FTC Ruling Against Major Labels Sparks Class-Action Suits

The gold rush is on in the wake of a Federal Trade Commission decision effectively ending the music industry's policy of minimum advertised pricing (MAP) on compact discs. Attorneys in California and New York wasted no time in filing class-action lawsuits against the music industry's major conglomerates, following the FTC's announcement May 10 that it had reached a negotiated settlement with them over a longstanding noncompetitive pricing policy.

The first legal action against the music giants occurred Tuesday, May 12, when plaintiff Michael Bauman filed suit against the major labels in New York state court. Five days later, two class-action, restraint-of-trade lawsuits were filed in California Superior Court in Los Angeles. The day after that, two similar suits were filed for named plaintiffs and "on behalf of consumers" in a US District Court in New York. The suits allege that the industry's discontinued minimum advertised price policies violated US antitrust statutes.

The FTC estimated that US consumers overspent by as much as $480 million during the three years the policy was in effect. The policy was instituted by the industry to protect specialty music retailers from losses stemming from massive discounting by large chain stores such as Best Buy and Circuit City, who used CDs as "loss leaders" to pull customers into their stores in the hope of selling them big-ticket electronics.

The lawsuits in L.A. were filed for plaintiffs James John Retzlaff and David Jenkins against BMG Entertainment, Capitol Records, Sony Music Entertainment, Time Warner Inc., and Universal Music, and seek undisclosed damages "on behalf of California indirect purchasers of prerecorded music compact discs." In addition to the above, EMI Music Distribution is named as a defendant in lawsuits filed for Virginia Brown and Sherry Weindorf in New York. The music labels are accused of "conspiracy and agreement in restraint of trade and commerce" and "violation of the Sherman and Clayton Acts," according to several news reports.

With the possible exception of lowered prices on CDs sometime in the future, music lovers can expect next to nothing from class-action suits such as these. Lawyers working for the plaintiffs stand to cash in big from their efforts, however, particularly if a jury decides to slap the industry's hand especially hard. Attorneys for Brown and Weindorf, for example, are seeking triple damages because the majors conspired to fix CD prices at "an artificially high level." Music-industry executives did not comment on the lawsuits.