On Monday September 30, five of the largest U.S. distributors of music CDs: Bertelsmann Music Group, Inc., Capitol Records, Inc. (EMI Music Distribution, Virgin Records America, Inc., and Priority Records, LLC), Warner-Elektra-Atlantic Corporation, Sony Music Entertainment, Inc., and Universal Music Group, plus three national retail chains: Transworld Entertainment Corporation, Tower Records, and Musicland Stores Corporation settled several federal antitrust class and related actions brought against them commencing in August 2000 by 42 states, three territories and numerous private parties. The settlement was reached in a multi-district proceeding that was consolidated in the U.S. District Court for the District of Maine (In Re Compact Disc Minimum Advertised Price Antitrust Litigation, MDL Docket No. 1361). 

Trumpeted as a $143 million settlement, like most class actions this one involves a somewhat smaller out-of-pocket payout by the settling distributors and chains. $67.3 million in cash will be made available for consumer refunds to those consumers who submit a claim form, entitling them to up to $20 each. The other $75.7 million will be made up of seven million music CDs to be provided free of charge to schools, libraries and charities. The specific nature of the CDs to be provided or their real cost to the providers is not indicated. 

The underlying complaint charged that the five listed music distributors, their affiliated record labels and the three national retailers of music CDs conspired to fix their resale prices at or above certain specified minimums. The distributors did so, it was alleged, by concocting a so-called "Minimum Advertised Price," or "MAP," program, whereby the defendants agreed to provide promotional allowances, in effect subsidies, only to music CD sellers that agreed to advertise their CDs at or above those preset prices. Under the terms of the settlement, for the next seven years CD sellers will be prohibited from influencing or controlling the prices at which retailers can resell music CDs. They are also barred from terminating any retailer that fails to maintain the supplier's preset prices. 

In September 2000, the Federal Trade Commission challenged the same practices against most of the defendants sued by the states. In settling that matter with the FTC at the time, the distributors agreed to disband their MAP program (FTC Docket Nos. C-3791 to C-3975 (September 6, 2000)). The federal case plaintiffs then lumbered on, principally to obtain monetary relief. 

The settlements reached in the FTC case two years ago and the others earlier this week fail to definitively resolve the interplay between the Robinson-Patman Act, which permits conditional promotional allowances to be provided to certain customers (15 U.S.C. § 13(d)), and the Sherman Act, which prohibits price fixing (15 U.S.C. § 1). Here, the distributors conditioned their customer's receipt of promotional allowances on their advertising above a specified price level. The retailers remained free, technically, to continue to sell at any prices they wished, and a few did. 

In one case, some 25 years ago, it was held that conditioning the payment of promotional allowances on particular price advertising was legal (In re Nissan Motor Corp. Antitrust Litigation, 552 F.2d. 1088 (5th Cir. 1977)). However, when several distributors in the music CD business installed the same program, seemingly in unison, and as a consequence, resale prices did, in fact, stabilize at a high level, that seemed to be a different matter. The practice appeared to cross over into the more presumptively illegal zone of price fixing . . . at least so it must have appeared to some, if not many, of the settlers.

Submitted by: Eliot Disner