Attorney’s Sperling & Slater acting on behalf of three eBook buying plaintiffs are suing Amazon and the “big 5” publishers (Hachette, Macmillan, Penguin Random House, Simon & Schuster, Harpercollins) for eBook price collusion in the Southern District Court in Manhattan. These plaintiffs are deemed representative of the following class:
All persons who, on or after January 14, 2017, purchased in the United States one or more eBooks sold by the Big Five Publishers through any other retail e-commerce channel in the United States other than the Amazon.com platform.
The filing alleges that Amazon.com employs anticompetitive restraints to immunize its platform from the negative effects of the Big Five’s inflated eBook prices and that these ‘inflated prices’ are a result of the imposition by publishers of the agency pricing model.
There are several exhibits in this filing including the following:
As the following chart shows,15 the Big Five’s eBook prices decreased substantially from 2013-2014, as long as the consent decrees prevented the Big Five from interfering with retailer discounts, but they immediately increased their prices again in 2015 after renegotiating their agency agreements with Amazon and have continued to maintain supracompetitive prices
What the above chart seems to be suggesting is that eBook prices from the big five are now at a level comparable to the 2014-15 time period which is when they were lowest.
In their argument the attorneys focus on the use of ‘most favored’ pricing models which Amazon requires of its vendors. Basically no other vendor (including the publisher) can offer better prices to consumers. Due to this according to the suit, Amazon removes any opportunity for price competition and therefore perpetuates higher (anticompetitive) pricing of eBooks. As follows:
27. Amazon’s and the Big Five’s continued anticompetitive use of MFNs in the United States is astonishingly brazen, given the DOJ’s high-profile enforcement against Apple and the Big Five in 2012 and the EU’s own proceedings against the Big Five and Apple in 2011 and subsequently against Amazon in 2015 for its own use of anticompetitive MFNs in eBook sales. Despite multiple investigations and censure, Amazon and the Big Five have engaged and continue to engage in a conspiracy to fix the retail price of eBooks in violation of Section 1 of the Sherman Act.
28. Amazon’s agreement with its Co-conspirators is an unreasonable restraint of trade that prevents competitive pricing and causes Plaintiffs and other consumers to overpay when they purchase eBooks from the Big Five through an eBook retailer that competes with Amazon. That harm persists and will not abate unless Amazon and the Big Five are stopped; Plaintiffs seek a nation-wide injunction under the Clayton Act to enjoin Amazon and the Big Five from enforcing this price restraint.29.Amazon’s conduct also violates Section 2. Amazon has obtained monopoly power in the U.S. retail trade eBook market, where it accounts for 90% of all eBook sales. Through its conspiracy with the Big Five Co-conspirators, Defendant Amazon has willfully acquired its monopoly power in the U.S. retail trade eBook through anticompetitive conduct, fixing the retail price of trade eBooks and causing supracompetitive prices for eBooks sold by or through Amazon’s eBook retailer rivals. Such conduct is an abuse of monopoly power in violation of Section 2 of the Sherman Act.
Link to the rest at Personanondata
First, some language clarification. As used in legal parlance, especially in antitrust matters, “MFN” refers to Most Favored Nation clauses.
The term, Most Favored Nation has its origin in international trade and tariff negotiations.
From The Balance:
Most-favored-nation (MFN) status is an economic position in which a country enjoys the best trade terms given by its trading partner. That means it receives the lowest tariffs, the fewest trade barriers, and the highest import quotas (or none at all). In other words, all MFN trade partners must be treated equally.
Link to the rest at The Balance
While international trade agreements are, at least generally, not subject to lawsuits in US courts, at some point in time, US (and perhaps other nations’) antitrust lawyers borrowed the MFN term and applied it to describe a concept in antitrust law:
From Practical Law Company:
Most favored nation clauses (MFNs), sometimes also referred to as
most favored customer clauses, are agreements in which a supplier
agrees to treat a particular customer no worse than all other customers
(see Standard Clause, General Contract Clauses, Most Favored
Customer (www.practicallaw.com/8-510-7389)). Under most MFNs,
a seller agrees to provide a product or service to a buyer at a price no
higher than the price it provides to any other buyer, now or during the
term of the agreement. Contracting parties commonly use MFNs to:
– Reduce uncertainty about potential price fluctuations.
– Transfer risk of opportunism.
– Reduce the transaction costs of both initial and later bargaining.
While commentators and courts have found MFNs to be
competitively benign in most circumstances, recent actions and
comments by enforcement agencies have raised the possibility
that MFNs may be found to be anticompetitive in several specific
situations. This Note surveys those developments and discusses
some of the risk factors that a company should consider when
analyzing the legality of specific MFNs.
Link to the rest at Practical Law Company
Back to Amazon and Big Publishing.
Long-time visitors to TPV will recall that, in 2012, an antitrust case, United States v. Apple Inc., was filed by the U.S. Department of Justice against Apple Computer and five of the six largest traditional publishers in the United States.
The suit alleged that the six defendants had violated the US antitrust laws by agreeing to set fixed prices for e-books and force Amazon to sell e-books at those prices, which were higher than the discounted prices Amazon was then charging for Big Publishing’s ebooks.
Top executives of Big Publishing had been meeting secretly for some time to decide how to keep Amazon from selling their books at a discount. Apple was planning the launch of the first iPad and the opening of its iBookstore to sell ebooks and didn’t want Amazon to offer ebooks for discounted prices.
At the iPad launch, when Apple CEO Steve Jobs was asked by a Wall Street Journal columnist how the iBookstore was going to compete with Amazon when Amazon was going to be offering ebooks for lower prices, Jobs assured the columnist that the ebook prices would be the same on Amazon as they were at the iBookstore.
Such collusive price-fixing was and is, of course, wildly illegal under US antitrust law. In PG’s transcendently-humble opinion, only rank stupidity on the part of publishers and complete arrogance on the part of Apple’s highest execs can be concluded from such a stupid move.
PG is acquainted with some attorneys who work or have worked for Apple and is confident that if Apple execs had consulted inside or outside counsel, they would have been informed that it was a dumb thing to try and had a high probability of being slipping out into the light in one way or another.
Shortly after the suit was filed, each of the publishers caved, paying a fine and agreeing never to fix ebook prices again. Apple fought the matter and lost in the trial court, the US Court of Appeals and the US Supreme Court.
With that overlong background, now we find Amazon being accused of conduct similar to Apple, in company with the same group that got into trouble with Apple.
PG’s initial reaction was that Amazon would be too smart to fall into any sort of antitrust trap of the same general type that caused Apple embarrassment and money about 9 years ago. Why collude with convicts? (that’s a little over the top, nobody went to jail)
PG hasn’t had a chance to read the Complaint in this case in any detail, but it appears that counsel for the plaintiffs is focused on Amazon’s requirement that it receive the best price that the publishers offer anyone else for ebooks it licenses. Plaintiffs’ counsel also draws a specific parallels between what it alleges Amazon’s behavior to be today and what Apple’s was in former days.
In the former antitrust case, the publishers were threatening to cut off access to their products for Amazon if it didn’t raise its prices.
PG’s has not read anything about the present claims that suggest that competitors to Amazon are being forbidden from discounting their ebooks below Amazon’s prices.
Nothing in the idea of a free market guarantees that everyone is entitled to a profit on any sale. If a competitor of Amazon wishes to acquire ebook licenses from major trade publishers and chooses to resell licenses for less than it paid for them as loss leaders in order to capture market share, there is no harm to consumers because they’re given the choice to purchase a given title at a lower price than they can from Amazon.
Amazon was reported in past times to have engaged in such discounting for various products in exactly that manner – attracting customers to its store by selling some products at a loss in order to sell other things to a customer at a small profit during the same visit or later visits when the customer returned to purchase things from Amazon.
There is a distinction between Amazon requiring that large publishers sell ebook rights to Amazon at a price that is equal to the best price the publishers offer anyone and Amazon requiring that publishers somehow force others to sell ebooks at a price no lower than Amazon sells them.
PG has digressed too long in speculation, however.
One point PG hasn’t seen mentioned anywhere else is that Amazon offers a wide range of much lower-priced ebooks from indie authors.
Forget about traditional publishing. Lots of readers enjoy buying high-quality ebooks from indie authors on Amazon because indies are willing to price their books lower than New York or London corporate publishers are.
Some buyers may also be aware that, when they buy books from indie authors, a much higher percentage of each dollar they spend on Amazon ends up in the author’s pocket than if they buy a book from a traditional publisher.
PG would argue that looking at what has happened to the ebook prices of traditional publishers with their excessive cost structures and obligations to kick lots of money upstairs to their often privately-held overseas owners is only looking at the portion of the ebook market that is in slow decline.
The growing market for indie ebooks notwithstanding, if, as one of the OP’s claims, if Amazon is using:
“‘most favored’ pricing models which” prevent any “other vendor (including the publisher)” from offering “better prices to consumers.
PG has no sympathy for Amazon and hopes it is punished for such activities.
If, on the other hand, Amazon is using its power to control its costs only (not the amount that competitors can charge for an ebook), Amazon is requiring that it be given the right to sell ebooks while paying the publisher a price that isn’t higher than the publisher is charging a competitor of Amazon to sell the same ebook, then Amazon is not demanding an uneven playing field.
In such case, Amazon is demanding a flat field, an equal cost basis upon which it it can set its own retail prices just as a competitor of Amazon can set its own retail prices.
In such case, Amazon is not saying, “You have to force any other ebook retailer to not underprice Amazon.”
Again, PG isn’t opining about the full range of ways Amazon may be accused of violating antitrust laws.
Amazon as the overwhelmingly largest seller of ebooks in the US is subject to antitrust restrictions different than Amazon as a scrappy little online bookseller.
For the record, PG is not saying that Amazon can do no wrong. Earlier in Amazon’s history Jeff Bezos was fully hands-on with a smaller company and he was able to know most of what was happening inside a smaller Amazon.
These days, a post-divorce/new girlfriend Jeff Bezos has reportedly handed off a lot of day-to-day management responsibilities to others.
While PG would like to believe that the corporate culture that Bezos impressed upon Amazon during the early and middle part of its explosive growth still governs the operations of the company, he realizes that those handling the day-to-day business decisions for the company may be motivated by other incentives.
PG has personal experience with the vast changes that can occur in an organization when the management who hired him was replaced by management with a much different outlook on business life.