Amazon’s E-Books Business Investigated by European Antitrust Regulators


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Visitors browsing through e-books at a book fair in Frankfurt in 2010. The E.U. is looking into whether Amazon used its dominant position in the region’s e-books market to favor its own products.

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Daniel Roland/Agence France-Presse — Getty Images

In the digital world, things change in an instant. One minute you are the people’s champion. In the next, perhaps a villain.

European regulators said on Thursday that they were beginning an antitrust investigation into whether Amazon used its dominant position in the region’s e-books market to favor its own products over rivals.

The announcement casts Amazon in a very different role from three years ago, when it prodded the United States Justice Department to file an antitrust suit against Apple and five leading publishers for conspiracy to fix e-book prices. That suit resulted in settlements from the publishers and a verdict against Apple, which it is appealing. Amazon was celebrated, and aggressively celebrated itself, as a hero for championing lower prices.

Now the European Commission is evaluating the legality of clauses that Amazon used with European publishers, which required them to inform the e-commerce giant when they offered more favorable terms for books to other digital retailers. Since Amazon is by far the most powerful e-book retailer, such clauses might prevent an innovator from breaking through.

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Daniel Crane, an antitrust expert at the University of Michigan Law School, said the investigation was not a surprise. “In the U.S., firms can enjoy and exploit their dominance as long as they don’t do so in plainly anticompetitive ways,” he said. “But in Europe, they have to take special pains not to do things that extend their dominance.”

The European Commission’s announcement is the latest obstacle facing United States technology companies in Europe. European authorities have pursued tax, antitrust and other investigations into the businesses of Apple, Google and Facebook.

Amazon has also drawn scrutiny for its complex tax practices in Luxembourg, home to its European headquarters, which are the subject of a separate investigation by the authorities. The commission is also pursuing an antitrust investigation into whether large tech companies have impeded competition in Europe’s online shopping industry.

“Amazon has developed a successful business that offers consumers a comprehensive service,” Europe’s antitrust chief, Margrethe Vestager, said on Thursday in a statement. “It is my duty to make sure that Amazon’s arrangements with publishers are not harmful to consumers, by preventing other e-book distributors from innovating and competing effectively with Amazon.”

In a statement, Amazon said it was “confident that our agreements with publishers are legal and in the best interests of readers.” The company said it would “cooperate fully during this process.”

Amazon rose to success by figuring out how to sell books and then e-books online. Now, with more power than any bookseller in modern times — and as a publisher and a manufacturer of e-book devices as well — the company is finding itself challenged by critics, publishers and regulators.

The European disclosure came as Amazon continues to negotiate with Penguin Random House, the world’s largest publisher, for new contract terms. Attempts to reach a deal have yielded little. When talks with another publisher, Hachette, broke down last year, writers of all sorts took to the barricades, fueling copious discussion about whether Amazon was saving the world of reading or ruining it.

A spokeswoman for Penguin Random House said “all is good” between it and Amazon. A spokesman for Amazon did not return a message for comment.

The court case that cemented Amazon’s e-book dominance in the United States over rivals like Barnes & Noble is being viewed differently in 2015 than it was in 2012.

Amazon introduced the Kindle, the first truly popular electronic reader, in 2007. When Apple introduced the iPad three years later, publishers tried to use the new device as leverage against Amazon. The ensuing price-fixing suit was settled by the publishers. Apple lost in court. (Hachette was one of the defendants, as was Penguin, then a separate company from Random House.)

Apple’s deep pockets allowed it to pursue an expensive appeal, and a hearing in New York last December seemed to show that two of the three judges might be sympathetic to its arguments. A ruling is expected later this year.

“The government and lower court viewed it as price fixing, which is an automatic violation of the antitrust laws,” said Michael Carrier, an antitrust expert at Rutgers School of Law in Camden. “But Apple — and the appeals court — could view this as possibly the only way to enter a market dominated by a monopolist charging excessively low prices.”

The European Commission’s e-books investigation is at an early stage and still could be dropped or end in a settlement without a formal finding of wrongdoing. If formal charges, or a statement of objections, are eventually brought against Amazon and Amazon fails to successfully rebut those findings, the company could face a fine of as much as 10 percent of its most recent annual global sales.

The largest single fine levied by the commission, the European Union’s executive body in Brussels, is 1.1 billion euros ($1.2 billion) in 2009 against Intel, the chip manufacturer, for abusing its dominance of the computer chip market. But the accumulated penalties paid by another American technology titan, Microsoft, were even higher, totaling almost €2 billion in European fines over a decade.

In Europe, Amazon’s issues with publishers have been building. The company has been estimated to sell about eight out of every 10 e-books in Britain. In Germany, the market share is just under half. In the United States, Amazon has an estimated two-thirds of the e-book market.

Last June, the German Publishers and Booksellers Association submitted a complaint to the German antitrust authority, asserting that Amazon’s monopolylike position in the e-book market violated competition law.

Later that summer, hundreds of writers from Austria, Germany and Switzerland signed an open letter to Amazon, accusing it of manipulating its recommended reading lists and of lying to customers about the availability of books as retaliation in a dispute with Bonnier, a leading publishing group in Germany, over e-book prices.

The Bonnier dispute echoed the fight between Amazon and Hachette in the United States. In response to the European authors’ complaints, Amazon contended Bonnier offered “most of its titles under conditions that make it significantly more expensive for us to sell a digital version, as compared to a printed edition.”

Amazon and Bonnier reached an agreement over the e-book pricing in October, but neither side revealed details.

The European Commission said on Thursday that the e-books investigation was distinct from the antitrust dispute between Germany and Amazon and was not the result of a formal complaint.

“The in-depth investigation launched today was at the commission’s own initiative,” said Ricardo Cardoso, a spokesman for the commission.

Alexander Skipis, president of the German publishers’ association, welcomed the commission’s move on Thursday as confirmation of unfair practices pointed out by the organization last year.

“The publishers’ association will continue to monitor very closely and call attention to unfair practices,” Mr. Skipis said.

Ms. Vestager, a longtime Danish politician, has taken an assertive approach since becoming the European Union’s competition commissioner last year.

In April, she brought formal antitrust charges against Google, accusing the American tech giant of using its dominance as a search engine to “artificially” skew results to favor its own shopping service to the detriment of rivals. In May, she announced an antitrust investigation into whether large tech companies were impeding competition in online shopping.

Although the regulators said the investigation was not aimed at specific companies, Amazon’s sales are more than double those of its closest competitor.



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