Today, the Competition Bureau (the "Bureau")
announced that it entered into a Consent Agreement (the
"Agreement") with e-book publishers Hachette Book Group,
HarperCollins, MacMillan, and Simon & Shuster (collectively
"e-book publishers"). Under the terms of the Agreement,
the e-book publishers are required to remove/amend clauses in their
distribution agreements that restrict the ability of e-book
retailers to offer discounts to consumers.
The Agreement follows the Bureau's 18-month investigation
into the Canadian e-book industry. Based on its investigation, the
Bureau concluded that the agreements in question contravened the
competitor collaboration provisions of the Competition Act (section 90.1).
Specifically, the Agreement alleges that that the e-book publishers
had used most favoured nation clauses ("MFNs") to
effectively prohibit retailers from offering discounts to
customers, with the effect that competition in the e-book market
had been substantially prevented or lessened.
The MFNs in question related to (i) the prices that e-book
retailers or publishers could charge at both wholesale and retail,
and (ii) the revenue share or commission that could be earned by
e-book retailers. In both cases, the MFNs used the resale prices or
commissions on those offered by other major industry
While MFNs typically stipulate that the seller will reduce the
buyer's price for a product or service if a lower price is
charged to any other buyer during the term of the agreement, the
MFNs at issue are somewhat unusual as they were used to establish a
resale floor price based on those charged by other market
While the use of MFNs is generally a legitimate (and often
pro-competitive) pricing strategy, they can raise competition law
issues in certain situations. In particular, firms should carefully
consider the possible competition law implications of using MFNs in
their supply contracts where (i) they have a significant market
share, and/or (ii) where they are "MFN-plus" clauses
(which require the seller to charge other buyers a higher price) or
"airtight MFN" clauses (which gives the buyer the right
to audit the seller's transactions with other buyers and impose
penalties for non-compliance). It is worth noting that
enforcement agencies in several jurisdictions, including Canada and
the US, have increased their scrutiny of the use and competitive
effect of MFNs.
For a copy of the Consent Agreement registered with the
Competition Tribunal, please click here.
For a copy of the Bureau's press release, please click here.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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