This article is part of our special report Innovation and the Digital Economy.
The Commission yesterday (6 December) launched an investigation into potential price fixing between e-book publishers and Apple Inc, to examine whether rival publishers were blocked or consumers harmed.
The decision by the European Commission to open an investigation on Tuesday (6 December) followed raids on publishers – including Lagardere, Pearson Plc and News Corp – in March this year.
"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 European Union or in the European Economic Area," according to a Commission statement.
US regulators are also looking into pricing deals imposed under an agency model in which publishers set the retail price. Antitrust rules forbid price-fixing agreements designed to shut out competitors or that could result in consumers paying more.
“The Commission is also examining the character and terms of the agency agreements entered into by […] publishers and retailers for the sale of e-books,” it said.
Five companies under scrutiny
It identified the publishers under scrutiny as French media-to-aerospace group Lagardere’s Hachette Livre unit, News Corp’s Harper Collins, CBS Corp’s Simon & Schuster, Pearson's Penguin and Verlagsgruppe Georg von Holzbrinck, which owns Macmillan in Germany.
"Pearson does not believe it has breached any laws, and will continue to fully and openly cooperate with the Commission," a Pearson spokesman said, adding that the group would work with regulators in the investigation.
Apple and Hachette Livre declined to comment. Harper Collins and Simon & Schuster said they were cooperating with the investigation.
Publishers adopted the agency model last year when Apple launched the iPad, allowing publishers to set the price of the sale of e-books. In turn, they would share revenue with the retailer. In the past, publishers would sell e-books on a wholesale model for 50% of the retail price.
EU executive bares teeth to digital sector
The investigation shows the EU regulator is cracking down on suspected infringements in the digital sector, said Douwe Groenevelt at law firm De Brauw Blackstone Westbroek in Brussels.
"The probe seems to be focusing on a distribution model particular to e-books. We can expect the Commission to investigate other distribution models in the digital sector," he said.
In the traditional "wholesale model", publishers set a recommended retail price, but the seller is free to offer deep discounts.
E-books are fast gaining popularity in Europe and in Britain e-books already account for about 10% of book sales by volume and a fifth of revenue.
Britain's Office of Fair Trading said on Tuesday it would coordinate with the EU regulator on the e-book sector and was closing its own investigation into the matter.
In March 2011, the Commission carried out unannounced inspections at the premises of several companies active in the e-book publishing sector in several member states (see Commission memo).
To date, the Commission and the UK Office of Fair Trading have investigated in parallel and in close cooperation whether arrangements for the sale of e-books may breach competition rules.
Before the Commission opened formal proceedings, the OFT had closed its investigation on grounds of administrative priority. The OFT has made a substantial contribution to the ebooks investigation and will continue to co-operate closely with the Commission going forward.
- 2012: The duration of the investigation will depend on the complexity of the case, the extent to which the undertakings concerned cooperate with the Commission and the exercise of the rights of defence.