DOJ expands online music probe

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 and is jointly owned by Sony and Vivendi Universal. MusicNet is based on RealNetworks Inc. technology and is owned by AOL Time Warner, 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 Sunday. 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.

Two types of services
The Justice Department investigation appears to cover two different types of online music service, which are governed by separate sets of rules. Interactive services, like MusicNet and pressplay, let users choose what songs they hear, and that is probably the primary U.S. focus. Online music firms complain they haven't been able to get licenses from labels to start this kind of service, while the labels granted full rights to their own joint ventures, which are set to launch this fall.

In the past, the labels have argued that they have been working out the technology and the business models for providing music online and have been negotiating a recently announced deal with music publishers. They have generally said they will work with companies that meet their technological requirements and financial terms. Indeed, EMI has granted licenses to both MusicNet and pressplay.

The other type of online service included in the Justice Department probe comes under a more tangled series of rules. Radio-style Internet music services, which don't allow users to choose what songs they hear, are governed by a special U.S. Copyright Office arbitration. That proceeding is setting an industrywide rate for Internet firms to pay record labels for use of their music.

The Justice Department appears to be examining whether the record labels used their clout to set up an effective licensing monopoly.

The record companies are likely to argue that the cooperation between them was legal under copyright law provisions that allow them to collectively negotiate and grant license terms for the radio-style Internet services. They may also argue that potential licensees preferred to negotiate with one entity, rather than each individual record label. 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.

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 and is jointly owned by Sony and Vivendi Universal. MusicNet is based on RealNetworks Inc. technology and is owned by AOL Time Warner, 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 Sunday. 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.

Two types of services
The Justice Department investigation appears to cover two different types of online music service, which are governed by separate sets of rules. Interactive services, like MusicNet and pressplay, let users choose what songs they hear, and that is probably the primary U.S. focus. Online music firms complain they haven't been able to get licenses from labels to start this kind of service, while the labels granted full rights to their own joint ventures, which are set to launch this fall.

In the past, the labels have argued that they have been working out the technology and the business models for providing music online and have been negotiating a recently announced deal with music publishers. They have generally said they will work with companies that meet their technological requirements and financial terms. Indeed, EMI has granted licenses to both MusicNet and pressplay.

The other type of online service included in the Justice Department probe comes under a more tangled series of rules. Radio-style Internet music services, which don't allow users to choose what songs they hear, are governed by a special U.S. Copyright Office arbitration. That proceeding is setting an industrywide rate for Internet firms to pay record labels for use of their music.

The Justice Department appears to be examining whether the record labels used their clout to set up an effective licensing monopoly.

The record companies are likely to argue that the cooperation between them was legal under copyright law provisions that allow them to collectively negotiate and grant license terms for the radio-style Internet services. They may also argue that potential licensees preferred to negotiate with one entity, rather than each individual record label.