The EU & US agency model proceedings – partial settlement


Author: Eddie Powell


On 6 September 2012 the US District Court approved a partial settlement of the anti-trust proceedings that were begun by the US Department of Justice (DoJ) against Apple, Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster(1). The action is only partially settled, because the settlement applies only in relation to Hachette, HarperCollins and Simon & Schuster. The other defendants (Macmillan, Penguin and Apple) have all declined to enter into the settlement, and the trial of the matter is scheduled to commence in July 2013.

Hot on the heels of the US settlement decision, on 19 September the European Commission (Commission) announced that it was planning to partially settle its own investigation, of the same issue in relation to the same parties, on the basis of a proposed deal agreed with all parties other than Penguin.(2)

The US Action

The action arose out of allegations that the publishers, concerned by the emerging dominance of Amazon, had colluded with each other and then with Apple, to raise and fix e-book prices by establishing the agency model as part of Apples’ iBookstore and coupling it with a contractual clause which provided that if another retailer sold the same e-book at a lower price, then the publisher had to lower the price on the iBookstore to match it (Price MFN).

The DOJ argued that this conduct breached the provisions of the Sherman Act, the primary piece of US competition law.

The EU Investigation

The EU Commission’s investigation was heralded by dawn raids on various parties in March 2011, leading to a formal investigation being opened in December 2011. Unlike the US, the investigation does not involve court proceedings.

The investigation again related to whether the named publishers had, with Apple’s assistance, engaged in illegal agreements or practices to restrict competition in the European Economic Area (EEA) contrary to Article 101 of the European Treaty(3). In August 2012, the Commission made a preliminary assessment that Hachette, HarperCollins, Macmillan and Simon & Schuster had, with Apple, (i.e. the parties to the EU settlement) engaged in a concerted practice by entering into agency model agreements on the same key terms (including Price MFN and sales commission levels), which in turn led to those publishers pressurising other major e-book retailers to adopt the agency model.

The Settlements

The settlements have been concluded using processes under the US and EU systems which allow companies, who are accused of breaching competition/anti-trust laws, to resolve the issue by giving binding commitments or undertakings to the authorities about future conduct, but without any admission or finding of liability. As long as the company concerned complies with its commitments, it cannot be subject to further action or sanction in relation to the alleged breaches.

They do not constitute a finding that there has been any illegal conduct by the parties nor that the inclusion of the agency model or a Price MFN clause in an e-book retailer contract violates EU or US law.

The commitments by the settling publishers in both jurisdictions(4) are similar:

  • The publishers must take steps to exit from their current Apple contracts and any other e-book retail contract they have concluded which contains a Price MFN or restricts the price at which the retailer can resell the e-books or discount/special offer arrangements.
  • Although agency model contracts as such are permitted, for at least two years the publishers cannot enter into any e-book reseller agreement which includes a price restriction and any agency mode agreement cannot prevent the retailer from discounting or promoting its books up to an amount equal to the aggregate amount of the commission earned by the retailer from the same publisher each year;
  • The publishers cannot enter into any contract which includes a Price MFN arrangement relating to e-books; and
  • The publishers must report annually on compliance with the terms of their commitments to the authorities.

Apple has also offered commitments in relation to its activities in the EEA (but not the US, where it continues to defend the proceedings) under which it will end its current agency contract with all five publishers (including Penguin), not enforce any Price MFN clauses contained in contracts with other publishers and not enter into any new contract with publishers relating to sales of e-books which include a Price MFN clause.

Except for the two-year period identified in (b) above, these commitments last for five years.

The US settlement is now finalised and effective; the EU settlement has completed its consultation period, and the Commission is expected to confirm the settlement shortly.(5)

Effect Of The Settlements

The stated intention behind the US settlement (and the same would presumably apply to the EEA market) is to give the e-book market a “cooling off period”: time to steady itself and re-establish effective price competition, after which it is hoped that the market should be more mature and able to function without such controls.

It should be re-emphasised that none of the companies concerned have been found to have infringed competition laws or admitted that they have done so. Penguin is continuing its defence in both the US and EU, as are Macmillan and Apple in the US.

It is also worth pointing out that the DOJ’s claim appears to have been triggered not by the adoption of the agency model and the Price MFN clause as such, but by the conduct of the parties concerned, in allegedly colluding and sharing information relating to pricing and so restricting competition. Indeed, the DOJ has stated that the contract clauses concerned are “not intrinsically unlawful”. The Commission has stated that its preliminary assessment did not assess the compatibility of the agency model agreements with EU law.

What Does This Mean For Other Publishers?

Publishers who have entered into agency agreements would be sensible to seek legal advice on the issue, but it seems unlikely that it would be necessary for them as, a matter of compliance, to take steps to terminate any existing arrangements, although they will be contacted by Apple to confirm that it will no longer enforce the Price MFN clause in their contract.

However, one of the effects of the settlement is that e-book retailers, who find that they are no longer required by some of their biggest suppliers to use the agency model or at least given much more pricing freedom, may be less inclined to continue with existing contracts and so publishers may find themselves with requests to re-negotiate their e-book retailer contracts.

We would certainly expect to see considerable resistance to the inclusion, or even use, of Price MFN clauses in e-book reseller contracts.


(1) US v. Apple Inc, et al; Action 12-CV-2826 (DLC). Opinion and Order of US District Judge Denise L. Cole 5 September 2012 [http://www.justice.gov/atr/cases/f286700/286727.pdf] and Final Judgment (as to certain defendants) 6 September 2012 [http://www.justice.gov/atr/cases/f286800/286808.pdf]

(2) Case COMP/39.847/E-BOOKS. Communication of the Commission (2012 C 283/07) [http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2012:283:0007:0009:EN:PDF]

(3) Treaty on the Functioning of the European Union

(4) For clarity, the parties that are respectively settling and not settling in each jurisdiction are as follows:

EU US
Settling HachetteHarperCollinsMacmillanSimon & SchusterApple HachetteHarperCollinsSimon & Schuster
Not Settling Penguin MacmillanPenguinApple

(5) All the Commission documents, including the proposed commitments and details of where to send comments, can be found here.

Eddie Powell, Partner, Fladgate LLP (epowell@fladgate.com)

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