Exclusive: Federal Judge Dismisses Major Label Collusion Charges

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A federal judge has strongly dismissed claims that major labels conspired on digital music pricing levels, according to court documents obtained by Digital Music News.

The decision was issued by US District Judge Loretta A. Preska for the Southern District of New York in October, and recently unsealed.

The charges came from a consolidated group of consumers, all of whom alleged that the majors had unfairly colluded to establish certain price floors on digital content, specifically paid downloads.  The group also pointed to collusive agreements designed to artificially raise the price of CDs.

The consumer group alleged that majors Sony Music Entertainment, Universal Music Group, EMI Music, and Warner Music Group used joint ventures and third-party agreements to maintain elevated wholesale prices on paid downloads.  That floor, 70 cents per a-la-carte download, is now a widely-known wholesale price point within the industry.

But the charges were firmly denied.  The Southern District is among the most influential federal district courts in the United States, and the decision undoubtedly cools further challenges.  “The court did not toss this case out lightly, but with great force,” entertainment attorney William Hochberg told Digital Music News.

Entertainment attorneys were more than willing to talk, but major labels, including the RIAA, either declined comment or were unreachable Tuesday afternoon.  But a recent quarterly filing from Warner Music Group, just one member of the defense, noted that the coordinated class action first started in August, 2006, and emanated from investigations by both the US Department of Justice and the Attorney General of the State of New York.  “Subsequent to the announcements of the above governmental investigations, more than thirty putative class action lawsuits concerning the pricing of digital music downloads have been filed,” Warner indicated.

The consolidated plaintiff group attempted to show that parallel actions and decisions amounted to collusive, anti-competitive coordination.  The behavior, according to the group, violated the Sherman Antitrust Act, and a range of state antitrust and consumer protection laws.

But Preska strongly disagreed, failing to see evidence of explicit coordination.  Instead, the judge witnessed parallel actions that appeared plausible given similar business structures and market approaches.  “There is no agreement, however, merely because an oligopolist charges an inflated price knowing (or hoping) that other oligopolists will match his high price,” Preska opined.  “Such is bald conscious parallelism, and, as the Supreme Court stated, ‘parallel conduct, even conduct consciously undertaken,’ does not itself state an antitrust conspiracy.”

In other words, without proof of smoky backroom agreements, there is no smoking gun.  “The decision shows that the courts will not impose antitrust liability on the big labels based on the mere fact that they are pricing music at the same rates,” entertainment attorney Steve Gordon explained to Digital Music News.  “There must be evidence of actual collusion.”

Report by publisher Paul Resnikoff.