Media: Europe brings the publishers to book: The book industry may be in for a price-cutting war - but not just yet, predicts Tim Jackson

LAST week a worrying letter dropped through the letter-boxes of Britain's leading publishers. It was from Terry Maher, the combative chairman of the Pentos bookselling group, which owns Dillons, and it warned publishers to consult their lawyers fast. Thanks to a European court ruling, it said, they should prepare for a complete upheaval in the way books are sold.

A ruling by the European Court in Luxembourg on 9 July declared as 'void and unlawful' the Net Book Agreement - the system of fixed prices for books that has existed in Britain since 1900. It is a key twist in a long-running tale.

The NBA sounds as dry as dust, but it has ignited furious rows between its defenders and detractors. It seeks to maintain fixed prices for hardback books, no matter where they are sold, thereby protecting small bookshops from cut-price competition - and possible annihilation - from the big chains. By preserving the NBA, its supporters say, Britons ensure they have access to a large network of well-stocked bookshops.

Its opponents retort that by keeping prices artificially high, the NBA restricts competition and prevents more efficient or attractive retailers - chains, mail-order booksellers and American-style bookshop-cum-cafes - from gaining market share.

The arguments reached a climax last autumn when Britain's second largest publisher, Reed Consumer Publishing, quietly left what is technically a voluntary agreement.

This paved the way for Dillons and Waterstones to wage war by offering customers a small collection of favourite middle-class hardbacks, such as Hugh Johnson's Wine Atlas, at cut prices, with the odd work of new fiction thrown in.

Some of the shops found they sold more books of all kinds, because the cut-price offers attracted customers in to browse. Mr Maher and others believe they scent a way of making more money.

The NBA does not just fix the minimum retail prices for books at home. It also contains provisions for trade in books between Britain and the Irish Republic - and that is how the court and the European Commission became involved in the issue.

In 1986 the Commission started to investigate the NBA, and concluded two years later that it contravened the competition provisions of the Treaty of Rome by distorting trade between Britain and Ireland. The Commission told the publishers that they could expect no exemption from the rules.

But the Publishers' Association replied that this decision was ill- founded, and took the Commission to court in 1990.

In its judgment, the European Court backed the Commission to the hilt. It conceded that the Commission had no right to rule on price maintenance in Britain alone, and that publishers were individually free to fix retail prices both at home and abroad.

But it rejected three arguments that the publishers had put forward: that without the agreement publishers would be faced with the 'insuperable' task of setting their own sale conditions; that booksellers would face the burden of operating scores of different pricing rules; and that bookshops would lose their protection from being undercut.

All these arguments, the court said, were irrelevant to the central question of whether the NBA was contrary to the Treaty of Rome. As though to emphasise the point, it ordered the association to pay costs.

The Publishers' Association must now decide whether to appeal to the European Court of Justice against the ruling - a risky venture, given how flatly its arguments were turned down. If it does not appeal, it will have to give the Commission detailed proposals for rewriting the NBA to bring it within European law.

Clive Bradley, the association's chief executive, is optimistic. He now argues that no great damage will be done by giving in on the Irish point - only 1.4 per cent of the books produced in Britain are exported to Ireland, and publishers will remain free to set prices in Ireland provided they do so individually. More importantly, he says, the domestic provisions of the NBA remain intact.

But if Mr Bradley is so unruffled at losing the case, why did the publishers think it was worth spending five years and more than pounds 50,000 in lawyers' fees to fight the Commission's decision all the way to Luxembourg?

The reason may be that one outcome of the European case is likely to be a free-for-all in the prices of British-produced books in Ireland. Even the Publishers' Association concedes that this is a probability. Titles published in Britain account for half of all books sold in the Republic, and 'net books' - those published under the terms of the NBA - about three-quarters of those.

So while Britain remains locked in the NBA, a free-market experiment will be taking place just across the Irish Sea - and that is likely to have a dramatic effect on the debate about book pricing in Britain.

Nobody knows what would happen if the NBA was abolished in Britain. Whether Irish book prices go down, whether sales go up, and whether the number of titles available rises or falls, will give important clues.

Beyond that, there is a possibility that an Irish price war could have a direct effect on the British market. Wholesalers could buy discounted British books in Ireland and re-import them to Britain at a lower price, claiming the protection of European law in circumventing the NBA.

However, there are two problems that might make them hesitate. First, Ireland is a small market, and the cost of shipping books across the Irish Sea and back again might wipe out the financial incentive. And second, it is questionable whether European law would cover booksellers who bought re-imported books.

In another case heard recently by the European courts, a French discount book firm that tried to use export and re-import to bring the market into European jurisdiction had its case thrown out. The firm was told that a cross-border transaction that had no obvious purpose other than to circumvent national law could not earn the protection of EC law.

But in the French case, book prices were fixed not by private agreement between publishers, but by legislation laid down by the French government. A book discounter in Britain would not be trying to foil the British parliament; he would simply be trying to foil Mr Bradley and his price-fixing colleagues in the publishing industry.

Mr Maher, the NBA's most aggressive opponent, says he has yet to make a firm decision on whether to import books from Ireland. The Net Book Agreement is not dead - just yet.

(Photographs omitted)