AUTHORITY STEALING: KISS YOUR CHEAP CDs GOODBYE!
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AUTHORITY STEALING: KISS YOUR CHEAP CDs GOODBYE!
Amazon.com faces CD imports probe
By Richard Milne in London
Published: January 6 2004 20:29 | Last Updated: January 6 2004 20:29
Amazon.com, the world's biggest online retailer, is being investigated by
the music industry over possible illegal importing of CDs into the UK.
The probe by the BPI, the record industry trade body, is at a preliminary
phase and is seeking to ascertain whether amazon.com breaches copyright
law when it sells CDs to UK consumers - so-called parallel importing. It
is not concerned with amazon.co.uk, which the BPI has separately concluded
does not import CDs illegally.
The news comes as the BPI prepares to fight its most high-profile illegal
importing case against CD Wow, a Hong Kong-based retailer that has been
one of the internet's success stories with an estimated £100m ($182m)
turnover last year.
The BPI's lawsuit, to be heard in the High Court next month, alleges that
CD Wow imports CDs bought outside the European Economic Area into the UK,
where it sells them cheaper than traditional retailers.
The BPI has also issued legal proceedings against play.com, another online
CD retailer, based in Jersey.
The investigation of amazon.com and the two legal actions represent the
music industry's first large assault on parallel importing, where genuine
goods are bought in one country, usually more cheaply, before being
imported and sold in another without the copyright owner's consent. It
also highlights the widening spread of parallel import actions following
Levi-Strauss's successful court action against Tesco for selling jeans
bought in eastern Europe to UK consumers.
"The BPI is looking at amazon.com," a person close to the trade body said.
"If the product the UK consumer buys is from the US, we would have to look
at that carefully. Potentially they are acting without the consent and
authority of the UK record companies."
Patty Smith, of Amazon, said: "We are not aware of any action the BPI may
or may not be taking. We clearly respect copyright laws in all the
countries we operate in."
Philip Robinson, director of CD Wow, said: "We have got consent [from the
record companies] and change of ownership takes place outside the UK.
There is a huge difference between us and the Tesco-Levi case."
Play.com said it had reached agreement with the BPI. The BPI denied this
and said proceedings were ongoing.
===============================================
Internet retailer faces the music
By Richard Milne
Published: January 6 2004 20:29 | Last Updated: January 6 2004 20:29
(Embedded image moved to file: pic11478.gif)
CD Wow is a boon to consumers. Tired of paying over the odds for compact
discs, music buyers have been flocking to the website in increasing
numbers since it was set up in 2000. In the UK, the key to its popularity
is a single flat-rate price of £8.99 for albums - about £4 cheaper than
the average price in British high streets - with free delivery. Some are
even cheaper, with Dido's Life For Rent - last year's best-selling British
album - selling for £6.99.
Operating across the world but with a focus on the UK, German and
Australasian markets, the Hong Kong-based business is estimated to have
had a turnover of about £100m in 2003. Having spent barely a penny on
advertising, it has weathered the technological meltdown of the past few
years to emerge, seemingly, as one of the most successful dotcoms.
But for the record industry CD Wow is a company built on a flawed, not to
say potentially illegal, business model. It is able to sell CDs so cheaply
because, on its own admission, it sources its products from a variety of
countries, predominantly in Asia, where prices are low. This enables it to
undercut traditional retailers deeply when it then imports the CDs to the
UK and elsewhere.
The record industry is furious, arguing that CD Wow is engaging in
parallel importing - where genuine goods from outside the European
Economic Area (which consists of all 15 European Union countries, plus
Liechtenstein, Iceland and Norway) are imported into the EEA without the
copyright owner's consent. "We take a very, very dim view of parallel
importing," says a UK executive at one of the five main record labels.
Soon the record industry - through its trade body in the UK, the British
Phonographic Industry - will put its anger to the legal test. The British
High Court will next month become the battleground for the highest-profile
parallel importing case since Tesco, the UK supermarket chain, sued Levi
Strauss over its ability to sell cut-price jeans.
For the record industry, it is an attempt to stave off the radical effect
of the internet, which allows consumers to buy CDs from across the world.
But is their strategy of legal enforcement, which risks alienating their
customers, the right one?
The heart of the record industry's case is that, under UK and continental
European law, products bought outside the EEA can be imported only with
the copyright owner's consent. The European Court of Justice decided in
the Tesco case that such consent could not be implied and had to be
"unequivocally demonstrated".
In this case, the ECJ relied on intellectual property doctrine of
"exhaustion of rights", says Richard Kemp, a lawyer at Kemp Little. It
reaffirmed that goods put on the market outside the EEA need the
right-holder's consent to be brought into the EEA. But, once they are, the
right-holder cannot object to any future resale.
Mark Blair, lawyer at Marks & Clerk, says the Tesco case made the
situation under trademark law very clear. But the BPI is bringing its case
under copyright legislation, which has been used in far fewer parallel
import cases. Independent lawyers say this should cause few problems for
the record industry but that the scope for the decision contrary to that
in the Tesco case is magnified.
For the record industry those copyrights are all- important. Simon Baggs,
a solicitor at Wiggin & Co, the BPI's lawyers, says: "The music industry,
just like any other content industry, relies first and foremost on its
copyrights. It has to act because at the moment the record industry's
position in the UK is being completely undermined."
Philip Robinson, CD Wow's chief executive, says the legal action will be
vigorously defended. "I would not have set the business up if there was
something intrinsically wrong with it," he says. However, his critics
point to the copyright problems he suffered with a previous company, Tring
International, the budget music business.
He says CD Wow's case has two main thrusts. First, it has received consent
from the record companies to sell the products. "We have consent from the
senior management in these companies," Mr Robinson says. Independent
lawyers point out, however, that such consent must come from the copyright
holder itself - in this instance the UK record company and not its Asian
subsidiary - and must relate to the selling of CDs inside the EEA.
"Consenting to the goods being put on the Hong Kong market is not the same
as allowing them to be imported into the UK," says one London-based
lawyer.
CD Wow's second argument seeks to overcome that objection by claiming that
it does not import anything - ownership changes hands in Hong Kong with
the consumer then personally importing the CD. Another independent lawyer
says that this argument has little merit: "With the website cdwow.co.uk,
they clearly are selling to consumers in the UK. It's just semantics to
say otherwise."
Mr Robinson is, however, perplexed that the music industry should be
pursuing a company that it concedes is buying genuine products and paying
artists their royalties. "At the end of the day I can't see it as being in
anybody's interest to sell less product." He says that if CD Wow loses the
case it could source all its material from inside the EEA but he is keen
to focus on the rest of his business rather than the legal action.
The UK accounts for about 40 per cent of CD Wow's turnover, he says,
adding that a loss in the case is "important, but it's not
life-threatening". Instead, he is ploughing his energies into the global
expansion of CD Wow and his new venture Wow Woman, based on similar lines
but offering cut-price cosmetics, lingerie and jewellery. As with CD Wow,
he is establishing the brand with no advertising but extensive
cross-marketing deals with banks and credit card companies.
The strategy with both brands is to keep margins tight (50p-60p for the
average CD) and stock turnover high (CD Wow turns it about 27 times a
year).
The BPI says its aim is not to close CD Wow but merely to stop its alleged
parallel importing. "There is no suggestion that UK consumers should lose
out," says Mr Baggs of Wiggin & Co. "It's only that CD Wow directors
should make less money and take smaller margins." He adds that he foresees
little difficulty in enforcing any judgment the BPI might obtain against
CD Wow despite its base being in Hong Kong, as both Mr Robinson and a
customer services branch are based in the UK.
But Mr Robinson is still perturbed at what he sees as the victimisation of
CD Wow. "I'm very worried about Amazon and they are not [pursuing] them,"
he says. But the Financial Times has learnt that the BPI is looking into
whether Amazon is breaking UK law when it sells CDs from its amazon.com
website to UK consumers.
The investigation began late last year and people close to the BPI say it
is at the stage of making test purchases to see if the CDs are being
illegally imported. Patty Smith, director of international PR at
Amazon.com, says the company is unaware of the probe but respects
copyright laws wherever it operates.
The BPI also points to the legal proceedings it has issued against
Play.com, a Jersey-based internet retailer. It is understood that Play.com
is close to settlement over the matter, which will entail it sourcing all
its CDs from within the EEA.
Lawyers question how advisable a strategy it is for any industry to use
national laws to clamp down on internet retailing, which by definition is
an international activity.
Richard Kemp at Kemp Little says that, in the internet age, whether to
allow the public to buy goods from around the world is fundamentally a
business question rather than a legal one. "[Litigation will cause]
massive interference on the freedom to contract. Is the answer to the
question to align prices around the world or is the answer to have 10
years of litigation? It's not really a legal issue at the highest level."
Another lawyer from a leading international firm contrasts record
companies with pharmaceuticals companies, which have also faced huge
numbers of parallel importers seeking to take advantage of different
prices around the world.
"Differential pricing works for pharmaceuticals companies. But it doesn't
for CDs," he says, adding that consumers could turn against the already
unpopular industry. "Victory in court for the music industry could turn
out to be pyrrhic."
The short and unhappy career of Tring International
Tring International, the former company of CD Wow chief executive Philip
Robinson, is a by-word in the music industry for how things can go wrong.
The budget music company, which listed its shares in London in 1994,
collapsed four years later under a welter of copyright litigation.
It was sued by several record labels including MCA, Polygram, K-Tel
International and EMI Music for allegedly infringing their copyright on
its budget £2.99 releases. Although many of the actions were defeated,
Tring paid EMI £20,000 ($36,000) in settlement and the numerous lawsuits
and cheap compact discs made it unpopular with the industry.
But infringement of copyright was not the only problem Tring and Mr
Robinson faced. At the heart of its woes was a string of incidents
involving poor shareholder communication. Its share price halved in a week
in 1995 after it issued a profit warning with little indication as to why.
There was even a soap-operatic twist at the top as Mark Frey, a school
friend of Mr Robinson and the co-founder of Tring, tried unsuccessfully to
oust him as chief executive.
Matters came to a head in 1998 when shareholders rejected a refinancing
proposal, then the stock exchange rebuked Tring for failing to gain
shareholder approval for the sale of its headquarters. Mr Robinson
resigned in August 1998 to facilitate a reverse takeover by music
promoters Harvey Goldsmith and Raymond Gubbay but three months later the
company was in administration.
Today, Mr Robinson views Tring as offering a number of lessons. "Don't
float again," he says is the main one, adding that he found it difficult
to juggle the often competing interests of shareholders and management. As
for the view that history is repeating itself with CD Wow, he is adamant:
"It's absolutely, completely different," he says.
= requires subscription to FT.com
By Richard Milne in London
Published: January 6 2004 20:29 | Last Updated: January 6 2004 20:29
Amazon.com, the world's biggest online retailer, is being investigated by
the music industry over possible illegal importing of CDs into the UK.
The probe by the BPI, the record industry trade body, is at a preliminary
phase and is seeking to ascertain whether amazon.com breaches copyright
law when it sells CDs to UK consumers - so-called parallel importing. It
is not concerned with amazon.co.uk, which the BPI has separately concluded
does not import CDs illegally.
The news comes as the BPI prepares to fight its most high-profile illegal
importing case against CD Wow, a Hong Kong-based retailer that has been
one of the internet's success stories with an estimated £100m ($182m)
turnover last year.
The BPI's lawsuit, to be heard in the High Court next month, alleges that
CD Wow imports CDs bought outside the European Economic Area into the UK,
where it sells them cheaper than traditional retailers.
The BPI has also issued legal proceedings against play.com, another online
CD retailer, based in Jersey.
The investigation of amazon.com and the two legal actions represent the
music industry's first large assault on parallel importing, where genuine
goods are bought in one country, usually more cheaply, before being
imported and sold in another without the copyright owner's consent. It
also highlights the widening spread of parallel import actions following
Levi-Strauss's successful court action against Tesco for selling jeans
bought in eastern Europe to UK consumers.
"The BPI is looking at amazon.com," a person close to the trade body said.
"If the product the UK consumer buys is from the US, we would have to look
at that carefully. Potentially they are acting without the consent and
authority of the UK record companies."
Patty Smith, of Amazon, said: "We are not aware of any action the BPI may
or may not be taking. We clearly respect copyright laws in all the
countries we operate in."
Philip Robinson, director of CD Wow, said: "We have got consent [from the
record companies] and change of ownership takes place outside the UK.
There is a huge difference between us and the Tesco-Levi case."
Play.com said it had reached agreement with the BPI. The BPI denied this
and said proceedings were ongoing.
===============================================
Internet retailer faces the music
By Richard Milne
Published: January 6 2004 20:29 | Last Updated: January 6 2004 20:29
(Embedded image moved to file: pic11478.gif)
CD Wow is a boon to consumers. Tired of paying over the odds for compact
discs, music buyers have been flocking to the website in increasing
numbers since it was set up in 2000. In the UK, the key to its popularity
is a single flat-rate price of £8.99 for albums - about £4 cheaper than
the average price in British high streets - with free delivery. Some are
even cheaper, with Dido's Life For Rent - last year's best-selling British
album - selling for £6.99.
Operating across the world but with a focus on the UK, German and
Australasian markets, the Hong Kong-based business is estimated to have
had a turnover of about £100m in 2003. Having spent barely a penny on
advertising, it has weathered the technological meltdown of the past few
years to emerge, seemingly, as one of the most successful dotcoms.
But for the record industry CD Wow is a company built on a flawed, not to
say potentially illegal, business model. It is able to sell CDs so cheaply
because, on its own admission, it sources its products from a variety of
countries, predominantly in Asia, where prices are low. This enables it to
undercut traditional retailers deeply when it then imports the CDs to the
UK and elsewhere.
The record industry is furious, arguing that CD Wow is engaging in
parallel importing - where genuine goods from outside the European
Economic Area (which consists of all 15 European Union countries, plus
Liechtenstein, Iceland and Norway) are imported into the EEA without the
copyright owner's consent. "We take a very, very dim view of parallel
importing," says a UK executive at one of the five main record labels.
Soon the record industry - through its trade body in the UK, the British
Phonographic Industry - will put its anger to the legal test. The British
High Court will next month become the battleground for the highest-profile
parallel importing case since Tesco, the UK supermarket chain, sued Levi
Strauss over its ability to sell cut-price jeans.
For the record industry, it is an attempt to stave off the radical effect
of the internet, which allows consumers to buy CDs from across the world.
But is their strategy of legal enforcement, which risks alienating their
customers, the right one?
The heart of the record industry's case is that, under UK and continental
European law, products bought outside the EEA can be imported only with
the copyright owner's consent. The European Court of Justice decided in
the Tesco case that such consent could not be implied and had to be
"unequivocally demonstrated".
In this case, the ECJ relied on intellectual property doctrine of
"exhaustion of rights", says Richard Kemp, a lawyer at Kemp Little. It
reaffirmed that goods put on the market outside the EEA need the
right-holder's consent to be brought into the EEA. But, once they are, the
right-holder cannot object to any future resale.
Mark Blair, lawyer at Marks & Clerk, says the Tesco case made the
situation under trademark law very clear. But the BPI is bringing its case
under copyright legislation, which has been used in far fewer parallel
import cases. Independent lawyers say this should cause few problems for
the record industry but that the scope for the decision contrary to that
in the Tesco case is magnified.
For the record industry those copyrights are all- important. Simon Baggs,
a solicitor at Wiggin & Co, the BPI's lawyers, says: "The music industry,
just like any other content industry, relies first and foremost on its
copyrights. It has to act because at the moment the record industry's
position in the UK is being completely undermined."
Philip Robinson, CD Wow's chief executive, says the legal action will be
vigorously defended. "I would not have set the business up if there was
something intrinsically wrong with it," he says. However, his critics
point to the copyright problems he suffered with a previous company, Tring
International, the budget music business.
He says CD Wow's case has two main thrusts. First, it has received consent
from the record companies to sell the products. "We have consent from the
senior management in these companies," Mr Robinson says. Independent
lawyers point out, however, that such consent must come from the copyright
holder itself - in this instance the UK record company and not its Asian
subsidiary - and must relate to the selling of CDs inside the EEA.
"Consenting to the goods being put on the Hong Kong market is not the same
as allowing them to be imported into the UK," says one London-based
lawyer.
CD Wow's second argument seeks to overcome that objection by claiming that
it does not import anything - ownership changes hands in Hong Kong with
the consumer then personally importing the CD. Another independent lawyer
says that this argument has little merit: "With the website cdwow.co.uk,
they clearly are selling to consumers in the UK. It's just semantics to
say otherwise."
Mr Robinson is, however, perplexed that the music industry should be
pursuing a company that it concedes is buying genuine products and paying
artists their royalties. "At the end of the day I can't see it as being in
anybody's interest to sell less product." He says that if CD Wow loses the
case it could source all its material from inside the EEA but he is keen
to focus on the rest of his business rather than the legal action.
The UK accounts for about 40 per cent of CD Wow's turnover, he says,
adding that a loss in the case is "important, but it's not
life-threatening". Instead, he is ploughing his energies into the global
expansion of CD Wow and his new venture Wow Woman, based on similar lines
but offering cut-price cosmetics, lingerie and jewellery. As with CD Wow,
he is establishing the brand with no advertising but extensive
cross-marketing deals with banks and credit card companies.
The strategy with both brands is to keep margins tight (50p-60p for the
average CD) and stock turnover high (CD Wow turns it about 27 times a
year).
The BPI says its aim is not to close CD Wow but merely to stop its alleged
parallel importing. "There is no suggestion that UK consumers should lose
out," says Mr Baggs of Wiggin & Co. "It's only that CD Wow directors
should make less money and take smaller margins." He adds that he foresees
little difficulty in enforcing any judgment the BPI might obtain against
CD Wow despite its base being in Hong Kong, as both Mr Robinson and a
customer services branch are based in the UK.
But Mr Robinson is still perturbed at what he sees as the victimisation of
CD Wow. "I'm very worried about Amazon and they are not [pursuing] them,"
he says. But the Financial Times has learnt that the BPI is looking into
whether Amazon is breaking UK law when it sells CDs from its amazon.com
website to UK consumers.
The investigation began late last year and people close to the BPI say it
is at the stage of making test purchases to see if the CDs are being
illegally imported. Patty Smith, director of international PR at
Amazon.com, says the company is unaware of the probe but respects
copyright laws wherever it operates.
The BPI also points to the legal proceedings it has issued against
Play.com, a Jersey-based internet retailer. It is understood that Play.com
is close to settlement over the matter, which will entail it sourcing all
its CDs from within the EEA.
Lawyers question how advisable a strategy it is for any industry to use
national laws to clamp down on internet retailing, which by definition is
an international activity.
Richard Kemp at Kemp Little says that, in the internet age, whether to
allow the public to buy goods from around the world is fundamentally a
business question rather than a legal one. "[Litigation will cause]
massive interference on the freedom to contract. Is the answer to the
question to align prices around the world or is the answer to have 10
years of litigation? It's not really a legal issue at the highest level."
Another lawyer from a leading international firm contrasts record
companies with pharmaceuticals companies, which have also faced huge
numbers of parallel importers seeking to take advantage of different
prices around the world.
"Differential pricing works for pharmaceuticals companies. But it doesn't
for CDs," he says, adding that consumers could turn against the already
unpopular industry. "Victory in court for the music industry could turn
out to be pyrrhic."
The short and unhappy career of Tring International
Tring International, the former company of CD Wow chief executive Philip
Robinson, is a by-word in the music industry for how things can go wrong.
The budget music company, which listed its shares in London in 1994,
collapsed four years later under a welter of copyright litigation.
It was sued by several record labels including MCA, Polygram, K-Tel
International and EMI Music for allegedly infringing their copyright on
its budget £2.99 releases. Although many of the actions were defeated,
Tring paid EMI £20,000 ($36,000) in settlement and the numerous lawsuits
and cheap compact discs made it unpopular with the industry.
But infringement of copyright was not the only problem Tring and Mr
Robinson faced. At the heart of its woes was a string of incidents
involving poor shareholder communication. Its share price halved in a week
in 1995 after it issued a profit warning with little indication as to why.
There was even a soap-operatic twist at the top as Mark Frey, a school
friend of Mr Robinson and the co-founder of Tring, tried unsuccessfully to
oust him as chief executive.
Matters came to a head in 1998 when shareholders rejected a refinancing
proposal, then the stock exchange rebuked Tring for failing to gain
shareholder approval for the sale of its headquarters. Mr Robinson
resigned in August 1998 to facilitate a reverse takeover by music
promoters Harvey Goldsmith and Raymond Gubbay but three months later the
company was in administration.
Today, Mr Robinson views Tring as offering a number of lessons. "Don't
float again," he says is the main one, adding that he found it difficult
to juggle the often competing interests of shareholders and management. As
for the view that history is repeating itself with CD Wow, he is adamant:
"It's absolutely, completely different," he says.
= requires subscription to FT.com