On 4 May 2017 the European Commission issued a press release announcing its decision to make legally binding the commitments offered by Amazon to address competition concerns identified by the Commission in relation to certain clauses in Amazon’s agreements with electronic book (e-book) publishers.
The Commission initiated formal antitrust proceedings on 11 June 2015 to examine a number of ‘parity’ or ‘most favoured nation’ clauses (MFNs) in certain of Amazon’s agreements with e-book publishers, which grant Amazon the right to be informed by the relevant publisher of more favourable or alternative terms offered by the publisher to Amazon’s competitors, and/or the right to be offered terms and conditions at least as good as those offered to Amazon’s competitors. The Commission considered that Amazon’s behaviour may violate EU antitrust rules prohibiting abuses of a dominant market position and restrictive business practices.
To address these competition concerns Amazon has offered, in respect of any e-book it distributes in the European Economic Area (EEA), not to enforce such clauses, and not to include them in any new contract, for a period of five years.
This investigation has been carried out in a context of increasing Commission scrutiny of the digital sector. In the past several years the Commission has brought antitrust proceedings against a number of major technology firms such as Google, Qualcomm, Motorola and Samsung.
The e-book sector in particular has already been subject to Commission scrutiny. In December 2011 the Commission opened proceedings to investigate whether five international publishing houses and Apple had engaged in anti-competitive practices for the sale of e-books in Europe. These companies had jointly switched from a wholesale model to agency contracts which, the Commission found, contained similar key terms for retail prices across the different publishers, including an unusual retail price MFN, maximum retail prices and the same 30 per cent commission payable to Apple. The investigation led to commitments being offered by four of the publishers in 2012 and by the other in 2013 (all of which were accepted by the Commission).
The Commission’s attention subsequently shifted to Amazon, which is currently the largest distributor of e-books in Europe. The e-book market in Europe is a growing one, and is estimated by the Commission to be worth more than €1 billion.
Investigation and competition concerns
The Commission investigated whether certain contract terms in Amazon’s distribution agreements with e-book publishers were in breach of EU and EEA rules prohibiting anti-competitive agreements and the abuse of dominant market positions.1 On 9 December 2016 the Commission issued its preliminary assessment, that Amazon may be dominant in the markets for the retail distribution of English and German language e-books to consumers in the EEA, and that it may have abused any such dominant position. The Commission found a number of MFNs requiring e-book publishers and suppliers to inform Amazon about more favourable or alternative terms offered by the relevant publisher to Amazon’s rivals, and requiring the publisher to offer Amazon similar terms and conditions, chiefly in relation to price, promotional arrangements and the range and features of available e-books.2
The Commission took the preliminary view that these clauses may amount to a breach of Article 102 of the Treaty on the Functioning of the European Union (TFEU), as they could reduce the e-book suppliers’ incentives to support and invest in new business models and reduce Amazon’s competitors’ ability to develop and differentiate their offerings through such business. They could also, the Commission believed, prevent differentiation and competition between e-book retailers and could hinder them from entering and expanding in the relevant markets. These clauses could therefore strengthen Amazon’s potentially already dominant position and lead to higher prices and less choice for consumers. Amazon disagreed with the Commission’s assessment, arguing that the sale of e-books should be considered a separate market from printed books and other media, which it said were characterised by “fierce competition”. Nevertheless, Amazon offered commitments to stop enforcing the clauses at issue, and to stop including them in future contracts.
In January 2017 the Commission market-tested the commitments, which were welcomed by most trade groups. In its final commitments, Amazon offered (i) not to enforce relevant clauses requiring publishers to inform and offer Amazon similar non-price and price-related terms and conditions as those offered to Amazon’s competitors, (ii) to allow publishers to terminate contracts containing ‘Discount Pool Provision’ clauses,3 and (iii) not to include any of these clauses in any new e-book agreement with a publisher. Amazon has offered to apply these commitments for a period of five years and to any e-book in any language that it distributes in the EEA.
The Commission was satisfied with the proposed commitments, which it described as a “timely, effective and comprehensive solution”, and rendered the commitments legally binding in a decision adopted on 4 May 2017. If Amazon were to breach the commitments, the Commission could impose a fine of up to 10 per cent of Amazon’s total annual turnover in the preceding business year, without having to find a violation of the EU competition rules.
This case has revealed a further sector of online commerce where MFNs have been found to raise competition concerns. MFNs have in recent years been at the centre of a series of competition investigations across the EU in relation to the online hotel booking sector. The Commission and 10 European national competition authorities (NCAs) have recently published a report on the effect of these clauses in agreements between hotels and online search platforms, in an attempt to address the divergence of views previously adopted at NCA level.4 It is likely that MFNs will continue to be subject to close regulatory scrutiny, especially in growing and relatively transparent online markets characterised by the presence of large firms.