A consumer class action lawsuit has been brought against the major record labels for antitrust violations, claiming that the companies hampered the growth of online music to protect their high-profit CD market.
The high-profile securities class action law firm, San Diego-based Lerach Coughlin Stoia Geller Rudman & Robbins, filed the suit March 7 for Dennis Bulcao and 10 other consumers in the District Court in San Francisco. The action was brought for every person who has paid inflated prices for online music and CDs.
The suit claims that CD prices include costs that would be eliminated when music is distributed online – producing the master disc; making copies of the disc, CD cases, artwork and packaging; importing CDs into the United States; shipping CDs to warehouses and to record stores; unpacking and shelving the CDs and manning the cash registers; and returning or destroying unsold inventory.
Online music benefits consumers, the suit says. They do not have to drive to a store or worry about care and storage of the CD. They can instantly store and purchase music onto a computer or portable music device.
Focusing on the labels’ activities in the 1990s through 2001, the suit alleges that the major labels refused to license music to the original Napster. In 2001, the record companies formed MusicNet (BMG, Warner Music, EMI) and pressplay (Sony, Universal Music), but claims they were not serious commercial ventures. The labels refused to grant meaningful licenses to any entity that they did not own or control, delaying growth of the online music market, the suit says.
MusicNet and pressplay were attempts by the labels to occupy the market with “frustrating and ineffectual services in order to head off viable online music competitors from forming and gaining popularity after Napster’s demise,” the suit claims. Neither service allowed music to by played on the Apple iPod, and the labels did not make their whole catalogs available for download.
The suit alleges that these activities occurred in 2001. The iPod was not yet on the market at that time.
When the labels could no longer hold back the online market, they conspired to set the wholesale price at supercompetitive levels to protect the CD market, the suit alleges. As a result, the record companies demand 70 cents for downloads priced for retail at 99 cents, while indie labels sell their music through eMusic at a retail price of about 25 cents per song — $10 for 40 songs.
The RIAA, which is not a defendant, is named as a co-conspirator, allegedly providing the labels with a forum to exchange competitive information and to coordinate their scheme to restrain the availability and commercial development of online music.
The major labels declined to comment on the suit.
