Elderly, disabled Nevadans sue music companies

Grace Leong

Tuesday, June 20, 2000 | 10:57 a.m.

Two elderly Las Vegas women are seeking restitution from the nation's five largest music distributors, alleging they came up with illegal advertising policies that jacked up the price of compact discs.

Norma Filhaber and Beverly Berganzo, both over 70 years of age, filed a lawsuit seeking class action status last week in Clark County District Court against BMG Music Inc., Sony Music Entertainment Inc., Time-Warner Inc., Capitol Records Inc. and Universal Music & Video Distribution Corp.

The plaintiffs alleged the distributors violated the Nevada Antitrust and Deceptive Trade Practices Act because their "minimum advertised price" policies kept CD prices at "artificially inflated and non-competitive levels" starting Jan. 1, 1997, and "unreasonably restrained, suppressed and eliminated" price competition throughout Nevada.

The lawsuit said the advertising policies were designed to squelch discount music retailing and were introduced in 1992 by EMI Music Distribution, a division of Capitol Records; and Warner-Elektra-Atlantic Corp., a subsidiary of Time-Warner.

The policies were introduced because several retailers faced a retail price war that began in the early 1990s when new music retailers including large consumer electronics chains began selling CDs at substantial discounts to gain market share, the suit said. The retail price war caused prices of popular CDS to fall to as low as $9.99.

But retail and wholesale prices rose between 1995 and 1997 after the advertising policies were modified, the suit said. It said the new policies required retailers to advertise CDs at or above the minimum advertised price in exchange for substantial cooperative advertising and promotional funds. The restrictions applied to all advertising, including television, radio, newspaper, signs and banners within the retailers' stores.

Large music retailers that failed to follow the restrictions could lose millions of dollars a year because their cooperative advertising payments would be suspended for 60-90 days, the lawsuit said.

The Federal Trade Commission said in May that the five distributors sell about 85 percent or $13.7 billion in prerecorded music sales annually in the United States. It estimates U.S. consumers may have paid $480 million more than they should have for CDs because of such policies over the last three years.

The plaintiffs also alleged the distributors' violated Nevada statutes because their policies discriminated against the elderly and people with disabilities. Berganzo is wheelchair-bound.

The plaintiffs seek unspecified financial damages.

Noel Gage, the plaintiffs' attorney, said his clients' lawsuit is unique, though it isn't the first to be filed against the distributors since a proposed agreement on May 10 by the defendants settling FTC charges that they violated federal law when they modified their advertising programs.

"This isn't really part of a nationwide litigation because we're championing the cause of the elderly in our case and we have statutes that specifically prohibit discrimination against the elderly and disabled," he said.

"We're not sure if other states have such statutes. We have a sizable number of retirees in Nevada. Most of them are in the golden years of their lives and don't have a whole lot of money. So $5 or $10 means a lot to them."

Bruce Wecker, an attorney with the San Francisco-based Furth Firm, agreed.

"The Nevada case is unique because it tries to get class certification for Nevada consumers only. Nevada is one of the 17 or 18 states that passed legislation allowing indirect purchasers to sue under antitrust laws. Nevada's deceptive trade practices act is a very broad act that includes violations of antitrust laws."

Wecker, whose clients joined nationwide litigation against the distributors in U.S. District Court in Los Angeles, said he believes the first consumer lawsuit was filed shortly after the May 10 proposed settlement. He estimates 15-20 federal cases have been filed nationwide and about 12 state cases were filed in California alone. The Las Vegas lawsuit quoted an FTC report as saying, "the distributors' MAP policies provided no benefits to consumers ... The new retailers that charged lower prices to consumers provided services that were as good as, and in some cases, superior to the services provided by the higher priced retailers they were moving to replace."

"The MAP programs were implemented with an uncompetitive intent and they had significant anti-competitive effects. In addition, there was no plausible business justification for these programs," the FTC said.

Warner Music Group declined comment. The other defendants could not be reached for comment.

The proposed settlements with the FTC prohibit the five companies from linking any promotional funds to the advertised prices of their retailer customers for seven years. For the next 13 years after that, the companies would be prohibited from conditioning promotional money on prices contained in advertisements they do not pay for.

"These (proposed) settlements will eliminate these policies and should help restore much-needed competition to the retail music market, consisting of $15 billion in annual sales," said FTC Chairman Robert Pitofsky in a statement.