Court Rules Against Majors In Digital Price-Fixing Case

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Major labels must once again face charges related to online price-fixing, according to an Appeals Court order issued Wednesday.

In November of 2008, US District judge Loretta A. Preska dismissed accusations that labels had acted unfairly to control pricing on digital platforms.  But that has now been overturned by the US Second Circuit Court of Appeals in New York, which pointed to plausible evidence of unfair cooperation and violations of Section 1 of the Sherman Antitrust Act.

Among others, the decision names majors Universal Music Group, Warner Music Group, EMI Music, and the once-merged Sony BMG Music Entertainment.  In the ruling, the court pointed to “enough factual matter (taken as true) to suggest that an agreement was made,” while ruling that the “district court erred in dismissing the complaint.”

The decision dials back to now-defunct label joint ventures MusicNet and Pressplay.  Both were ill-fated attempts to position heavily DRM-protected, limited catalogs, though the Appeals Court pointed to the services as venues for unfair price cooperation.  “Both the joint ventures and the Recording Industry Association of America (‘RIAA’) provided a forum and means through which defendants could
communicate about pricing, terms, and use restrictions,” the opinion stated.

The decision then delves into life after those ventures, and in particular, the use of ‘Most Favored Nation’ clauses to ensure equitable and uniform wholesale pricing to majors.  In many cases, those MFNs were handled in secrecy to avoid antitrust scrutiny.  “Defendants attempted to hide the MFNs because they knew they would attract antitrust scrutiny,” the Appeals decision continued.  In the end, a wholesale price-point of 70-cents on downloads resulted, something the court determined was created by cooperative action, not parallel independent business decisions.

Report by Paul Resnikoff and Alexandra Osorio.