December 23, 2003 1:59 PM PST

Justice Dept. closes Net music antitrust scrutiny

After more than two years of quiet investigation, the U.S. Department of Justice said Tuesday that it is closing its antitrust scrutiny of the major record labels' online activities, without filing charges.

When originally revealed in mid-2001, the regulators' investigation was said to be focused on the MusicNet and Pressplay online-music joint ventures and the possibility that the record labels were colluding to favor their own affiliated services at the expense of potential rivals.

But in a statement Tuesday, antitrust regulators said they had found no evidence that the labels had crossed any legal lines.

"The (Antitrust) Division's substantial investigation of Pressplay and MusicNet has uncovered no evidence that the major record labels' joint ventures have harmed competition or consumers of digital music," Assistant Attorney General R. Hewitt Pate said in a statement. "None of the several theories of competitive harm that the Division considered were ultimately supported by the facts."

The Justice Department's investigation was initially hailed by critics of the big music labels, who long suspected that the labels were acting collectively to prevent new Internet companies from gaining prominence in the music business.

But the digital landscape has changed substantially since mid-2001. At that time, the label-affiliated MusicNet and Pressplay were the only services licensed to distribute large amounts of major-label music through subscription services.

Today, online song stores that offer hundreds of thousands of tracks for download are springing up on an almost daily basis. Pressplay, originally a joint venture of Sony Music Entertainment and Universal Music Group, was sold to software company Roxio and folded into the new Napster service.

In a review of its findings, the Justice Department said it studied major-label licensing practices and said the terms offered to third parties differed significantly, indicating that there was no illegal collusion.

The fast growth of the Internet market over the past year and the improvement of MusicNet and Pressplay from their "poor quality and restrictive nature" at launch indicates that the labels are not trying to hold back the Internet as a distribution medium, regulators added.

Peer-to-peer companies such as Roxio and Sharman Networks have repeatedly raised the issue of record label collusion as a defense in their own copyright-infringement cases, but the strategy has never gone far enough to elicit evidence-gathering on the issue.

 

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