Not a Penny More, Not a Penny Less?
The OFT starts a long-awaited investigation into the sale of e-books
The OFT has finally responded yesterday to the growing clamour surrounding the e-book industry by opening a formal competition law investigation.
Pricing practices and arrangements between publishers and e-retailers have been the subject of a very public - and very modern - debate in the industry over the last 12 months, played out in respected trade journals and across the blogosphere. As traditional publishing businesses strive to adapt to a new, and eventually predominant, online sales world, business models have proliferated and legal uncertainty has multiplied.
The OFT has been pushed into this legal maelstrom and asked to provide some clarity. It has not specified which practices it is currently investigating, though two issues stand out for the attention and strength of feeling they have generated in recent months.
- Agency models. These allow publishers to set e-book prices themselves and consequently prevent retailers from discounting at the retail level. We understand that agency models have been implemented by a number of publishers, including Hachette, HarperCollins and Penguin. Although Amazon has been forced to accept the terms it has remained a notable and public dissenter. It stated last October that "we will continue to fight against higher prices for e-books, and have been urging publishers considering agency not to needlessly impose price increases on consumers".
- Amazon's Price Parity Policy. However, Amazon itself could also be under the spotlight. In the middle of last year, the Independent Online Booksellers Association highlighted Amazon's "Price Parity Policy", describing it as "dangerously anti-competitive". The policy apparently stipulates that booksellers who sell books on Amazon's Marketplace site cannot offer them more cheaply elsewhere online. This could potentially undermine the smaller online businesses of independent booksellers.
In reality, once the OFT starts picking away at loose threads, the current structure of the industry may unravel, and will need to be replaced with yet another series of resale models in this nascent and dynamic market.
The OFT has a range of policy tools available to it for bringing the investigation to an end, including settlements. However, the penalties for a failure to comply with competition law can be severe: any agreement with an anti-competitive restriction may be deemed void and unenforceable, and an infringing business may be fined up to 10% of its worldwide turnover. The OFT has been careful to state that the investigation is at an early stage, and that it has not formed a view on whether any of the parties - publishers or retailers - have breached competition law.
How the OFT takes this investigation forward will have as dramatic an effect on the online publishing world as the abolition of the Net Book Agreement did on previous generations of publishers, booksellers, and consumers.
Lawyers Robert Vidal, Louisa Penny
