The lawsuit was filed in New York this week and takes the labels to task over a policy called "minimum advertised price". Under this system retailer are not allowed to advertise CD's under their suggested retail price if they wish to receive marketing money from the labels.
According to the labels they instituted this practice in 1995 in order to aid retailers against chains like Circuit City who sell CD's at lower prices to attract customers so they can sell them higher priced goods. The lawsuit alleges that this practice violates federal and state antitrust law because it keeps CD prices artificially high and punishes the retailers who opt out by denying them marketing money. Part of the major labels defense states that they receive no financial gain from this policy because it affects only retail price of CD's not the wholesale cost (what the retailers pay the labels for the CD's).
The defendants in the suit include record labels Warner Bros. music group; Sony Music Entertainment; Universal Music Group; BMG, EMI Group Plc as well as retailers SamGoody, Musicland, Camelot Music & Movies, Planet Music, Record Town, Tower Records, Priority Records and Virgin Records America.
In a report by Reuters, New York Attorney General Eliot Spitzer stated that, "This illegal action … has not been music to the ears of the public. Because of these conspiracies, tens of millions of consumers paid inflated prices to buy CDs."
This news comes a few months after the major record labels discontinued the practice as part of a settlement in an antitrust case with the Federal Trade Commission, which pursued the case under federal antitrust laws. (see Record companies strike a deal that may lower CD prices. 5-00) That case was settled after a two-year investigation by the government agency. The FTC found that music consumers might have been overcharged up to $500 million in the past four years.
MTV reports New York Attorney General Eliot Spitzer stated that any money that his state wins in the lawsuit will be donated to music education programs.
The states and territories that have joined New York in the lawsuit include Arizona, and Arkansas, Connecticut, Delaware, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Maryland, Michigan, Mississippi, Missouri, Nevada, New Mexico, North Carolina, Northern Mariana Islands, Oklahoma, Pennsylvania, Puerto Rico, Rhode Island, South Carolina, Texas, Utah, Vermont, Washington, West Virginia, and Wisconsin.