EU and Amazon cut deal to end antitrust investigation over e-books deals

Last week the European Commission has communicated its decision to formally accept commitments by US tech giant Amazon to end an EU antitrust investigation over contracts with e-book publishers. The Seattle-based company has proposed to drop some clauses in its contracts that required publishers to inform about terms offered to the company’s competitors and to give to Amazon equal or better terms.

The move represents a way for Amazon to avoid potentially hefty fines, but also a way for the Commission to close a complex antitrust case, being this not the first time EU regulators seek compromises with business giants.

Background

The European Commission opened a formal antitrust investigation against Amazon in June 2015. The concern was that, thanks to such “parity clauses”, Amazon may have abused its dominant position on the markets for the retail distribution of English and German language e-books to consumers.

The clauses covered not only price but many aspects that a competitor can use to differentiate itself from Amazon, such as an alternative business (distribution) model, an innovative e-book or a promotion. Article 102 of the Treaty on the Functioning of the European Union (TFEU) and Article 54 of the EEA Agreement prohibit the abuse of a “dominant position which may affect trade and prevent or restrict competition”.

The Commission invited comments from “interested parties”, and on January 24, 2017 Amazon offered to change its contracts to comply with the Commission’s regulations, by stripping the clauses in question. The commitments apply for five years and, under the terms of the agreement announced last Thursday, Amazon will implement changes to e-books distributed in any language in the European Economic Area or EEA (so in all 28 EU member states plus affiliated nations like Iceland, Liechtenstein, and Norway).

The move

“Today’s decision will open the way for publishers and competitors to develop innovative services for e-books, increasing choice and competition to the benefit of European consumers”, said last week Commissioner Margrethe Vestager, in charge of competition policy. “Amazon used certain clauses in its agreements with publishers, which may have made it more difficult for other e-book platforms to innovate and compete effectively with Amazon”, she also declared, as reported in an official statement by the European Commission. “We want to ensure fair competition in Europe’s e-books market worth more than 1 billion euros”, she added.

Amazon too expressed satisfaction to have reached an agreement with the European Commission. In a response sent by Amazon to Engadget, the US e-company said it was “pleased to have reached an agreement with the European Commission”. “We will continue working to help authors and publishers reach more readers, improve the digital reading experience, and bring our customers the best possible prices and selection”, the letter by Amazon said.

Amazon’s offer

More specifically, Amazon has offered – on top of not including in new contracts any clause requiring publishers to keep Amazon informed of terms and condition with competitors and/or to give Amazon same/better conditions – to let publishers terminate existing contracts that link discounts for e-books on Amazon to the retail price of the same books on other platforms. So publishers are now free to terminate agreements, on 120 days’ advance written notice, should those contain the so-called “Discount Pool Provision”.

Under the new agreement the US tech giant will not be fined unless it breaches this deal, in which case it could be hit with penalties that could reach the 10 percent of its total annual turnover. Separately, the Commission is also probing Amazon over tax arrangements with Luxembourg to minimize its tax bill, as part of a wider investigation on such deals in the 28-country bloc.

A “new way”

Amazon is not the only one tech company to have come under the lens of European regulators in the last few years. Microsoft, Facebook, Intel and, more remarkably, Google all have faced – or are facing – accusations of anti-competitive practices in the 28-country bloc. Also, this is not the first case where the EU’s executive arm accepts or at least takes into consideration an offer by the accused party to settle an antitrust case.

Last November, the EU-Gazprom case became prominent after the state-controlled Russian energy group announced it will work on a compromise with EU regulators to finalise a deal to end a five-year antitrust case.

It seems that now seeking an agreement with the accused party is becoming a sort of more favourable option not just for the company itself but also for the Commission. Indeed if it is true that no fine could be imposed on a company after the agreement, it is also true that a settlement represents a way to end very complex antitrust cases that otherwise could drag on for years, with a potential negative impact on future investments.

Article 9 of the EU’s Antitrust Regulation (Regulation 1/2003) allows the Commission to conclude antitrust proceedings by accepting commitments offered by a company. Such a decision does not reach a conclusion on whether EU antitrust rules have been infringed but legally binds the company to respect the commitments.