On 4 May 2017, the European Commission announced its decision to make the commitments offered by Amazon legally binding. Under these commitments, Amazon (the largest distributor of e-books in Europe) will no longer enforce or introduce a variety of "most favoured nation" (MFN) clauses in its distribution agreements with e-book publishers in Europe.
MFN clauses – otherwise known as price parity clauses – are designed to ensure that a buyer's counterparty will offer its services under terms that are at least as favourable as those offered by the seller to any other buyer. In recent years, MFN clauses have been the subject of scrutiny in numerous investigations by national competition authorities, most notably in the online hotel booking sector [see our October 2013 and May 2017 Newsletters]. The main concern associated with MFN clauses is that they dampen competition and undermine market entry, ultimately resulting in higher prices for consumers.
In June 2015, the Commission initiated proceedings to examine certain contract terms in Amazon's e-book distribution agreements. The Commission's preliminary assessment at the end of 2016 concluded that Amazon may be dominant in the relevant markets for the retail distribution of English and German language e-books to consumers in the EEA. The assessment expressed concern that Amazon may have abused its potentially dominant position.
The Commission's concerns focus not only on price but also non-price related MFN clauses. The relevant MFN clauses require publishers to inform Amazon about more favourable or alternative terms offered to Amazon's competitors and/or to offer Amazon similar (or better) terms and conditions as those offered to Amazon's competitors. Examples include:
- Business Model Parity clauses, requiring publishers to notify and offer Amazon alternative business models that have been made available to e-book retailers other than Amazon.
- Selection Parity clauses, requiring publishers to make available to Amazon a given e-book as a result of that e-book being supplied to any other e-book retailer.
- Agency Price Parity clauses, requiring publishers to set an agency price on Amazon that is similar or better than the price set on any other e-book retailer.
- Discount Pool provisions, providing a 'pool' of credits, calculated on the basis of differences between prices set on Amazon and prices set on competing platforms, that Amazon may use at its discretion to discount agency prices for any e-book supplied on its platform.
- Notification provisions, requiring publishers to notify Amazon if different alternative business models, e-books, features, promotions or lower prices are made available to Amazon's competitors.
According to the Commission, the MFN clauses under scrutiny may be capable of weakening competition at the e-book distribution level, deterring entry or expansion by (potential) competitors of Amazon and/or strengthening Amazon's potentially already-dominant position, leading to less choice, less innovation and higher prices for consumers. Importantly, the Commission held that each of the clauses "represent, in and of themselves, a potential abuse of Amazon's dominant position in the relevant markets in the EEA" (emphasis added).
To meet the Commission's concerns, Amazon offered not to enforce or introduce the parity clauses and notification provisions in e-book distribution agreements and to allow publishers to terminate e-book contracts that contain Discount Pool provisions. These final commitments apply for a period of five years and to any e-book that Amazon distributes in the EEA. If Amazon breaks these commitments, the Commission can impose a fine of up to 10% of the company's worldwide turnover, without having to prove an infringement of the EU antitrust rules.
This article was published in the Competition Law Newsletter of June 2017. Other articles in this newsletter:
- Recent enforcement action emphasizes the importance of compliance with procedural EU merger rules
- European Commission publishes final report on e-commerce sector inquiry
- European Commission issues new rules for State aid to ports, airports, culture and the outermost regions
- District Court of Amsterdam rules on the validity of the assignments and prescription of CDC's claims for damage in sodium chlorate cartel
- Belgian Competition Authority fines undertakings for bid-rigging in railway tender