Apple, 4 publishers reach ebook pricing agreement with European Commission

A few weeks after a settlement was approved in the United States, Apple (s AAPL), Simon & Schuster, HarperCollins, Hachette and Macmillan have reached a preliminary agreement with the European Commission over allegedly conspiring to set ebook prices. A fifth publisher under investigation, Penguin, is not part of the agreement.

Like the Department of Justice in the United States, the European Commission, which began its formal antitrust investigation last December, accused Apple and publishers of colluding to fix ebook prices. While ebook sales made up 15 percent of trade book sales in the US in 2011, and — according to this report from yesterday — 12.9 percent of UK book sales for the first six months of 2012, ebooks are still a tiny sliver of total book sales in other European countries.

The EC reports in its Official Journal (PDF) that “by jointly switching the sale of ebooks from a wholesale model to an agency model with the same key terms on a global basis, the Four Publishers and Apple engaged in a concerted practice with the object of raising retail prices of ebooks in the EEA [European Economic Area, which includes the 27 countries in the European Union plus Iceland, Norway and Liechtenstein],” breaching EEA competition rules.

The EC also calls attention to most-favored nation clauses (MFNs) in Apple’s Agency agreements: “to avoid lower revenues and margins for their ebooks on the iBookstore, the publishers had to pressure other major e-book retailers offering ebooks to their consumers in the EEA to adopt the agency model.”

The Commission notes that Apple and the settling publishers don’t agree with its assessment but have agreed to settle anyway. Macmillan’s parent company Holtzbrinck, which is settling in the EU but not in the United States, said in a statement to The Bookseller, “From the outset, the Holtzbrinck group has strongly denied all charges of collusion in relation to its ebook businesses. That said, we believe it is in the best interests of our European business to proceed towards a settlement and have agreed to this set of draft principles, ready for a period of market consultation.”

Here are the terms of the proposed agreement, which largely mirror those in the ebook settlement in the United States:

  • Apple, Simon & Schuster, HarperCollins, Hachette and Macmillan will terminate their agency agreements. Penguin, which is not included in the settlement (the EC is “still investigationg [its] conduct”), also has the option to terminate its agency agreement with Apple; if it doesn’t, Apple will “terminate the agreement in line with the conditions laid down therein.”
  • Other retailers, like Amazon, will also have the option to end their agency agreements with the four publishers; if they don’t, the publishers will end them according to the contract terms.
  • For two years, the publishers “will not restrict, limit or impede ebook retailers’ ability to set, alter or reduce retail prices for ebooks and/or to offer discounts or promotions.”
  • There is some protection for ebook prices under agency agreements, however: “The aggregate value of the price discounts or promotions offered by any retailer should not exceed the aggregate amount equal to the total commissions the publisher pays to that retailer over a 12-month period in connection with the sale of its ebooks to consumers.” In the United States, publishers have the right to negotiate such a clause with retailers. In the EU, however, it appears that the clause is a requirement (i.e., a retailer can’t say no).
  • Apple and the four publishers can’t enter ebook contracts with MFN clauses for five years, and “Apple will inform any publisher with which it has an ebook agency agreement that it will not enforce a retail price MFN clause in any such agreement for a period of five years.”

Consumers have a month (starting today) to comment on the proposed settlement. They can send comments “under reference number COMP/39.847/E-BOOKS, either by e-mail ([email protected]), by fax (+32 22950128) or by post, to the following address: European Commission Directorate-General for Competition Antitrust Registry, 1049 Bruxelles/Brussel, BELGIQUE/BELGIË.”