Starr v. Sony BMG Music Entertainment

Sony BMG Music Entertainment, Universal Music Group Recordings, Inc., and a few other companies (together, the producers) (defendants) had control of over 80 percent of the digital music sold to consumers. Initially, three of the producers distributed music through a service they launched together, called MusicNet, while two of the producers launched and used their separate distribution service, “pressplay.” MusicNet and pressplay (together, the distribution services) sold music to consumers under expensive and restrictive subscription plans. One media outlet reported that “nobody in their right mind” would want to use the services, yet consumers had to if they wanted access to the music. Later, the producers sold their music via the Internet (Internet music) by licensing it to third parties, resulting in substantial cost savings to the producers. Licensees were required to keep prices as high as they were on MusicNet. The producers/licensors also used most-favored-nation (MFN) clauses in their license agreements to ensure they received the same terms as other licensors and to prevent licensees from obtaining music from another source at a better price. Some of the MFNs were effectuated via “secret” side letters, explicitly to avoid antitrust scrutiny. None of the producers did business with one particularly successful retailer of Internet music. At one point, several state and federal authorities began investigations into alleged price-fixing of digital music by the producers. Purchasers of digital music (the buyers) (plaintiffs) sued the producers, alleging the foregoing facts and that the producers had violated the Sherman Antitrust Act by conspiring to price fix. The producers filed a motion to dismiss for failure to state a claim, and the district court granted the motion. The buyers appealed.