The U.S. Supreme Court has decided that a lawsuit, filed by a group of online music buyers who allege the four largest record companies conspired nearly a decade ago to fix prices of songs sold online, can now move forward.
The high court on Monday declined to hear an appeal by the labels--Universal Music Group (UMG), Sony Music Entertainment, Warner Music Group, and EMI Group--to block the suit, according to reports by Bloomberg and Reuters. Instead, the decision by a federal appeals court that the plaintiffs had supplied enough evidence to sue the labels will stand.
The lawsuit by the music buyers alleged that the record labels agreed to set a wholesale price floor of about 70 cents per song when competitors were offering songs on the Web for less.
A spokeswoman for Warner Music declined to comment. Representatives from the other labels and the Recording Industry Association of America (RIAA) did not immediately respond to interview requests.
The roots of the case can be traced to 2001, when the top labels were preparing to try their hand at selling digital music out of their own Internet stores. Bertelsmann, Warner Music, and EMI had backed a service called MusicNet. Sony and UMG built Pressplay.
"All defendants signed distribution agreements with MusicNet or Pressplay," according to the consumers' group. The labels "sold music directly to consumers over the Internet through these joint ventures. Both the joint ventures and the (RIAA) provided a forum and means through which defendants could communicate about pricing, terms, and use restrictions."
"To obtain Internet Music from all major record labels," the consumer group continued, "a consumer initially would have had to subscribe to both MusicNet and Pressplay at a cost of approximately $240 per year."
The plaintiffs also noted that the labels were investigated about four years ago by the office of the New York State attorney general regarding wholesale prices charged for digital music and were the focus of an inquiry by the Department of Justice into possible "collusion and price fixing" and to determine whether "defendants misled DOJ about the formation and operation of MusicNet and Pressplay."
None of the investigations appeared to go anywhere.
In court documents, the plaintiffs accused MusicNet and Pressplay with being anticonsumer and attempting to restrict access to online music. Even after those services began selling songs, the labels required these other outlets to "only sell defendants' music if they contracted with MusicNet to provide Internet Music for the same prices and with the same restrictions as MusicNet itself or other MusicNet licensees. If the licensee attempted to license music from another company, defendants forced them to pay penalties or terminated their licenses."
Pressplay and MusicNet were the music industries responses to Napster and illegal file sharing. They were attempts to seize back control of distribution and cram the toothpaste back into the tube. They didn't work. Large audiences that were then just going online gravitated towards the now-defunct LimeWire and other peer-to-peer networks.
From their start, MusicNet and Pressplay drew a lot of criticism. Critics, who included then Congressman Rick Boucher, warned that the labels' direct-to-consumer services could violate antitrust laws. At a tech conference in 2002, Boucher predicted that there would be trouble.
"That level of duopoly...of content ownership and the ownership of distribution is threatening to the arrival of competition in the delivery of music on the Web," Boucher said then.