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Europe May Unsettle Apple's E-Book Cart

By Rob Spiegel MacNewsWorld ECT News Network
Dec 6, 2011 12:03 PM PT

The European Commission announced Tuesday that it has opened formal antitrust proceedings to investigate whether Apple and a group of international publishers have engaged in anticompetitive practices affecting the sales of e-books in the European Economic Area.

Europe May Unsettle Apple's E-Book Cart

The publishers being investigated for possible breach of antitrust rules include Hachette Livre, HarperCollins, Simon & Schuster, Penguin and Verlagsgruppe Georg von Holzbrinck. The EC plans to treat the case as a matter of priority, but says it will not prejudge the outcome of the investigation.

The EC will determine whether the publishing groups and Apple have engaged in illegal practices or agreements that would restrict competition in the European Union. The commission will also look at the terms of the agreements between the publishers and retailers regarding the sale of e-books. The EC is concerned that certain practices have violated antitrust rules that prohibit cartels and restrictive business practices.

E-Book Sales Under Examination

In this investigation, the EC is concerned specifically and restrictively about e-book sales in Europe. Investigators will examine Apple's agreements to ascertain whether they include anticompetitive components.

"We are investigating whether the five publishers have, possibly with the help of Apple, engaged in anticompetitive practices affecting the sale of e-books inEurope," Amelia Torres, spokesperson for competition policy at the European Commission, told MacNewsWorld. "The Commission is also examining the character and terms of the agency agreements entered into by the five publishers and retailers, also for the sale of e-books."

The EU has provided guidance in its Vertical Guidelines on the kind of agreements that do not present problems from the point of view of EU competition rules, Torres noted.

Apple did not respond to our request to comment for this story.

Agreement Structure Invites Scrutiny

One of the questions the EC probe prompts is whether there is something intrinsically anticompetitive about agreements that are forged directly between retailers and their suppliers.

"Any time there's one channel partner and a small number of content providers, eyebrows typically rise," Roger Kay, founder and principal of Endpoint Technologies, told MacNewsWorld. "Apple practices a particularly brutal form of exclusivity that could be construed, under certain circumstances, as restrictive."

The fact that Apple negotiated directly with suppliers may have been enough to trigger the investigation, but anticompetitive behavior may be in the eye of the beholder.

"It largely depends on how the interested parties, observers and regulatory agencies define 'competition,'" Charles King, principal analyst at Pund-IT, told MacNewsWorld. "Obviously, there seems to be some differences of opinion among e-reader makers, publishers and e-commerce vendors, so it's natural for regulators to take notice or investigate."

Will U.S. Regulators Open a Probe?

It's possible that U.S. regulators already are also looking into the Apple agreements, said King.

"The original actions driving the investigation -- that Apple and some publishers were trying to stop Amazon from discounting e-books about a year ago -- prompted then-Connecticut attorney general Richard Blumenthal to write the companies an official letter stating that their actions might be anticompetitive," he pointed out.

It wouldn't be surprising if U.S. agencies took notice, said King.

Still, just because the EC is probing doesn't necessarily mean Apple will get scrutiny in the U.S.

"U.S. regulators are less stringent than their European counterparts," said Kay. "Arguably, the United States hasn't enforced antitrust since the breakup of AT&T. I wouldn't expect Justice, et al., to change their modus operandi overnight."

Avoiding Antitrust Problems

As for how e-book producers and retailers can avoid anticompetitive probes, it may be as simple as buying and selling based on set and public terms -- "quite simply, by refraining from colluding in any activities that attempt to unnaturally bend competitors or the marketplace to benefit themselves," said King.

"I expect any accused parties will say that what they are doing is good, clean competitive behavior," he concluded, but it's up to the EC -- and possibly other regulatory agency investigators -- to determine if that's the case.