Probe of Competitive Practices Expanded

WASHINGTON -- The Justice Department widened its antitrust investigation of the online music business, sending civil subpoenas across the industry that focused on alleged use of copyright rules and licensing practices to control distribution, Monday's Wall Street Journal reported.

The subpoenas, formally known as civil investigative demands, were issued late last week and disclose a broad federal investigation into "anticompetitive licensing of intellectual property rights associated with provision of music over the Internet." The probe encompasses the two new online-music ventures backed by the industry's five major recording labels.

The subpoenas demand documents on terms and conditions in Internet music licensing and the setting of rates in the emerging online-music market, and investigators seem to be trying to pinpoint whether any illegal coordination took place among record labels. They were sent to online music distributors and to the recording industry's legal and lobbying arm, the Recording Industry Association of America, which includes the five major labels among its members.
The rival joint ventures, called pressplay and MusicNet, are each aligned with one of the two warring camps in the online world. Pressplay is working with Microsoft Corp. and is jointly owned by Sony Corp. and Vivendi Universal SA. MusicNet is based on RealNetworks Inc. technology and is owned by AOL Time Warner Inc., EMI Group PLC, Bertelsmann AG and RealNetworks. The joint ventures and the major record labels also were expected to receive subpoenas in the investigation, people close to the matter said.

MusicNet and the RIAA acknowledged receiving the subpoeanas and said they would cooperate with the investigation. Pressplay declined comment, as did the major recording labels reached yesterday. A music-publishing association, the National Music Publishers' Association, said it hadn't been contacted in connection with the probe.

The two joint ventures have drawn criticism in Congress and the courts and already are under investigation by European antitrust enforcers. Indeed, in a hearing in San Francisco last week on Napster Inc., the controversial online music-sharing service, U.S. District Judge Marilyn Hall Patel questioned how the five dominant recording companies could avoid collusion if they participated in the ventures. She said the decision to form the ventures "looks bad, sounds bad and smells bad."

Similarly, in the antitrust investigation, the central question appears to be whether the record labels worked together using exclusive copyright power over musical recordings to control the development of the digital music marketplace.

The U.S. investigation, which became public in August, will zero in on a murky but increasingly important area at the intersection of antitrust and copyright law. Copyright laws allow a degree of collaboration between competitors to stop infringement and facilitate distribution.

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