Apple's recent success is continuing to attract attention from federal antitrust authorities. Sources familiar with the matter are saying the justice Department is starting a preliminary inquiry into anti-competitive practices in Apple's iTunes music store. The investigation will reportedly focus on Apple's ability to influence marketing decisions in the recording industry.
The event that may have precipitated this preliminary action occurred in March, when Billboard Magazine claimed Apple was pressuring music labels to stop taking part in Amazon's promotional deals. Apple was allegedly threatening to withdraw marketing support from labels that worked with Amazon. Another contributing factor is that Apple actually hold more of the music sales market than most people realize. Of all sales (digital and physical), Apple controls 28% of them. In just digital downloads, Apple has a 70% market share.
With this, and the recent investigation of Apple's new iPhone developer agreement, it's clear federal authorities are watching the Cupertino company more closely than ever. Do you think Apple's behavior is ant-competitive?
After years of being preyed upon by the music industry, through the legal machinations of the RIAA, the hunted struck back with a lawsuit against the hunters alleging violations of U.S. antitrust law. In October 2008 the lawsuit was dismissed by a federal district court, but upon review the U.S. Second Circuit Court of Appeals has reinstated the lawsuit, and has returned it to the district court for further action.
The lawsuit against the music industry, including Bertelsmann AG, EMI Group, Sony Corp, Vivendi SA, and Warner Music Group Corp, alleged that they conspired to fix the wholesale price of downloaded music at 70 cents, and enforced their agreement through restrictive licensing arrangements. The suit was dismissed due to lack of evidence; a finding the Appeals Court reversed.
According to the Second Circuit Court, plaintiffs’ allegations were “sufficient to plausibly suggest” a price-fixing conspiracy existed, and there was “enough factual matter” to allow the case to go forward. The Circuit Court appears to believe that the music industry’s efforts to sell downloaded music, for example MusicNet and pressplay, were so lame the only way they could continue to exist is if something behind the scenes was propping them up. The Court concluded that “some form of agreement among defendants would have been needed to render the enterprises profitable.”
Christopher Lovell, an attorney for the plaintiffs, said “There was uncertainty in the law over the standards for pleading a price-fixing conspiracy. This decision goes a long way toward clarifying what the standard requires in a way that helps people who paid allegedly conspiratorial prices for digital music.” Lovell plans to seek class action status for the case, which Lovell says could affect millions of consumers.