(CN) – The 2nd Circuit revived an antitrust lawsuit against the world’s four largest record labels accused of conspiring to fix music prices on the Internet.
The Manhattan appeals court reversed a district court dismissal of the price-fixing complaint against EMI, Sony BMG Music Entertainment, Universal Music Group Recordings and Warner Music Group, who control 70 percent of the world’s music industry worldwide and 80 percent in the United States, according to the ruling.
Plaintiffs’ second consolidated amended complaint provided enough evidence to continue looking into accusations that the companies entered into an agreement to fix prices for online music sales, the opinion states.
The record labels would not sell music at unsustainable prices with such unpopular terms that “nobody in their right mind” would want to buy their songs, the ruling states, unless rivals were doing the same through parallel price increases.
Defendants launched online music sellers such as MusicNet and Pressplay that used similar digital rights management terms and charged unreasonably high prices, the ruling states.
The labels then maintained the high prices even as industry costs fell after the initial digitization of music, and charged the same prices through entities they did not own or control, according to the ruling.
In May 2005, the labels raised wholesale prices of songs from 65 cents to about 70 cents, even as costs were down by two-thirds, the ruling states.
The labels also used “most-favored nation” clauses in licenses to enforce its wholesale price of 70 cents per song, and tried to hide the clauses because they knew they would attract antitrust scrutiny, according to the ruling.
The record companies argued that the case should be thrown out because the Department of Justice had already closed a criminal investigation on price-fixing in the music industry.
But that was not grounds to dismiss the case, Judge Robert Katzmann ruled. Plus, the Department of Justice has launched two new investigations into digital music price fixing since 2003.
The complaint contains “plausible grounds to infer an agreement,” the ruling states.
The appeals court remanded the case to the district court.