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Music retailers: Sony promotions amount to antitrust


February 3, 2000
Web posted at: 9:26 a.m. EST (1426 GMT)

by Linda Rosencrance

(IDG) -- A national music retailing association has filed a lawsuit against Sony Corporation of America, alleging that the company is illegally forcing retailers to direct their customers to Sony's online stores, where they can purchase CDs.

The lawsuit was filed Jan. 31 in the U.S. District Court for the District of Columbia by the National Association of Recording Merchandisers (NARM), a New Jersey-based trade group representing more than 1,000 music retailers, wholesalers and distributors.

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NARM's lawsuit charges that Sony is using software hyperlinks on its CDs as well as promotional inserts to force retailers to direct customers to Sony's retail businesses, which are competitors. The lawsuit charges that the hyperlinks are a violation of the Sherman Antitrust Act, and asks the court to grant an injunction to prevent Sony from using such links.

"I'm angry that after all the effort Tower puts into helping Sony artists, these links are being used to drive sales at Sony stores instead of at our stores," Stan Gorman, executive vice president at Tower Records and chairman of NARM's board of directors, said in a statement.

A Sony spokeswoman said the company couldn't comment until it had fully reviewed the lawsuit.

The complaint also alleges that Sony engaged in copyright misuse, unfair competition, false advertising and illegal price discrimination by favoring its own record clubs and online music retailer, CDNow/Columbia, over other retailers.

"We believe Sony is engaging in a number of practices that, when taken together, create an unlevel playing field for retail companies," said Pamela Horovitz, president of NARM. "We want the court to agree with us and grant us a preliminary injunction."

Industry analysts, however, said they don't think NARM's lawsuit has much chance of succeeding.

Laurie Orlov, an analyst at Forrester Research Inc. in Cambridge, Mass. said she didn't think the lawsuit would stand a chance in court.

"This is an attempt by Sony to go direct to the consumer, and why shouldn't they do that?" said Orlov. "This goes to the phenomenon of disintermediation of the brick-and-mortar stores. Those retailers need to find a way to make their stores appealing."

James Penhune, an analyst at The Yankee Group in Boston, said he doesn't think NARM's lawsuit means that much. "The retailers are doing this as a gesture to express concern (about Sony's practices). I don't think this (lawsuit) will get through the courts. It's rather farfetched. I think they're just making a statement and really not expecting any legal remedy in the near term."

New York-based entertainment lawyer Carl DeSantis said he agreed.

"I don't think this lawsuit will be a success," DeSantis said. "If it were successful it would be a fairly unique application of the antitrust laws. I think it's a desperate ploy to gain time so (the retailers) can figure out how they fit with the changing market. I think they would be better off trying to figure out how to fit into the future, rather than trying to slow it down."

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