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Price revision clauses targeted by the european commission

Article Competition, Retail and Consumer Law Commercial and International Contracts | 18/06/15 | 5 min. | Renaud Christol

After having coordinated the proceedings brought by several competition authorities across Europe against hotel booking platforms which required hotels to grant them pricing conditions at least as favorable as that of their competitors, which resulted in the removal of such clauses, the European Commission is now investigating into Amazon’s e-book distribution contracts.

On Thursday June 11, 2015, the European Commission (“the Commission”) announced that it had opened a formal antitrust investigation into Amazon’s business practices vis-a-vis publishers in the distribution of electronic books (“e-books”)1.

 

An upward trend

Such announcement is made in the context of the competition authorities’ upward trend consisting in investigating contractual provisions that modify the contract price throughout the performance of such contract.

As a reminder, between 2012 and 2015, the Commission supervised the simultaneous actions of seven competition authorities across Europe (France, Germany, Sweden, UK, Italy, Austria, Ireland) which brought proceedings against hotel booking platforms (Booking.com, HRS, Expedia) which imposed “parity” clauses on their hotel cocontractors in order to automatically benefit from the same conditions as those granted to their competitors or those that hotels applied to themselves.

In other words, it was impossible to find a hotel room at a lower rate than that offered by Booking.com even when booking with the hotel directly.

Booking.com committed before the French, Italian and Swedish competition authorities to end such practices and to enable hotels to offer more favorable prices and/or business terms on Booking.com’s competing platforms or within their own (online or offline) sales channels2. Even though Booking.com recently extended its commitments to contracts entered into with German hotels, proceedings remain ongoing before the Bundeskartellamt. Proceedings are also pending before other competition authorities, including inter alia in Poland. Furthermore, the Macron draft bill, which is currently under debate in France, makes provision for the implementation of contractual mechanisms to prevent stigmatized mechanisms from reemerging.

 

Parity clauses again in question

The investigation announced by the Commission on June 11, 2015 focuses on contractual clauses requiring publishers to inform Amazon of the different commercial conditions granted to its competitors and enable it to automatically benefit from these terms when they are more favorable.

Such mechanisms, so called “parity clauses”, concern the conditions regarding the e-book price-setting and revision conditions, as well as non-price related conditions granted by publishers to Amazon.

Even though the Commission states that at first it will focus its analysis on the largest e-book markets in the European Economic Area (e-books in English and in German), it is highly likely that it will extend its investigation at a later stage.

According to the Commission, the clauses contained in the distribution contracts entered into between Amazon and publishers are likely to restrict competition between e-book distributors, and to reduce the choice of consumers by making the development of efficient or alternative competitors to Amazon more difficult. Such competitors would likely see their efforts to develop new products or services in order to efficiently compete against Amazon shattered. Such practices fall within the scope of the prohibition of the abuse of a dominant position (Amazon seems to be a large distributor of e-books) and restrictive business practices.

This is not the first time that Amazon has experienced a setback regarding parity clauses. In 2013, after the English and German competition authorities had opened investigations, Amazon had already been required to remove price parity clauses from the contracts it had entered into with independent distributors for the sale of products on its marketplace. According to those authorities, the clauses prevented distributors from applying lower rates on other platforms3.

The e-book sector has also already been concerned by a similar investigation. The Commission investigated into the price parity clauses contained in the contracts entered into between Apple and various publishers such as Hachette and Harper Collins concerning the distribution of e-books. The Commission obtained from Apple and other publishers commitments to remove the price parity clauses from their contracts. The commitments did not concern the other parity clauses however identified by the Commission.

In the framework of Amazon’s investigation, the Commission does not intend to limit to the price parity clauses. It wishes to investigate all the clauses aiming at standardizing the conditions applied by publishers to e-books distributors.

With this ex officio investigation, the Commission addresses a strong message to all operators using such clauses, in particular in e-commerce contracts. A possible disapproval of Amazon’s parity clauses would certainly send a major signal in this sector (also concerned by a sectorial investigation launched in May 20154) where such kind of contractual mechanism (both inside the distribution networks and vis-a-vis competitors) is frequently used.

1 See Commission’s press release of June 11, 2015.

2 Decision No. 15-D-06 of April 21, 2015 concerning practices implemented in the online hotel booking sector.

3 See the press release on Bundeskartellamt’s web site:  http://www.bundeskartellamt.de/SharedDocs/Meldung/ EN/Meldungen%20News%20Karussell/26_11_2013_Amazon.html

4 See our flash “The European Commission launches an inquiry into the situation of competition in the e-commerce sector” of May 2015.

 

 

Renaud Christol, Counsel

Elsa Pinon, Associate

 

 

 

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