• Amazon Decision and E-Book Commitments
  • July 15, 2017
  • Introduction
    The usage of e-books increases every day. Moreover, the discussion has ensued as to whether e-books will replace printed books, and make the latter "vintage." The future will reveal the answer soon. Leaving this discussion aside, the rapidly growing e-book popularity in the e-commerce sector is a fact.
    Amazon EU S.à.r.l ("Amazon") is the largest e-book distributor in Europe. Therefore, Amazon's activities draw the attention of the European Commission ("Commission"). Indeed, the Commission has conducted a formal antitrust investigation with regard to Amazon's arrangements with e-book publishers, which contain the so-called "most favored nation clauses" ("MFN"). On May 4, 2017, the Commission adopted a decision that renders legally binding the commitments offered by Amazon. The commitments address the Commission's preliminary competition concerns relating to a number of clauses in Amazon's distribution agreements with e-book publishers in Europe1.
    Additionally, the Competition and Markets Authority (United Kingdom) and the Bundeskartellamt (Germany) also investigated Amazon's MFN arrangements, but terminated their investigations due to the fact that Amazon had terminated its MFN applications.
    Background
    On June 11, 2015, the Commission opened an investigation in to Amazon.2 The Commission, in particular, investigated the MFN clauses included in Amazon's contracts with publishers, and their compatibility with Articles 101 (agreements) and 102 (abuse of dominant position) of the Treaty on the Functioning of the European Union ("TFEU"). The MFN clauses required publishers to inform Amazon about more favorable or alternative terms offered to Amazon's competitors, and/or to offer Amazon similar terms and conditions than to its competitors, or through other means to ensure that Amazon is offered terms at least as good as those offered to its competitors.
    The Commission considered that such clauses could make it more difficult for other e-book platforms to compete with Amazon by reducing publishers' and competitors' ability and incentives to develop new and innovative e-books and alternative distribution services. The clauses may have led to less choice, less innovation and higher prices for consumers due to less overall competition in the European Economic Area ("EEA") in e-book distribution. If this was the case, this practice by Amazon would breach European Union competition law, since it would amount to an illegal abuse of dominance and restrictive business practices.
    On January 13, 2017, Amazon proposed its commitments and appointed a trustee to monitor its compliance with the commitments. On January 24, 2017, the Commission invited feedback on commitments offered by Amazon from interested parties.3 On January 24, 2017, the Commission published the Market Test Notice.4 Upon receipt of the feedback, Amazon made some amendments to its previously proposed commitments.
    Finally, on May 4, 2017, the Commission adopted a decision that accepts the commitments offered by Amazon. The EU Commissioner in charge of competition policy, Margrethe Vestager, stated that the Commission wants to ensure fair competition in Europe's e-books market, and the decision will open the way for publishers and competitors to develop innovative services for e-books, increasing choice and competition to the benefit of European consumers.
    Amazon's Business Model
    Amazon applies an agency model with regard to the sale of e-books. In the relevant model, the prices of the e-books are determined by the publishers, and Amazon receives a commission from the established prices of the e-books that are sold5.
    The Approved Commitments
    The below listed commitments will apply for a period of 5 years and to any e-book in any language distributed by Amazon in the EEA.
    Firstly, Amazon will not enforce the MFN clauses or any such clauses requiring publishers to inform Amazon about such terms and conditions. The commitments cover, in particular, provisions related to alternative/new business models, release dates and catalogues of e-books, features of e-books, promotions, agency prices, agency commissions and wholesale prices.
    Secondly, Amazon will allow publishers to terminate e-book contracts that contain a clause linking discount amounts for e-books to the retail price of a given e-book on a competing platform (so-called Discount Pool Provision). The Discount Pool Provision is a pool of credits provided to Amazon to allow it to discount agency prices (i.e. the prices at which Amazon sells on behalf of publishers) for e-books supplied on the Amazon platform. The size of the allowable discount pool was linked to the difference between the agency prices set by the publishers for its e-books on the Amazon platform, as well as the agency or reseller prices set for the same books on competing e-book platforms6.
    Thirdly, Amazon will not place MFN clauses and Discount Pool Provisions in its new agreements.
    If Amazon were to breach the commitments, the Commission could impose a fine of up to 10% of Amazon's total annual turnover, without having identify any violation of the EU competition rules7.
    Why is the Amazon Decision important?
    Considering the Competition Authority's interest in the MFN clauses in multisided markets, the Amazon Decision can be accepted as an important decision for Turkish competition law.
    Accordingly, the Competition Authority's interest in this specific subject is observed through its two recent decisions relating to similar issues. In the Yemek Sepeti decision, the Competition Board imposed an administrative monetary fine on Yemek Sepeti, an online food order platform, ordered it to end any type of MFN practices that prevent competing platforms to offer better or different conditions, and revise its agreements within such scope. The Competition Board found that Yemek Sepeti's practices prohibit restaurants from offering better conditions to other platforms, and are exclusionary for its competitors; therefore, in breach of Article 6 of the Law Numbered 4054.8 Furthermore, the Competition Board fined Booking.com, the commonly known hotel reservation platform, since it found that Booking.com violated Article 4 of Competition Act Numbered 4054, and imposed an administrative fine on the undertaking. Additionally, in the same decision, the Competition Board accepted Booking.com's commitments on narrow MFN clauses for 5 years, and granted individual exemption9.
    In light of these decisions, it appears that the Competition Board tends to evaluate the market power and the anticompetitive effects to be directly proportionate in platform markets where MFN clauses find application. The Competition Board may determine the legal grounds as being Articles 4 or 6 of Competition Act Numbered 4054, but under all conditions, it primarily focuses on whether the practice restricts in-brand or inter-brand competition by creating market-entry obstacles and price stability.
    The Commission's approach in the Amazon decision is also in parallel with the Competition Board's relevant decisions. Additionally, it is clear that the Amazon commitments will be indicative for the undertakings with similar conditions.

    4 http://eur-lex.europa.eu/legal content/EN/TXT/?uri=uriserv:OJ.C_.2017.026.01.0002.01.ENG&toc=OJ:C:2017:026:TOC (Access Date: 14.06.2017).
    5 Competition Authority's Bookingcom Decision dated 05.01.2017 and numbered 17-01/12-4.
    8 Competition Board's Yemek Sepeti Decision dated 09.06.2016 and numbered 16-20/347-156.
    9 Competition Board's Booking.com Decision dated 05.01.2017 and numbered 17-01/12-4.