Xerox settles with SEC on accounting irregularities

Copy-protected CDs are the Dick Cheney of the music industry: People know they exist, but music labels say little about their whereabouts.

But they may soon be outed. Attorneys from the Pennsylvania law firm Feldman & Rifkin LLP and the California law firm Kaplan, Fox & Kilsheimer LLP are collecting complaints from angry music fans who believe the music CDs they bought are copy-protected without adequate labeling.

Both firms say they may file class action lawsuits against some of the largest record labels. The complaints include alleged "deceptive trade practices" and "breaking labeling laws" by selling music CDs that won't play or cannot be copied on a PC.

Music labels are doing the public a disservice by not clearly labeling copy-protected CDs, says attorney Larry Feldman, whose prospective suit is in the "investigative stage" now. Donald Hall, of Kaplan, Fox & Kilsheimer, confirmed a similar investigation by his firm, but is otherwise tight-lipped. "We are investigating the corruption and copy protection of music CDs in the U.S.," Hall says.

Collecting complaints

Both law firms quietly began collecting names late last week at, a Web site that lists CDs that consumers believe are restricted. The site has become a rallying place for music fans to post gripes and the names of suspect CDs. So far, the site lists more than 100 CDs that Chuck Heffner, the site's owner, says are likely copy-protected. Another site, Campaign for Digital Rights, is keeping a running tally of allegedly corrupted CDs released in Europe.

"I don't care whether it is Enron or the music industry, adequate disclosure solves lots of problems in life," attorney Feldman says. His firm is familiar with technology lawsuits: It won settlements from Gateway and Iomega in class action suits involving tech support and upgrade promises. It also represents musicians suing for royalties from online streaming music and digital downloads. This week, the law firm began directly accepting complaints about copy protection. Feldman says he has already heard from consumers who say their music CDs won't play on PCs, DVD players, and even some portable audio CD players.

Copy-protected CDs have raised a firestorm of criticism from U.S. music fans who claim a right to copy music they legally purchased. But music labels defend the practice, complaining that music sales are down 10 percent because of music pirates and the Internet.

The music industry blames CD-RW drives for online piracy. It says that stopping customers from making digital copies of music prevents copyrighted tunes from landing on file-sharing networks. The recording industry has fought such services by suing Napster and later pursuing Kazaa and Morpheus. However, most major labels adamantly deny introducing copy-protected CDs surreptitiously into the U.S. market.

Defensive maneuvers

The Recording Industry Association of America says only two copy-protected CDs have been introduced in the United States: Charley Pride--A Tribute to Jim Reeves and More Music From the Fast and the Furious. The trade organization's representatives won't comment on labeling policies, but they do say it's a record label's right to copy-protect its product.

"Virtually every other media product, including movies, video games, e-books, and software, has copy protection," says Jonathan Lamy, RIAA spokesperson. "Why should music be any different?"

Representatives of BMG Entertainment, EMI Group, Sony Music, and Warner Music Group all insist they are not selling copy-protected CDs in the United States, but most are test-marketing the controversial practice in Europe. The recording companies contacted for this report note that some overseas CDs may have inadvertently come to the United States.

Universal Music acknowledges introducing two clearly labeled copy-protected CDs in the United States: Enter the Life of Suella by Pretty Willy and More Music From the Fast and the Furious, a compilation of hard rock, techno, and electronica music. BMG Entertainment, owned by media giant Bertelsmann, says it has begun copy protecting, but only on the promotional releases of the CDs it sends to U.S. radio stations, retailers, and the press.

Heffner says his site proves that the real number of copy-protected CDs released in the United States is far greater than what music labels admit.

"They lie as I breathe," Heffner says. He does not test CDs or verify the complaints he gets, but says he suspects music labels are testing the copy-protection waters by mixing a small number of protected CDs in with larger batches.

Wanted: Disclosure

"The record companies, in their zeal to protect themselves from the horror of online piracy, are forcing consumers to endure the horror of mislabeling copy-protected CDs," Feldman says.

Sony says that it hasn't released any copy-protected CDs in the United States, but that it has shipped about 100 "enhanced" CDs. Those discs, including the Jennifer Lopez CD Ain't It Funny, contain additional multimedia content that may be mistakenly identified as copy protection, Sony representatives say. While enhanced CDs are not easily copied, someone with some technical sophistication can do it, a source says.

Jive is among the smaller labels already selling at least some copy-protected CDs. It put copy protection on the Celebrity CD by 'NSync, one of the first major acts to do so. Jive also handles Britney Spears and the Backstreet Boys.

An Israeli company that produces copy-protection technology, Midbar, says it has released more than 10 million copy-protected CDs in the United States and Europe. Another such firm, Macrovision, says its technology is used by several major U.S. labels.

Fights on several fronts

As file-swapping networks like Kazaa and LimeWire continue to thrive, "this is the worst time for the music industry to ask the consumer to pay more for a CD and get less in return," says Aram Sinnreich, a Jupiter Research analyst. Although Sinnreich is careful to note that he lacks proof, he suspects labels are selling copy-protected CDs in the United States without proper labeling. "It's consistent with the record labels' modus operandi in the past."

Other analysts don't agree. P.J. McNealy, a media analyst with GartnerG2, doubts record labels are trying to pull a fast one on consumers.

Both analysts say a suit against record labels may not get far. Fair-use rights are hazy when it comes to consumer music CDs, they warn. However, such action may let consumers send a message to record labels that they won't tolerate copy-protected CDs, McNealy says.

Perhaps Congress will hear them, too. Pending legislation would require copy-protection technology on all appropriate "digital devices" unless the entertainment industry and Silicon Valley can find an alternative way to protect copyrighted digital content. Not surprisingly, Hollywood and the music labels favor such action; tech companies generally oppose it.

This week, Gateway launched an ad campaign designed to rally consumers against the copyright-protection bill, saying that making backup copies of legally purchased music CDs should be legal. Worse for Gateway and the tech industry, the proposed legislation could hobble CD drive sales and hurt PC sales.

Previous battles

The legal waters are not completely uncharted. Consumers have a right to make informed choices about the CDs they purchase, says attorney Ira Rothken, who recently settled a similar suit. Rothken represented Californian Karen DeLise, who sued the copy-protection firm SunnComm, distributor Music City Records, and independent label Fahrenheit Entertainment. DeLise unhappily discovered that her new Charley Pride CD contained a SunnComm copy-protection scheme that prevented her from playing the disc in her PC.

As part of the settlement, Music City Records and Fahrenheit Entertainment will provide a more detailed disclosure on CD packaging. They will also stop requiring consumers to enter their names and e-mail addresses as a condition for downloading the music from a Web site, which Rothken contends was a way for the record labels to track listener habits. The settlement does not apply to other secure CDs, though it could be cited in related cases.

"What it comes right down to is, record companies have to give consumers reasonable notice as to how a CD is functionally inferior to the millions of CDs that have come before it," Rothken says. "When a record company wants to deviate from the reasonable expectations of what a CD is, they need to let consumers know."

Back to the standard

The standard for music CDs is the Compact Disc standard--and it isn't copy-protected.

Philips, the Dutch company that with Sony co-created the Compact Disc format almost 20 years ago, is standing boldly against the industry's use of copy-protected CDs.

Philips has warned that discs employing such technologies cannot be classified as compact discs and can't use the "Compact Disc" logo that has been stamped on every CD since the format was developed.

In this battle--involving standards, market opportunities, and consumer preferences--is a tangle of goals and desires.

Recording labels see opportunity in online music, says GartnerG2's McNealy. "All the labels are trying to figure out how to address digital distribution," he said. Copy protection is one part of their plan.

Another part is, quite simply, control. Each label promotes its own paid online-music service, such as MusicNet and Pressplay. Bertelsmann recently announced its intention to acquire a larger stake in Napster, which plans to relaunch as a paid-subscription service.

When you own all the media, you can set the rules--but will anybody buy it?

Join the newsletter!


Sign up to gain exclusive access to email subscriptions, event invitations, competitions, giveaways, and much more.

Membership is free, and your security and privacy remain protected. View our privacy policy before signing up.

Error: Please check your email address.

More about BertelsmannBMG Lab TechEMIEnronE*TradeFox & Kilsheimer LLPGartnerG2IomegaJupiterJupiter ResearchKaplanKaZaAMacrovisionMorpheusMusicNetNapsterPhilipsRecording Industry Association of AmericaSECSonyWarner Music AustraliaXerox

Show Comments