Law Times

lAw Times • April 26, 2010 FOCUS Amazon decision changes game Online retailer can set up here following 'major change' in Canadian policy retailer BY PAUL BRENT For Law Times O ttawa's decision to al- low Amazon.com Inc. to create a bricks-and- mortar presence here — the lat- est in what could be a series of moves to open protected indus- tries to increased foreign compe- tition — appears at first glance to be a controversial move. But at the same time, Heri- tage Minister James Moore's move to allow the U.S. book giant to set up a physical pres- ence in Canada recognizes that Amazon has become a major player after nearly a decade as an online bookseller while providing little benefit to the economy here. Operating its amazon.ca on- line store since 2002, the U.S. company has managed to avoid Canadian legal restrictions on foreign businesses operating in sensitive cultural industries like books. Since it launched its on- line sales site here, Amazon has used an agreement with Canada Post Corp. to handle much of the distribution of its products on a third-party ba- sis. That's because Canada was the only country forbidding it from having its own warehouse. The Investment Canada Act, in fact, limits foreign investment in book publishing and distri- bution to Canadian-controlled joint ventures. Recently, however, the De- partment of Canadian Heritage began a review to determine whether additional invest- ment by Amazon would be a net benefit to Canada. In the end, the company secured government approval for plans to set up a warehouse here over the objections of much of the Canadian book- selling industry by pledging to invest more than $20 mil- lion north of the border. "Amazon has shown its willingness to promote Ca- nadian cultural products, and we are pleased it is con- tinuing to demonstrate this through this new invest- ment," Moore said. The government said it based its decision on a series of commitments, includ- ing new jobs for Canadians and improved service for The move to allow Amazon to set up a physical presence was a 'major change' in Canadian policy, says Joel Schachter. consumers; increased vis- ibility for Canadian books on the Amazon web site; the $20-million investment that would, among other things, provide $1.5 million for cultur- al events and awards in Canada and the promotion of Canadi- an-authored books internation- ally; increased availability of French-language materials; the establishment of dedicated staff to assist Canadian publishers and other suppliers of cultural products; and making more Ca- nadian content available on the Kindle e-reader. "It is a change to the book- publishing policy, which until now actually prohibited any non-Canadian from establish- ing or acquiring a business which publishes, sells or distributes books in Canada," says Joel Schachter, a partner in Good- mans LLP's business law group in Toronto. "To establish a physical presence in Canada evidences the major change in how that policy was applied." Schachter notes the deci- sion deals only with Amazon's application to create a physi- cal warehouse and distribution centre in Canada. "The next step may be for a foreign in- vestment in the Canadian retail book business, which would be an interesting development." While the Canadian Book- sellers Association argued stren- uously against Amazon's appli- cation and vows to continue to fight against foreign competi- tion in the industry, the reaction of the country's dominant book was muted. Heather Reisman, CEO of Indigo Books & Music Inc., said in an interview with The Globe and Mail that the gov- ernment's decision "signals a government of Canada policy change confirming that a company no longer needs to be Canadian-owned to sell books in Canada." Reisman has a signifi- cant familiarity with the In- vestment Canada Act and book retailing. Fifteen years ago, she headed a Cana- dian investment group that had created a joint venture to bring U.S. book retail chain Borders Group Inc. to Canada. While Reisman's group would have retained a 51-per-cent ownership stake in the new company, Otta- wa rejected the venture, ruling Borders would in effect have controlled the new entity be- cause of its technology, invest- ment, and expertise. Before the government's decision on amazon.ca, the Indigo CEO appeared to have diverged from the outright op- position of the booksellers as- sociation. "Supposing I should decide three years from now that, in order to expand some of my capability, I'd like to partner up with a foreign com- pany," she told the Globe. "I do not want to be disadvantaged." In fact, Indigo has begun to take such steps. Recently, for example, it transferred its digi- tal reading venture into a new- ly formed company, Kobo Inc., for which it raised $16 million in capital. Indigo offered up $5 million, with the balance com- ing from strategic partners that include Borders. LT pAge 15 D&D_LT_Apr26_10.indd 1 www.lawtimesnews.com 4/21/10 9:40:23 AM

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