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Universal and Warner slammed for "misusing market power" and "exclusive dealing"
By Jon Newton,
(more articles from this author)
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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 (ACCC).

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 prevent piracy".

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 compact discs".

* 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 70%.

Related News from Mi2N:
» Threats To C.D. Supplies Cost Record Companies $1M

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