Apple, publishers face European anti-trust iBooks probe

By Jonny Evans

I can't put my finger on when it happened, but doesn't it seem like the technology industry woke up one morning and decided to transform itself into a courtroom drama? This morning's episode sees Apple [AAPL] and its iBookstore deals under scrutiny, with the European Commission opening formal antitrust proceedings into the way the e-Book industry has transformed.

Apple's European turnover

Announced this morning, Europe is looking into the arrangements between Apple and others and leading e-Book publishers, including Hachette, Harper Collins, Simon & Schuster, Penguin and Macmillan have broken EU competition law.

In a press release, the EC says it wants to know if these publishers have: "Possibly with the help of Apple, engaged in anti-competitive practices affecting the sale of e-books in the European Economic Area (EEA), in breach of EU antitrust rules."

The big question circulates around the agency deals Apple demanded publishers agree to in order to get their works onto its iBookstore. These deals were similarly adopted by Amazon for its Kindle sales. As it does in music and in app sales, Apple takes 30 percent of the end user price on all digital content sales.

[ABOVE: Steve Jobs introduces the iBookstore in April 2010.]

Has competition been restricted?

(As an independent industry observer, I do question if Amazon's ability to leverage its own market power in order to achieve preferential book price deals with/from publishers should also be within the remit of the EC investigation, but I'm no lawyer.)

In a statement, the EC said it: "Will in particular investigate whether these publishing groups and Apple have engaged in illegal agreements or practices that would have the object or the effect of restricting competition in the EU or in the EEA. The Commission is also examining the character and terms of the agency agreements entered into by the above named five publishers and retailers for the sale of e-books. The Commission has concerns, that these practices may breach EU antitrust rules that prohibit cartels and restrictive business practices."

The move to launch a formal anti-trust investigation follows a series of March 2011 raids on e-Book publishers in Europe. It also follows the decision by the UK Office of Fair Trading to begin its own anti-trust investigation of the same problem, though the latter investigation has been shelved for the present while the larger European inquiry takes place.

There's a big issue here and it relates to the 'one-size-fits-all' approach championed by Apple and now popularized across the online digital content and sales industry. This has forced some degree of harmony upon publishers who must offer books at specific price points, rather than the unilateral pricing decisions they once enjoyed.

Change hurts

Europe's regulators say they have begun investigating Apple and others on strength of Article 101 of the Treaty on the Functioning of the EU (TFEU), which: "Prohibits agreements and concerted practices which may affect trade and prevent or restrict competition."

Apple also faces a class action in the US, where Hagens Berman alleges that Apple, HarperCollins, Hachette Book Group, Penguin Group, Simon & Schuster and MacMillan worked together to force Amazon to change its prices under the new 'agency model'.

"Apple had strong incentives to help the publishers because the Kindle is a competitive threat to Apple's business model," according to court filings.

Regulators got it wrong, say publishers

Responding to the class action, Hachette Book Group denied any such collusion or price-fixing, saying:

"We believe the class-action complaints lack any legal merit and fully intend to contest them vigorously. Hachette's adoption of an agency distribution model, which is at the heart of the complaints, was an independent, unilateral decision by Hachette and was not based on agreement with any other publisher.

"Contrary to the allegations in the complaints, Hachette believes that its decision to distribute its e-books through agency has helped to increase competition and consumer choice in e-books and e-readers."

It is important to note that a move to launch an anti-trust investigation doesn't necessarily mean Apple and the publishers are guilty of any collusion whatsoever.

It may simply be a moment of transition for the publishing industry to new digital sales outlets, and a group-think by publishers might simply reflect the complexity and burden of risk faced by any business offering content online in a digital age.

EU competition spokeswoman Amelia Torres said: "We have suspicions of collusion to keep prices high. But if our suspicions prove to be founded, this would have an impact across the EU because e-books are sold across borders."

This case will run for a while, I think.

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