European Commission Opens Antitrust Investigation Over Ebook Pricing Against Apple, Five Publishers

Posted on December 6, 2011

The European Union's watchdog, The European Commission, has opened a formal investigation into price fixing and collusion regarding ebook prices between Apple and five major publishers: Hachette Livre (Lagardere Publishing, France), Harper Collins (News Corp., USA), Simon & Schuster (CBS Corp., USA), Penguin (Pearson Group, United Kingdom) and Verlagsgruppe Georg von Holzbrinck (owner of inter alia Macmillan, Germany).

This is all part of the ongoing war over ebook pricing. The EU calls the publishers and Apple a "cartel" which fixed ebook prices using the agency model. Amazon.com uses the traditional wholesale model of buying ebooks from the publishers and then selling the ebooks at a price of its own choosing. Under the new agency model, the publishers get to set the price of the ebooks. The agency model of pricing for ebooks was created by Apple founder Steve Jobs as a way to compete with Amazon.com's Kindle. At the beginning of the ebook revolution, Amazon.com used the wholesale model of ebook pricing which allowed it to sell ebooks at a deep discount.

The Commission said this in a statement:

The Commission 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 (Article 101 of the Treaty on the Functioning of the European Union - TFEU).

Yes, you read that correctly. In March of this year, the Commission actually raided publishers' offices in connection with this investigation. Publishers got raided like they were a drug cartel or something. The Commission hasn't said what they found during the course of the raids -- other than some surprised editors.

There are rumors that a similar antitrust investigation will be launched in the U.S. over the agency model. Readers despise the agency model, but publishers love it. Author Michael A. Stackpole wrote an interesting article in which he argues that authors do much better under the wholesale model than the agency model.

The Society of Authors has a similar opinion on the subject. However, the Authors Guild is focusing on the dismal royalty rates authors are paid for ebooks.