28 States Sue Record Companies

Record companies should pay back millions of

dollars in illegal profits they collected by forcing discount

stores to raise CD prices in 1995, attorneys general for 28 states

alleged in a lawsuit.

“These illegal actions certainly have not been music to the ears of the public,” New York Attorney General Eliot Spitzer said at a news conference on Tuesday as the lawsuit was filed in U.S. District Court in Manhattan.

Mitigating Circumstances The music companies maintain that they threatened to stop supplying discount chains with thousands of advertising dollars in the mid-1990s because the chains were selling CDs at below wholesale cost, driving some record stores out of business. They indicated Tuesday that they would contest the lawsuit.

The lawsuit comes three months after the five major music distributors, while admitting no wrongdoing, settled Federal Trade Commission charges they unfairly inflated CD prices.

Under that deal, the companies agreed to discontinue minimum advertised price programs that forced retailers to sell music CDs at or above a set level in return for getting substantial advertising funding.

Spitzer said the lawsuit, which seeks unspecified damages, was meant to force record companies to pay back the profits they made illegally.

He said he could not yet estimate the value of those profits but said the $480 million estimated by the FTC sounded reasonable.

Business as Usual Keith Estabrook, a spokesman for BMG Music, said the company still believed that the pricing policy “was a legitimate and appropriate practice and we are confident that the courts will reach the same conclusion.”

Will Tanous, a Warner Music spokesman, concurred, saying the pricing policies served “a valid business purpose and benefited consumers by substantially furthering retail competition.”

“It was an appropriate and lawful practice,” he added.

Dawn Bridges, an EMI Music spokeswoman, said the claims were without merit. Sony Music spokesman Keith McCarthy said he had no comment, while Universal Music did not immediately return a telephone message seeking comment.