Court Reinstates Music Antitrust Suit

February 2010

Record labels, internet

An appeals court has reinstated a lawsuit that accused major record labels of price fixing and trying to cut competitors out of the digital market – a ploy that spectacularly backfired and allowed internet piracy to run rampant over other fledgling business models.  The suit had been previously dismissed by a federal judge. The US Second Circuit Court of Appeals decision to reinstate the antitrust case could affect millions who download music over the Internet. Filed on behalf of internet user who (legally) download music over the Internet, the plaintiffs accused the record labels of violating the Sherman Antitrust Act. The defendants include Bertelsmann AG (owners of BMG), EMI Group, Sony, Vivendi SA (owners of Universal), and Warner Music Group, as well as some of their affiliated units.In October 2008 the lawsuit –Starr et al v SonyBMG et al – was dismissed by a lower court who said the plaintiffs didn’t have a case against the major music companies for the litigation to go to a full court hearing.

The lawsuit centred on the music industry’s first forays into the digital market – Pressplay and MusicNet, the first backed by Sony and Universal, the latter by EMI, Warner and BMG. At the time both services were looked at with astonishment by both the music industry and consumers – as they were clearly overpriced and the services were stuffed full of DRM. Apart from being ignored by consumers (who went to illegal sites instead) the two portals are also accused of being devices used by the major labels to shut competitors out of the new digital market – a ploy destined to fail once Apple launched the iPod and iTines store. Some alleged the majors acted in a cartel fashion to give their own digital music ventures an unfair advantage, ensuring any rivals couldn’t compete on price and were saddled with the same DRM limitations as Pressplay and MusicNet. it is claimed the majors dabbled in price fixing, to keep the cost of digital music artificially high, so that downloads were priced on the same lines as CDs, even though the production and distribution costs of digital were obviously a fraction of those associated with physical music products. Pressplay was sold off to Roxio and MusicNet became an independent digital media aggregator, now known as MediaNet. On appeal US Circuit Judge Robert Katzmann said “we hold that plaintiffs-appellants’ second consolidated amended complaint contains enough factual matter to suggest that an agreement was made,” returning the case to district court. The three-judge panel did not rule on the merits the case.

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