Universal and Warner slammed for "misusing market power" and "exclusive dealing"
Music Industry News - as it happens
Source: MusicDish - March 7, 2002
Universal Music Australia Pty Ltd, Warner Music Australia Pty Ltd and senior
company execs have been fined more than $1 million by Australia's Federal
Court for threatening to refuse to supply CDs to Australian retailers who
stocked parallel-imported CDs and, later, refusing to supply retailers who
stocked such imports.
The two recording industry giants had claimed competition from cheap
imported CDs would affect their profits and had tried to stop alternative,
imported supplies, says the Australian Competition and Consumer Commission
But Justice Graham Hill said neither Warner nor Universal could establish it
had a separate aim of preventing "free riding" and rejected, "any attempt on
the part of Universal to suggest that the action taken by it was taken to
In his findings, Justice Hill said, "The dire predictions of reduced
promotion through to reduced production and ultimate market failure have
simply not happened. If anything, the evidence shows a continued increase in
titles, promotion and production and at the same time at lower prices."
Both companies are now permanently restrained from, "refusing or threatening
to refuse supply of recorded music CDs to Australian retailers for the
reason, or if one of the reasons is, that the retailer has stocked, or
proposed to stock, non-pirated copies of CDs in the music catalogue of
either Warner or Universal from an alternate source", says the ACCC.
"This is an important precedent, as well as an important win for Australian
consumers as it means that retailers will be able to freely access cheaper,
legal, imported CDs without fear that they will lose supply of other stock",
ACCC chairman, Professor Allan Fels, said.
In July 1998, amendments to the Australian Copyright Act legalised the
parallel importation of CDs that didn't infringe the copyright laws of the
country in which they were made. Shortly after, the ACCC began its
investigation of the conduct of PolyGram Pty Ltd (since taken over by
Universal), and Warner after allegations that PolyGram and Warner had closed
the accounts of retailers, and had threatened to withdraw trading benefits
of those who stocked parallel imports.
Last December, Justice Hill found both Universal and Warner breached the
Act by misusing their market power and by exclusive dealing. Senior
executives of those companies were held to be knowingly concerned in the
contravention of their employers. He held that Universal and Warner had a
substantial degree of market power in the wholesale recorded music market
with market shares of approximately 15 to 17% and 17 to 18% respectively.
"Each major record company (including Warner and Universal) has exclusive
rights to a range of music, which forms its catalogue. In each catalogue a
company is likely to have top selling titles which, at any one time, are on
the chart," says the ACCC. "For most consumers a specific title cannot be
substituted. It is commercially imperative that a music retailer can access
major companies catalogues. A retailer denied supply may not be able to
obtain music from the companies' catalogues either locally or overseas at an
economic price, on time, or at all."
Justice Hill said: "It must be accepted that the conduct engaged in here was
serious. It was a deliberate attempt to subvert the consequences of
legislation designed to permit parallel imports of non-infringing copies of
* penalties - Universal - $450,000, Warner, $450,000
* Paul Dickson (formerly PolyGram Group Managing Director of Music
Operations) - $50,000
* Craig Handley (formerly PolyGram General Manager of Sales) - $45,000
* Gary Smerdon (Director of Warner, formerly Finance and Business Affairs
Director) - $45,000
* Greg Maksimovic (Warner NSW State Manager) - $45,000
* injunctions permanently preventing Warner and Universal from refusing, or
threatening to refuse supply to retailers for the reason that they source or
propose to source non-infringing copies of music within their catalogue from
an alternate source;
* costs - Universal, Warner to pay 75% of the ACCC's costs, with Paul
Dickson, Gary Smerdon, Greg Maksimovic each to pay 75%, and Craig Handley
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» Threats To C.D. Supplies Cost Record Companies $1M