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How Hachette Uses an Agency Agreement to Sidestep Anti-Competitive Pricing Laws in Australia
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  • March 9, 2011
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  • AU   |   News
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    7

Sigh. I suppose it was naïve of me to think that customers (little guy) could force a large company (big bully) to act fairly – in this case regarding their policy of anti-competitive ebook pricing. Yesterday I wrote that they were breaking the ACCC law that governs “Resale Price Maintenance”. I said I’d tell the ACCC and I did. To their credit, an ACCC rep got back to me today explaining the loophole (see below).

Alas, large companies must have lawyers to think up ways to tiptoe around minor issues like, say, illegal pricing laws.

In this case, Hachette Australia can engage in “agency pricing” in Australia, despite our laws that specifically forbid anyone offering a product to set the price it can be resold at.

Hachette Australia does it by not being a reseller. It seems Hachette Australia, which distributes its products (we’ll call them “ebooks”) acts as an “agent” of its parent company, Hachette Book Group. So it never technically has ownership of said ebooks, it just brokers the deals with the resellers/retailers on behalf of its parent, apparently.

So that means Hachette is legally allowed to require its customers – the retailers selling the ebooks, among them Borders.com.au – to sell them at a certain price.

You see the ownership transfer is only one step: Hachette Book Group (international parent company) to the online store.

Is this legal? Apparently, despite laws written specifically to stamp out such practises. You can see the reply from our ACCC below, explaining it all again.

Is it the way it happens in practice? Of course not. Hachette Australia are selling the ebooks to retailers as sure at the supermarket is selling you bread.

Is it smart business practice? Almost certainly not.

As I’ve mentioned before, it maintains a certain profit point for the publisher, but will drastically reduce the turnover of the books, because prices are kept high. It also alienates readers (read: consumers) who get pissed off at being taken for a ride. So they spend their money on the almost limitless other titles.

It’s a very cynical business practice, but I’m almost ambivalent about this now. Maintaining high prices for ebooks only hurts the publisher involved. If you buy the publishers’ line that they do it to invest in emerging talent, you may be more naïve than even I.

It also drives consumers to the places where they can buy directly from the author, which is the ideal.

So – wanna buy an ebook from an author?

From the ACCC:

The role of the ACCC is to ensure compliance with the Competition and Consumer Act 2010 (Cth) (the Act), which is designed to encourage fair trading and discourage anti-competitive conduct through a specific set of competition and consumer protection rules.

One of the Act’s aims is to foster fair markets, that is, markets where normal competition can continue without being hindered by unfair and illegal market practices. Such illegal market practices include price-fixing, market-sharing, resale price maintenance, misuse of market power and certain forms of exclusive dealings/boycotts.

Section 48 of the Act prohibits suppliers, manufacturers and wholesalers from specifying a minimum price below which goods or services may not be resold or advertised for resale. This type of conduct is known as Resale Price Maintenance (RPM). It involves a supplier:

  • agreeing with a reseller that the latter will not advertise or sell below a specified price;
  • setting a minimum price at which resellers should advertise, display or offer their goods for sale or for the resupply of services;
  • inducing resellers not to discount, for example by giving special deals to resellers who agree not to
  • taking or threatening to take action against a reseller to force the reseller to sell the goods or resupply services at or above the minimum specified price, for example by refusing to continue to supply them;
  • indicating a price that is taken by the reseller as a price below which the reseller should not resell.

The key word in the above information is reseller. In the circumstances that you describe, Hachette Australia is acting as an agent for publishers rather than as a merchant. This means that Hachette Australia does not resell the products, but simply sells them on behalf of the publishers for a commission of the sale. In this instance the publisher is able to dictate what price the products are to be sold at as they retain clear title i.e. ownership of the book.

This situation is referred to as an “agency agreement” and as such it is unlikely that the conduct described will raise concerns under the Act.

 

 

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7 Comments
Darryl Adams

2011-03-09 17:05:47 Reply

I have already posted an “I is wrong” post over at OZ-E-Books. I thought there may have been issues after comments made over at The Digital Reader, but Agency laws are not easy to track down.

It appears Agency laws may be state based, but is how people sell houses via estate agents (hence their name)

    JD

    2011-03-09 17:07:22 Reply

    Yeah – just because it’s legal though, doesn’t mean it isn’t stupid (and counter-productive).

bluetyson

2011-03-10 16:13:26 Reply

Pretty funny when they clearly finesse the law like that, and complain when their ex-customers ignore some others…. ;-)

J

2011-03-10 20:24:43 Reply

In order to understand the ACCC’s reply you have to read it as though Hachette is the bookseller, because that’s what they’ve misunderstood from your inquiry. They’re saying the publisher (local or international) is selling the book, and that the bookseller (who here they think is Hachette, but really is eg Kobo) is acting as their agent, merely facilitating the sale.

A fascinating response — thanks for inquiring and publishing the reply. I’m as surprised as you, and would regard this as a definitive statement from the ACCC, if their basic misunderstanding didn’t betray their relative ignorance of the industry. This is still one to watch.

    JD

    2011-03-11 09:54:42 Reply

    Yes – it’s a bit confusing in that way. I read it that way too, initially. Either way – they’re pulling a fast one to dodge the rules.

Sean the Blogonaut

2011-03-13 17:25:54 Reply

Very Interesting. If enough people know about the dealing, coupled with market forces they should eventually break no?

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