John Paczkowski

Recent Posts by John Paczkowski

Amazon Demanded Same Terms From Publishers For Which Apple is Now On Trial

hard_bargain_farmWhen Apple negotiated its e-book contracts with the five publishers with which it would ultimately launch iBooks, the company demanded a “most favored nation provision” that required publishers to match in its bookstore any lower prices they offered elsewhere.

That provision today is central to the U.S. Department of Justice’s e-book price-fixing case against the company. With it, the government argues, Apple was able to force booksellers like Amazon to shift their e-book business model from wholesale, where prices are set by distributors, to agency, where the publishers set the prices, in the process putting Apple in the enviable position of “not having to compete on price at all.” For Apple, then, the MFN was the nefarious fulcrum with which it shifted the entire e-book industry from wholesale to agency and raised e-book prices in the process.

Now here’s the thing. When Amazon, whose complaints are believed to have initiated the case, finally did renegotiate its e-book agreements from wholesale to agency pricing, what do you think it demanded from publishers?

The very same agency terms that Apple demanded and that the government decries as components of an Apple-led conspiracy: A 30 percent commission on e-book sales, pricing tiers and caps, and, yes, a “most favored nation” clause. In fact, according to documents shown in court on Wednesday — documents that Amazon fought aggressively to keep out of the public eye — the company’s MFN’s were at times even more favorable to its business than Apple’s.

What’s more, during cross-examination on Wednesday, Russ Grandinetti, vice president of Kindle Content at Amazon, acknowledged that the retailer adopted those terms specifically to protect its legitimate business interests. He noted that Amazon wanted to make sure it had a “level playing field” with other retailers. Like Apple, Amazon didn’t want to be disadvantaged competitively in the e-books space.

Said Grandinetti, “We were not prepared to sign a contract for whatever length of time this was going to be, where we weren’t confident we could not be further discriminated against by these publishers.”

If that’s a reasonable view, one that’s in Amazon’s own lawful business interests, why isn’t Apple’s behavior also lawful?

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