Is Apple's Fight on Agency or Most Favored Nations?

  Opening statement in US v. Apple by quartznews

Sometimes it’s best to keep your dirty laundry inside and not show it to the world. We have seen some interesting misjudgements and statements over the last decade, first with the Google Book Settlement (GBS) and latterly with the Apple Agency Pricing. In both cases there appears to be a clash of cultures, misunderstanding between parties and momentum behind the search for a ‘silver bullet’ at all costs.

What is interesting from the material released on day one of the agency trail, is how the search for any solution appears to have blinded one side and the need to establish a market fixated the other. The references to ‘idiots’ by both sides against the other, doesn’t help, and the case as laid out by the DOJ would suggest that there is little wriggle room for the defendants. But it is only day one and despite all the other parties settling with the DOJ for tens of millions, Apple may still have some technicality, or material, tucked up their sleeve.

Opinion is still divided on GBS and probably will, whatever the outcome of the court case, continue to be divided on agency. But if the five publishers settled, so why is Apple still fighting its corner?

They obviously have deeper pockets and can take a hefty fine if found guilty, and will probably fight any adverse decision through the appeal system. So is it about the agency model, or more about the ‘most favoured nations’ clause they imposed on the publishers? Just as the GBS debacle was not about scanning and lending, but more about the ‘land grab’ of orphan works, the core issue is often hidden.

The most favoured nations clause grants Apple the ability to sell ebooks at least as cheap as all other retailers. No one, not even Amazon could sell ebooks cheaper. The clauses are common in media licensing deals, but there is concern that they allow the largest players in each industry to force prices higher than open market forces would set them. The EU has already forced Apple to drop its most favoured nation status with publishers. In the US case, the case is on price collusion and if the court were to rule that Apple’s most favored nation amounted to an antitrust violation that could have enormous implications in all media industries.

Music, movies, and TV are far larger than ebooks to Apple and these sectors are still dominated by large producers that don’t have the same threat as book publishers’ face from self-publishing. However in these other sectors Apple do have new and strong competitors and the use of the most favored nation clause may be essential to them moving into new sectors such as TV whilst protecting others such as music.

We watch the case with interest and please read the opening statement from the DOJ and make your own mind up.