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Apple, E-Book Publishers Bow to EC in Pricing Flap

By John P. Mello Jr. MacNewsWorld ECT News Network
Dec 14, 2012 5:00 AM PT

Apple and four international publishers will be scrapping some controversial agency agreements and excluding some dubious clauses in future agreements over the next five years, under a decision adopted Thursday by the European Commission.

Apple, E-Book Publishers Bow to EC in Pricing Flap

The publishers have also agreed to give retailers conditional freedom to discount e-books.

Earlier this year, the publishers reached a similar agreement with the U.S. Department of Justice after an antitrust lawsuit was filed against them by the agency.

The four publishers involved in the case are Simon & Schuster, HarperCollins, Hachette and Holtzbrinck, which owns Macmillan. A fifth publisher, Penguin, has not settled with the commission yet. Penguin and Apple are also embroiled in litigation with the DoJ over alleged antitrust violations.

Discounts and Commissions

Under the deal with the EC, the publishers must terminate all agency agreements executed around April 2010. It's around that time that regulators on both sides of the Atlantic allege Apple and the publishers colluded to fix prices for e-books.

They did that by requiring e-books to be sold through agency agreements in which the publisher sets the final retail price for the book and the retailer receives a fixed commission on the sale.

That contrasts with the way most books are sold. Typically, a retailer buys a book for a wholesale price and has the freedom to set the final retail price for the product.

Under the pact with the commission, publishers can still cut agency deals with retailers. However, for the next two years those deals must allow retailers to discount a publisher's books up to the level of the commission paid the retailer.

So if a publisher sets the price of a book at US$10 and the retailer receives a commission of 30 percent, the retailer can discount the price of that book up to 30 percent.

Consumer Benefits

In addition, Apple and the publishers can enter into any agreements for the next five years that contain "most favored nation" clauses. Such a clause, according to the commission, was used by Apple to make sure that the publishers compelled their retailers to accept agency agreements that contained terms similar to those in their agreements with Apple.

Taken together, the terms in the pact between the commission and Apple and the publishers should allow the market to reset itself, said EC spokesperson Antoine Colombani.

"Ultimately, this should mean lower e-book prices for European consumers," he told MacNewsWorld.

"Preserving competition also encourages creativity and innovation," Colombani added. "The resulting benefits are then passed on to consumers."

Neither Apple nor the publishers responded to our requests to comment for this story.

Publishers' Actions Justified

While European and American regulators have gotten the concessions they wanted from Apple and the publishers, the trust busters' actions have drawn some criticism.

"I don't think the original actions were necessarily uncompetitive or a negative for consumers," David Vance Lucas, an attorney with Bradley Arant Boult Cummings, told MacNewsWorld.

"I think they were positive for consumers," he continued. "It leveled the playing field between Apple, the publishers and Amazon."

The regulators may have been overzealous, suggested Ronald Cass, former vice chairman and commissioner of the U.S. International Trade Commission and president of Cass & Associates.

"Sometimes the antitrust folks jump in pretty fast on these things because anything that looks like it's collusive is an issue," he told MacNewsWorld.

"I think they may have jumped in too hard too fast in a market where things are still evolving," Cass added.

May Still Misbehave

While acknowledging the commission's decision is a step in the right direction, it may not be enough to get the publishers to behave in the e-book market, according to Yasha Heidari, managing partner of the Heidari Power Law Group.

The publishers were never punished for their conduct, he pointed out.

"From a cost-benefit perspective, this gives the publishers an incentive to engage in similar behavior in the future, because there are no negative financial consequences for their actions," Heidari told MacNewsWorld.

"More significantly, the agreement does nothing to mandate any change from the status quo," he continued.

"Nothing prevents the current major players from maintaining the status quo by choosing not to work with smaller outlets that attempt to disrupt the current arrangement," Heidari explained.

"Time will tell whether this agreement will bring about any positive implications for consumers," he observed. "I hope I am wrong, but I speculate any benefits for consumers will be minimal at best."

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