MFN clauses under spotlight in Amazon’s e-book probe

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Summary: On 11 June 2015, the European Commission announced it has launched an investigation into certain of Amazon’s business practices in the distribution of e-books. The investigation will focus on Amazon’s parity or “Most Favoured Nation” (“MFN”) provisions in its contracts with publishers and could potentially have far broader implications for anyone using these clauses.

On 11 June 2015, the European Commission announced it has launched an investigation into certain of Amazon’s business practices in the distribution of e-books. The investigation will focus on Amazon’s parity or “Most Favoured Nation” (“MFN”) provisions in its contracts with publishers and could potentially have far broader implications for anyone using these clauses.

Scope of the Investigation

The Commission’s investigation into Amazon centres around MFN clauses requiring publishers:

  • to inform Amazon if its competitors are offered more favourable or alternative terms; and/or
  • to offer Amazon equal or better terms.
  • The Commission’s concern is that such clauses may limit competition between e-book distributors and stifle innovation or alternative business models, thus restricting consumer choice.

Wider Implications

MFNs are a common feature of distribution models across many sectors and they have been under the spotlight of competition authorities for several years. MFN clauses used by hotel booking platforms have been the subject of investigations in the UK, Germany, France, Italy and Sweden – with divergent outcomes in some cases. E-books themselves have also been the subject of a previous European Commission investigation, relating to the agency-model arrangements between Apple and publishers, which resulted in those parties agreeing binding commitments not to include price MFN clauses in their agreements for five years.

However, the new investigation into Amazon’s use of MFN clauses is notable for a number of reasons, including:

  • The investigation covers both “price” MFNs and also “non-price” MFNs. “Non-price” MFNs were not covered by the decisions in the previous E-books case. Their inclusion here indicates that the Commission has concerns about such clauses.
  • Given the divergent approach of national regulators and the resulting uncertainty in respect of the use of MFNs, a decision at EU level could provide some much-needed clarity on the subject.

There is no specific deadline for the Commission’s investigation. It is also too early to speculate on what the potential result might be. Amazon has responded publicly by stating its confidence that its agreements are legal and it is likely to put up a robust defence. Although, technically, the company could be fined if it is found to have infringed competition law, it is increasingly common for investigations like this to result in companies agreeing to specific behavioural commitments (for example, not to use the relevant MFN clauses for a certain period).

Whichever direction the investigation ultimately takes, it is likely to be of significant interest to anyone drafting a distribution agreement including MFN clauses.

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