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In the music industry, Napster has grabbed the headlines, but another series of lawsuits could be as important to the nation’s recording companies. In a suit filed by 42 state attorneys general, as well as in separate class actions filed by the plaintiffs’ bar, the industry’s practice of setting minimum advertising prices for CDs is under antitrust attack. And while the challenged program has unique features, the suits, which could heat up as early as January, may clarify how far a manufacturer can go in directing store advertising. The suits are another combined effort of the states and the plaintiffs’ bar to cooperate in pressing consumer complaints. And, like the recent price-fixing charges against Toys “R” Us Inc., the suits parallel a Federal Trade Commission investigation that culminated last May. At issue is a cooperative arrangement under which recording companies share the costs of advertising with music retailers. The suits allege, as did the FTC in its investigation, that the recording companies provided what’s known as cooperative financing only if the retailers agreed to a minimum advertising price on music, known as a MAP agreement. The companies allegedly threatened to withhold money even if the lower price appeared in an ad for which the retailer paid independently. Sharing advertising costs with manufacturers is a common practice in many retailing areas. While arrangements vary, often a manufacturer provides rebates for advertising. Restrictions are common as well: Some apparel companies restrict when products may be advertised at sale prices. And so long as the prices appear in jointly funded ads, manufacturer control of ad content may be permissible, some say. But control heads into a gray area if the constraints are imposed on noncooperative advertising. In that instance, experts say, the limits could approach price-fixing. Setting a minimum price is per se illegal, although maximum price restraints are now subject to the more flexible rule-of-reason review, says Steven Sunshine, a partner in the Washington, D.C., office of New York’s Shearman & Sterling. And that appears to be at least one of the theories underlying these cases. Says Harry First, head of the New York antitrust bureau and co-lead counsel with Patricia Conners, who heads Florida’s antitrust section, the enforcement mechanism in the MAP — withholding advertising support — “effectively puts a floor on retail prices.” It is, he says, an “extreme” program. The recording companies, which include Warner Bros., Capitol Records, Sony Music, Universal Music and EMI, settled the allegations with the FTC without admitting any wrongdoing, promising not to engage in the practice for seven years. The settlement provided only for injunctive relief. LONG-TERM INVESTIGATIONS Meanwhile, the states had been investigating the music industry’s practices “for some time,” says First. The private suits — which, like the states’, seek damages — piggybacked on the FTC action. Joseph Kohn, of Philadelphia’s Kohn Swift & Graf, and David Bershad, Sanford Dumain, Michael Buchman and Doug Richards of New York’s Milberg Weiss Bershad Hynes & Lerach, are expected to be named co-lead counsel, although other petitions to take the lead were filed as well. (Judge D. Brock Hornby, who was assigned the cases by the multidistrict panel on litigation, has appointed Portland, Maine’s Preti, Flaherty, Beliveau, Pachios & Haley as local counsel.) The plaintiffs’ lawyers must file their amended complaint by Dec. 22. First says that the states are coordinating with the private bar so that the plaintiffs’ lawyers will pursue only state court cases onto which the attorney general has not signed. While no one has specified the damages sought, last summer, New York Attorney General Eliot Spitzer said that they could approximate $500 million, the figure the FTC cited in its settlement. How any award would be distributed is unclear. When the Toys “R” Us case settled, consumers did not receive direct payments; rather, the settlement was divided between contributions to charities and administrative expenses and legal fees. While saying that talk of damages was “premature,” Kohn suggested that in this case, direct payments to consumers could be “feasible.” Defense counsel either declined to talk about the litigation or did not return calls seeking comment. But the defense has an all-star lineup for its representation — including New York’s Weil, Gotshal & Manges, Paul, Weiss, Rifkind, Wharton & Garrison and Cahill Gordon & Reindel; Los Angeles’ Munger Tolles & Olson; and Chicago’s Mayer, Brown & Platt.

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