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Vanderbilt Journal of Entertainment & Technology Law

First Page

220

Abstract

This Note argues that the recording industry's cooperative advertising programs do not run afoul of federal antitrust laws and, in fact, promote interbrand competition. It examines the implications of the cooperative advertising programs adopted by record companies in light of current federal antitrust law. Contrary to claims made by the FTC, the recording industry's actions can withstand antitrust scrutiny because Minimum Advertised Pricing ("MAP") policies serve pro-competitive business purposes. As will be discussed in further detail below, the recording industry has a legitimate interest in pursuing policies that help traditional music retailers stay in business in the face of crippling competition by large discount retailers.

Part II of this Note presents a brief overview of the structure of the pre-recorded music industry and discusses the threat that traditional music retailers faced when large nationwide discount chains entered the retail compact disc ("CD") market. The arrival of "loss leaders," firms who sell compact discs below the equilibrium price as a means to gain market share, prompted the industry's recourse to stricter MAP policies.

Part III of this Note provides a summary of the relevant federal antitrust law and the current standards that courts use to assess potential violations. In particular, this Note discusses the application of the Rule of Reason, a form of analysis used by courts to assess whether non-price vertical restraints imposed by upstream producers on downstream producers violate either section one of the Sherman Act or section five of the Federal Trade Commission Act. The Rule of Reason requires courts to consider a number of factors, including the particular characteristics of an industry, to determine whether certain business practices constitute illegal restraints of trade. This test has increasingly come under fire for its vagueness and difficulty in application.'

Part IV of this Note addresses the actions that the FTC and the Attorneys General of several states have taken against the various players in the music industry. This Part discusses the possibility that the recording industry can withstand the antitrust violations charged by the FTC and the Attorneys General by proving that the five largest manufacturers of pre-recorded music have a legitimate business interest in keeping retailers devoted solely to the sale of music and music-related merchandise in business. Essentially, the claim is that music-centered stores provide valuable informational services to customers, thereby promoting "inter-brand" competition, a goal that the Supreme Court recognized as legitimate when applying the Rule of Reason test to a non-price vertical restraint of trade.

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