Some concerns have been raised in the publishing press recently (www.thebookseller.com/news/118550-legal-issues-raise-question-over-ipad-agency-model-in-uk.html) about the legality of Apple’s so-called “agency model” when applied to the UK with the launch of the iPad on 28 May.
What’s the deal?
The agency model operated by Apple so far in the US usually allows a publisher to place its works on the iBookstore only by way of one of around 8 Apple approved aggregators; only the largest publishers (many of whom will not be based in the UK) can go directly to Apple to get onto the iBookstore. This approach seems to be driven both by the complexities in preparing high-quality ePubs that meet Apple’s specifications and also by Apple’s desire to streamline the input of large numbers of works into their systems.
Each of the aggregators has a slightly different business model, with distribution options that include but may also go beyond just Apple and the iBookstore; some have flat fees up front, others take a percentage of sales. Apple itself retains 30% of the sales price.
Whether under the terms of a direct deal with a large publisher or under a deal via an aggregator, Apple acts as an agent of the publisher; the publisher sets the price for the book within pricing bands set by Apple and controls whether a work goes on to the iBookstore and how long it stays there.
What’s the problem?
The view has been expressed that if lots of UK publishers sign up to Apple’s terms and accept Apple’s pricing models this could amount to some form of “collusion” which would breach competition law.
What’s the law?
It is certainly the case that where actual or potential competitors (in this case, the publishers) collude to align their prices with one another that kind of behaviour, if it has or is likely to have a significant effect on the market, may well be viewed as activity in breach of the U.K.’s Competition Act 1998. Chapter 1 of the 1998 Act prohibits agreements between businesses that “have as their object or effect the prevention, restriction or distortion of competition within the United Kingdom”.
So what kind of agreement do we have with the Apple agency model that could fall foul of Chapter 1? The deal between the publisher and Apple, whether direct in the case of a large publisher or indirect via an aggregator, is unlikely to be a problem given that it is an agency agreement, which is a type of agreement which rarely falls within the purview of competition law. This is because the agent (here, Apple) is merely acting on behalf of a principal (here, the publisher) who decides whether a book should be sold via the iBookstore and at what price. However, if the agent (Apple) sets the price in the arrangement may not be a true agency for the purposes of competition law.
The position is, however, that Apple is entitled to refuse to “stock” a work if it cannot agree with the publisher the pricing band which should be applied to the work, but on the basis that the bands are relatively wide this falls far short of Apple setting the price itself. It also remains open to the publisher to decide whether it uses Apple or other online mechanisms, and whether it does so via one or more aggregators. In the case of the smaller publisher which has to approach Apple via an aggregator there seems even less of a concern; the publisher will do an individual deal with one of the several aggregators in the market who will probably be supplying a number of services to the publisher, not just access to the iBookstore.
A competition law issue would only arise if the iPad/iBookstore became dominant over the other e-book readers in the market including Kindle, Sony Reader and others which are emerging, and Apple entered into exclusive deals designed to stop publishers and aggregators from dealing with other platforms. If that’s what Apple plans then it is going about matters in an odd way, having adopted the open ePub standard (in contrast to the restricted file format that Apple used in the early days of iTunes).
If the iBookstore becomes a rampant – and therefore dominant – success in the UK then competition law problems in the future cannot be ruled out, but it is a little early to be sounding the alarm bells just now.
© Taveners May 2010