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Week in Review

By Chris Helsel

Amazon E-Books Business Under Scrutiny by European Union Antitrust Regulators

Online retailer Amazon, which only five years ago was celebrated for prodding the U.S. Department of Justice (DoJ) to bring an antitrust suit against Apple and five leading e-book publishers for price fixing, now finds itself under investigation for possible antitrust violations of its own.

European Union (EU) regulators announced this week that they were beginning an investigation into whether Amazon abused its dominant position in the e-books market to prevent innovators from breaking through by artificially lowering its own prices. Specifically at issue are certain clauses in the company's contracts with European publishers that require the publishers to inform Amazon when they offered more favorable terms for books to other digital retailers, allowing the American titan to lower its own prices in response.

Europe's top antitrust regulator, Margrethe Vestager, who became the EU's Competition Commissioner last year, made headlines earlier this year when she brought formal antitrust charges against Google for abusing its dominant search engine market position by skewing search results to favor its own shopping service. Ms. Vestager said in a statement on Thursday, "Amazon has developed a successful business that offers consumers a comprehensive service. It is my duty to make sure that Amazon's arrangements with publishers are not harmful to consumers, by preventing other e-book distributors from innovating and competing effectively with Amazon."

Amazon soon thereafter issued a statement in response to the EU announcement. The company said it was "confident that our agreements with publishers are legal and in the best interests of readers" and said it would "cooperate fully during this process."

If the European Commission (the EU's executive body) investigation determines that sufficient evidence exists to support a formal charges, and Amazon fails to successfully rebut those findings, the company could face a fine of as much as 10% of its annual global sales. The largest single fine levied by the Commission is €1.1 billion in 2009 against American chip manufacturer Intel for its dominance of the computer chip market. Another American tech giant, Microsoft, has paid a total of almost €2 billion in European fines over the last decade.

In a separate proceeding last June, the German Publishers and Booksellers Association submitted a complaint to the German antitrust authority, accusing Amazon of abusing its dominance of the e-book market in violation of competition law. The European Commission confirmed this week that its current investigation is distinct from the German dispute.

As mentioned above, five years ago Amazon found itself on the opposite side of the issue, accusing Apple and five major publishers of price fixing in New York federal court. In 2010, following the release of Apple's iPad, the company attempted to use its new device as leverage against Amazon and its popular e-reader, the Kindle. The publishers settled, and Apple lost at trial in 2013. That appeal is still pending, with a decision expected later this year.

Amazon is also the subject of a separate investigation in Luxembourg, home to its European headquarters, regarding its complex tax practices in that country.


After Denying Any Involvement, Top FIFA Official Admits Authorizing $10 Million Payment - But Insists He Did Nothing Wrong

Among the accusations levied against former FIFA executive Jack Warner in last month's DoJ indictment was the charge that he received a $10 million bribe from South African officials in exchange for his vote for the country's bid for the 2010 World Cup. The alleged bribe was dubiously classified as a "voluntary contribution" to a fund devoted to soccer development in Trinidad - and the fact that Mr. Warner hailed from Trinidad and was the most powerful man in Caribbean soccer was pure coincidence.

The indictment accused a "high-ranking FIFA official" of authorizing and facilitating the payment, and though it did not name the official, widespread speculation focused on one man: FIFA general secretary Jérôme Valcke of France.

On June 1st, Mr. Valcke told the New York Times in an email that of course had he not authorized the payment, for he lacked the power to do so. The next day, a FIFA official statement declared that "neither the Secretary General Jérôme Valcke nor any other member of FIFA's senior management were involved in the initiation, approval and implementation of" the "project" - i.e. the bribe paid to Trinidad.

The story unraveled quickly, however, as a letter from a South African soccer official to Mr. Valcke discussing the payment soon surfaced. In response, FIFA amended its position, claiming in a new statement that the payment had been authorized by then-chairman of its finance committee, Julio Grondona. Conveniently, Mr. Grondona died last year.

Following the release of the South African letter and amid ever-increasing pressure from around the globe, FIFA president Sepp Blatter announced his decision to resign his post last week.

This week, the official story about the South African transaction changed again, with Mr. Valcke now declaring that yes, he had authorized the payment - apparently forgetting his denial from two weeks ago - but no, there was nothing illegal or improper about it. Mr. Valcke defiantly blamed seemingly everyone but himself for the apparent misunderstanding.

If anyone is at fault for any misappropriation of the funds, he said, it is Caribbean regional soccer association who should have tracked the use of the funds.

"Why is this the fault of FIFA when the money is not FIFA's money, FIFA has no responsibility on this money, it is South Africa's money, and it was a gift to the African diaspora in the Caribbean?" he said. "You've decided that, after Blatter, I'm the head to be cut?"

Mr. Valcke was not named in the American indictment and claims not to have been questioned by police.



Apple and Record Labels Subject of Antitrust Probe

As Apple prepares to unveil its new premium music streaming service, Apple Music, the attorneys general of two states have commenced an investigation seeking to determine whether the tech giant and major record labels have violated federal antitrust law by attempting to squeeze out popular "freemium" streaming services such as Spotify and SoundCloud.

These freemium services, much like many smartphone apps, entice consumers with free introductory trials or "light" versions supported by advertising before offering a premium paid service free of ads. Such services have increasingly drawn the ire of top record label executives in recent months, who feel that they fail to produce significant revenue and deprive consumers of any incentive to pay for music. Spotify, for instance, reported a net loss of $197 million last year - despite boasting 60 million users and generating $1.3 billion in revenue.

The attorneys general of New York and Connecticut are now concerned that Apple has either pressured, or is conspiring with, major record labels such as Sony, Universal and Warner to withdraw support from the freemium services in order to steer consumers to Apple.

"It's important to ensure that the market continues to develop free from collusion and other anticompetitive practices," said a spokesman for New York attorney general Eric Schneiderman.

The first of the major labels to respond to respond in writing to the antitrust inquiry was Universal, which denied any wrongdoing and promised to cooperate with the ongoing investigation.

This is the second time these two attorney generals, Mr. Scheiderman of New York and George Jepsen of Connecticut, have pursued Apple on antitrust grounds. In 2013, a federal judge found that Apple had run afoul of antitrust law by colluding with book publishers to raise e-book prices to the detriment of Amazon (which now finds itself accused of antitrust violations of its own, as discussed above).

Apple Music is scheduled for release at the end of this month.


Explosion in Yemeni Capital Destroys Cultural Heritage Site

On Friday, an explosion believed to have been caused by a Saudi missile or bomb destroyed a 2,500-year-old Unesco World Heritage site in the Yemeni capital of Sana. The Saudi military has denied responsibility for the attack, which also killed an unspecified number of residents in the ancient multi-story homes, towers and gardens.

Despite the Saudis' denial, the attack is believed to have been part of a concerted campaign by a coalition of Arab states, led by Saudi Arabia, against Yemen's Houthi insurgent group, which is allied with Iran. A Saudi coalition spokesman denied involvement, insisting that the group's bombings are aimed only at military targets and that perhaps the most recent incident was the result of a rebel ammunition storehouse exploding.

Unesco director general Irina Bokova released a statement following the explosion calling on antagonists in the ongoing Yemen conflict to respect the country's irreplaceable cultural treasures. "I am profoundly distressed by the loss of human lives as well as the damage inflicted on one of the world's oldest jewels of Islamic urban landscape," she said. "I am shocked by the images of these magnificent many-story tower-houses and serene gardens reduced to rubble." The statement also noted that the destroyed cultural site "bears witness to the wealth and beauty of the Islamic civilization."


Federal Judge Rules That Because Spanish Law Applies, Museum Need Not Return Nazi-Looted Pissarro to Former Owner's Heirs

Judge John F. Walker of the District of California ruled this week that because the ownership of a 1897 Pissarro painting is governed by Spanish law, the Spanish government and Madrid museum where it is housed need not return it to the heirs of its former owner. The painting, "Rue Saint-Honoré, Après-midi, Effet de Pluie," depicts a Paris street scene and was forcibly "purchased" from Lilly Cassirer by a Nazi art appraiser in 1939 for $360.

Judge Walker ruled that Spanish law applied because "although plaintiffs' relationship to California is significant, the painting's relationship to California is not." Under Spanish law, he said, the museum has no obligation to return the painting to the Cassirer family. He noted that in addition to the $360 paid by Nazi authorities in 1939, Ms. Cassirer had received adequate postwar compensation for the painting from the German government.

Her heirs, however, insist that Ms. Cassirer had only agreed to the postwar settlement "because the location of the painting was unknown." It later surfaced in California in 1951, before making its way to Baron Hans Heinrich Thyssen-Bornemisza in 1976. The painting has been on display in the Thyssen-Bornemisza Museum in Madrid since it opened in 1992.

Although he ultimately ruled that the Thyssen-Bornemisza had no duty to return the work, Judge Walker called on the museum to "pause, reflect and consider" working out a resolution privately in lieu of continuing to litigate the issue.

The foundation that runs the museum appears not to be interested in any such resolution, as its managing director said this week that it was "very satisfying" to have an American court recognize the museum's ownership of the painting. "The judge makes it very clear that the foundation is the legitimate owner," he said. The best he could offer Ms. Cassirer's heirs, he said, was perhaps a form of "moral recognition," such as a plaque next to the painting indicating its Nazi history.

The Cassirer family plans to appeal the ruling. An attorney for the defendants, however, believes that the issue has been decided on the merits, which "effectively ends the case." He continued, "What is very significant about this case is that plaintiffs have repeatedly tried to bring these cases in courts in the United States, but the courts have said that we need to respect the laws in other countries. One country can't decide to be the world court."


After Three Decades at the Helm, Library of Congress Chief Resigns Under Fire

James H. Billington, who has chaired the Library of Congress since 1987, announced this week that he would resign his post effective January 1st. The announcement comes on the heels of the latest of a series of government investigations revealing the Library's weakness in managing its technological resources.

The 86-year-old librarian has been accused by co-workers and government officials of failing to keep the institution current with the rapid advancement of modern technology. A 2013 audit conducted by the Library's inspector general revealed that just a small fraction of its 24 million books are available to read online. Additionally, millions of other items, some dating back to the 1980s, remain piled in overflowing buildings and warehouses, hidden from the world.

Further, a series of investigations over the past two decades shed light on troubling technological issues that a Government Accountability Office report this year said put "the library's systems and information at risk of compromise."

Some current and former Library employees reported that Dr. Billington does not use email and often communicates through a fax machine at his house.

Prior to his appointment to his current post, Dr. Billington spent a decade leading the Woodrow Wilson International Center for Scholars, a leading policy think tank. Before that, he was a Princeton valedictorian, Rhodes scholar, U.S. army officer and Harvard professor.


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This page contains a single entry from the blog posted on June 16, 2015 6:35 PM.

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