Major Labels Escape Long-Running Antitrust Suit over Digital Price-Fixing
Major labels don’t control digital-music prices simply by running businesses similar to each other with similar expenses, the U.S. District Court in New York ruled. The decision came in a long-running antitrust class-action suit against Sony BMG, EMI, Warner Music Group, Universal Music Group, Bertelsmann and Time Warner that had served as fodder for defendants in several P2P infringement suits. Bertelsmann and Time Warner are now out of the recorded-music business. Another antitrust challenge to the labels, filed by P2P software maker Lime Wire in counterclaims, was rejected last year (WID Dec 5 p2). The Oct. 9 ruling on In Re Digital Music Antitrust Litigation was recently unsealed. The RIAA declined to comment.
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The complaint accused the labels of colluding to control digital-music prices -- first through the early joint ventures MusicNet and PressPlay, using most-favored nations clauses and “side agreements” to prevent any label from setting lower prices than others. Labels took steps to avoid competition with each other, by all using digital-rights management and structuring the joint ventures so that labels wouldn’t be paid by the song, said the 15 plaintiffs from nine states. Once they started licensing to digital stores, each label raised wholesale prices to 70 cents from 65 cents in May 2005 and declined to license eMusic -- which emerged as an indie powerhouse -- because of its lower pricing and lack of DRM, the complaint said.
The Supreme Court’s Twombly decision -- often used by P2P defendants against the labels to challenge the “boilerplate” language in copyright infringement suits -- was used by Judge Loretta Preska to defend the labels. “Parallel conduct,” such as setting the same wholesale download prices, isn’t enough to show conspiracy or collusion, even when each company is “conscious” of others’ conduct, she said. There must be “plus factors” or “factual enhancements” that suggest a “meeting of the minds” among the labels on prices, Preska said.
“The bald allegation that the joint ventures were shams is conclusory and implausible,” Preska said. She noted the “environment of widespread unauthorized downloading” in which they were conceived. The plaintiffs didn’t call the joint ventures illegal, so they can’t challenge the ventures’ operations by “describing conduct consistent with rational business decisions,” she said. “For that reason alone, I could decline to infer that the joint ventures were vehicles to create an antitrust conspiracy.” Short of the plaintiffs targeting the ventures themselves, Preska has no specific legal precedent to judge the labels’ “explicit prior agreement with materially the same terms,” she said. For all the plaintiffs know, each label had “permissible impulses” to set essentially the same wholesale prices as the others, she said.
Preska was harsh toward the plaintiffs throughout her 39-page opinion. “Merely because an oligopolist charges an inflated price knowing (or even hoping) that other oligopolists will match his high price” doesn’t show a conspiracy, she said. Using DRM is “hardly the economically- irrational decision” portrayed by the plaintiffs, Preska said. And the labels’ rejection of eMusic only suggests that “different products will fetch different prices.”