the retailer to change the publisher’s legal relations with a third party, the classic definition of an agent. Such an agency does not even have to be disclosed to the consumer to be effective.
In some niches of publishing, digital delivery has been the norm for some time. Law reports and legal publishing generally are dominated by digital delivery and it has not by any means driven down prices, rather the reverse.
It is not possible to predict how this clash of laws will end. If evidence of collusion between publishers emerged then there would likely be an adverse finding. But even then, there does not seem to be any reason why any affected publishers could not subsequently take an independent decision (without colluding) to adopt the agency model. It is one of the effects of the rise of the internet that new distribution models come into being and compete with the old models. In recent years the advantage has been on the retailers’ side and has driven down prices. If new technology swings the advantage back towards the producer, that is surely a by-product of technological progress? Without doubt from a copyright lawyer’s perspective, the agency model is the closest fit to the transfer of rights in the “product”.