March 18th, 2014
The ebooks settlement reached between the Competition Bureau and four major ebook publishers has been stayed pending the determination of a challenge brought by ebook retailer Kobo Inc. to the settlement.
Kobo argues that its contracts with the four publishers, Hachette Book Group, HarperCollins, Macmillan, and Simon & Schuster, will be fundamentally altered or terminated because of the settlement, and that it will lose money. Kobo claims that a similar settlement in the US led it to close a US office and refocus on other markets. Kobo claims that it also led another ebook company, Sony, to exit the market, and caused Barnes & Nobles’ “NOOK” ebook division to become unprofitable.
Indigo Books & Music Inc. has applied for leave to intervene in support of Kobo. Indigo’s CEO Heather Reisman says, in an affidavit, that the settlement threatens to give Amazon a monopoly or near monopoly over the sale of ebooks in Canada.
The Competition Bureau, in its response, contends that Kobo is simply trying to protect the guaranteed 30% margin it has under its existing contracts, and keep prices from falling.
The ebooks settlement is in the form of a consent agreement between the Commissioner of Competition and the four ebook publishers. The Competition Act provides that consent agreements are treated as orders of the Competition Tribunal as soon as they are filed with the Tribunal.
The consent agreement provisions replaced consent order provisions in 2002. The old consent order provisions required the Tribunal’s approval of settlements. The Tribunal made it clear that it would not rubber stamp consent orders. In a number of cases, lengthy hearings with multiple intervenors were held. The Tribunal also rejected a proposed consent orders (or parts of consent orders) in the Imperial Oil and Palm Dairies cases. This led to pressure to remove the Tribunal’s ability to reject settlements.
Under the new consent agreement provisions, a person, in this case Kobo, that is directly affected by a consent agreement, can apply to the Tribunal for rescission or variation of the consent agreement. This is what Kobo has done.
The stay is merely the first chapter in Kobo’s challenge. In order to succeed, Kobo must now establish that the terms of the consent agreement could not be the subject of an order of the Tribunal.