Amazon Book Arbitrage Could Wreck Huge Amounts of Money For Authors
Amazon’s agreement with the Authors Guild creates a little bit of a “canary in the coal mine” as it relates to Amazon’s program to engage in retail arbitrage. As soon as the courts hear arguments from both sides, you can be sure that Amazon will be playing defense for a number of years to come.
Because Amazon has identified retail arbitrage as one of the key ways in which they can increase their profits, the company has decided to avoid paying the royalties that it is required to pay for the wholesale prices that it purchases its books from wholesalers. While other retailers such as Barnes & Noble have joined with the authors in trying to collect retail rates, Amazon maintains that its actions are above reproach and should not be held against it under the anti-trust laws that apply to retailers.
For retailers who engage in retail arbitrage, there are two distinct issues that come into play: The author’s contract and the condition of the marketplace. Let’s examine these issues in a little more detail.
The first issue is fairly straight forward and involves the “Amazon vs. Barnes & Noble” format that the “Amazon vs. U.S. Department of Justice” litigation has emerged from. In Amazon’s contract with authors, the company has stated that it will not be obligated to honor contracts entered into with any publisher that engages in retail arbitrage.
When an author signs with Amazon as a result of having an E-Book on sale at that website, they do so in exchange for an author being credited as the author of that E-Book. What the contract does not state is that the author is also signing away the right to not collect retail rates if they agree to engage in retail arbitrage.
Under Amazon’s contracts with publishers, the retailer would be able to charge customers a “service fee” for the retailer’s participation in retail arbitrage. Of course, that retailer will be given a commission as well.
With Amazon’s contracts with publishers, the retailer is only entitled to royalties that are due when the sale of the author’s e-Book is actually processed. This means that an author could be selling his or her e-Book without having actually sold it to a customer, yet still be liable for retail charges.
Many of the authors who have signed contracts with Amazon as a result of their retail arbitrage agreements will face being charged with copyright infringement. If Amazon does indeed engage in retail arbitrage and sells someone’s e-Book to a customer, Amazon will be seen as selling that e-Book in violation of the contract between the author and Amazon.
The publisher, who agreed to pay Amazon a commission for any books sold in the event that the retailer were to be found to be engaged in retail arbitrage, will also be liable for that commission. The same goes for the retailer, who is paying the retailer a commission for a book that the retailer sold to a customer.
Because of the nature of Amazon’s contracts with authors, the company is allowed to stop authors from receiving retail rates after a certain amount of time has passed. This basically puts the onus on the authors to make sure that their contracts clearly indicate that the retailer will be credited for all retail sales from that point forward.
The trouble is that while the contracts may contain some stipulations in regard to the retailer being paid as well as the author in the event that the retailer engages in retail arbitrage, it is not always clear what the seller actually gets in that case. Many publishers, especially the larger ones, try to avoid making this sort of promise, because it is a clear breach of contract.
Amazon is not alone in its retailarbitrage activities. They are merely the latest retailer to receive a bad rap from the Authors Guild over this issue.