B. SECOND CAUSE OF ACTION – Per Se Violation of Section 1 of the Sherman Act
312. I repeat and reallege the allegations contained above as if fully stated herein.
1. Definitions
313. “Targeted marketing of discounted prices” means the advertising or promoting of a “special” low price that is best suited to a particular online customer.
314. “Label” or “Studio” means an entity that is in the business of producing prerecorded music or movies, including contracting with artists and promoting prerecorded music or movie products.
315. “Distributor” means the entity that distributes prerecorded music or movie products on behalf of a music or movie company or label or studio, and through affiliated dealers.
316. “Traditional retailer” means an entity that specializes in selling prerecorded music or movie products to consumers. Traditional retailers include, but are not limited to, Tower, Musicland, Sam Goody, Record Town, Camelot, The Wall, Saturday Matinee, F.Y.E. (For Your Entertainment), Coconuts, Strawberries and Spec’s.
317. The “relevant time period” is the period beginning in or around September 2000 to the present.
2. Co-Conspirators
318. Various firms, corporations and other persons, known and unknown to me and not named as defendants herein, including without limitation the Recording Industry Association of America (RIAA), The International Federation of the Phonographic Industry (IFPI), the Motion Picture Association of America (MPAA), the National Music Publishers Association (NMPA), MusicNet, pressplay, unnamed publishers, retailers, wholesalers, labels and studios, have participated as co-conspirators with the Defendants in the violations alleged in this Complaint and have performed acts in furtherance thereof. More specifically, I allege that the named defendants have developed the scheme to monopolize the relevant markets described herein and to destroy my targeted-pricing invention principally through the trade associations of the RIAA and the MPAA, and that the co-conspirators have perpetrated the acts of the conspiracy through attorneys of the RIAA, the MPAA, the NMPA and the named defendants with the specific intention of using the attorney client privilege to keep secret their acts in furtherance of conduct that constitutes criminal conspiracy under Title 15 of the United States Code.
319. I allege that each of the named defendants in this action was and is the agent and co-conspirator of the other in connection with the concerted actions alleged in these counterclaims, and that they aided and assisted one another in perpetrating the wrongful acts alleged herein. I further allege that defendants and their co-conspirators were and are the agents of and co-conspirators with their trade associations, the Recording Industry Association of America (“RIAA”) and the International Federation of the Phonographic Industry (“IFPI”), the MPAA and the NMPA. I allege that defendants and their co-conspirators used the RIAA and the IFPI , the MPAA and the NMPA, as well as their employees, attorneys and representatives, to orchestrate, coordinate and perpetrate their anticompetitive scheme and the acts taken in furtherance thereof as alleged herein.
3. Trade and Commerce
320. During the relevant period, each of the defendant distributors sold prerecorded music, including CD/DVDs, to retailers located throughout the United States. These products were transported across state lines, were shipped in interstate commerce, and were sold in each of the various States by retailers.
321. The activities of each of the defendants, including receiving, distributing, and selling prerecorded music products, were in the regular, continuous and substantial flow of interstate commerce and have had and do have a substantial effect upon interstate commerce.
4. Product and Geographic Markets
322. The product markets in this case are wholesale and retail sales of prerecorded music and movies, including markets and submarkets for CD/DVDs, cassettes, and albums. Such products are highly valued by consumers, and have no close substitutes.
323. The geographic markets in this case are the United States, for sales of prerecorded music and movies at wholesale, and national, local and regional markets and submarkets throughout the United States, for sales of prerecorded music at retail.
5. The Prerecorded Music and Movie Industry
324. Each year, consumers pay billions of dollars at retail for prerecorded music and movie products alone, the vast majority of which are CD/DVDs. According to an industry trade association estimate, in 1999, the total U.S. market for prerecorded music alone was estimated at $14.6 billion.
325. Since a spate of merger activity in the late 1980s and early 1990s, the prerecorded music industry has been dominated by six major holding companies, BMG, EMI, Sony, Universal, Time Warner and PolyGram. Their number was reduced to five when Universal’s parent company acquired PolyGram in July 1998. Their number was reduced to four when Sony and BMG merged in August 2004. Generally, these holding companies are vertically integrated, comprising both labels and distribution companies. Artists enter into contracts with labels, generally for a certain number of releases during the contract term. Generally, the label is responsible, working jointly with the artists, for “content development” and for manufacturing. Each label also plays a role, with its affiliated distribution company, in the marketing of the finished product. The distribution company is responsible for the wholesale sale and distribution to retailers of new releases and “catalog” works from inventory.
326. There is a fringe of “independent” music distributors, but high barriers to entry shield the defendants both from expansion by such fringe firms and from significant new entry into the wholesale market for prerecorded music by new firms. These barriers arise from, among other things, the advantages that their established position and ownership of “back catalogs” of successful recordings confer on the major distributors. For example, the enormous financial resources of the defendants give them decisive advantages over would-be competitors in acquiring and maintaining control of a portfolio of successful artists.
327. The result of these and other factors is that, at the wholesale level, the prerecorded music industry is highly concentrated. Only only a few sellers whose market shares have remained relatively stable over time and which view each other as their only effective competitors dominate the wholesale market.
328. The label and studio defendants and their distributors promote their products directly and pay retailers to promote them. These promotional efforts are usually either media advertisements, or some form of in-store promotion. In-store promotions often involve eye-catching placement of a particular product, for example at an end-cap (the end of a merchandise aisle) or at the cash register. The promotional funds that the defendant labels and their distributors are able to provide to retailers are very substantial, running to many millions of dollars annually. Moreover, those promotional payments often exceed the cost to the retailer of providing the promotional services in question.
329. The motion picture industry is similarly, highly vertically integrated. The Studio Defendants dominate and, when they act in concert, have monopoly power in the market for the copyright licensed, distribution of first run major motion pictures in theaters within the United States and thereafter on tape and DVD format through retailers as well as in pay per view and video on demand distribution.
6. The Threat of Competition
330. I invented a proprietary method for targeted marketing of Internet retail of CD/DVDs. The invention calculated the discounted price that any given Internet customer was willing to pay, so that the discounted price could be advertised or promoted as a “special” low price to that given customer.
331. Targeted marketing of creative works is regarded in economic theory as a potential boon to the total welfare of both consumers and producers of creative works, provided that it is feasible. In fact, with the advent of the Internet, costs of production and distribution for CD/DVDs have been drastically reduced, and these reduced costs now make my targeted marketing feasible.
332. I launched a proof-of-concept of his targeted marketing beginning in August 2000. The proof-of-concept used a “share with buddies” model, and was adopted by Defendant EMI for a promotion of a new release by Radiohead. The proof-of-concept was considered a success and led to commercial interest by the distributor/retailer TransWorld.
333. Beginning in September 2000, I personally guaranteed loans totaling at least $400,000 made by TransWorld. I was charged with using these loans to develop a second prototype of my targeted marketing that would be acceptable to TransWorld.
334. My second prototype was subjected to TransWorld’s independent due diligence. When the due diligence was complete in January 2001, my second prototype was deemed acceptable, and the loans guaranteed by me were converted to stock in the corporation BuddyUSA Inc.
335. The stock purchase contained a term sheet that described the terms of an anticipated contract made primarily between myself and TransWorld. The term sheet anticipated a contract in which I would complete my invention of targeted marketing, while sharing losses incurred in developing the invention, and then provide it for online retail of music and movies.
336. The term sheet anticipated that in consideration for my granting TransWorld exclusive rights to my targeted-marketing invention, there would be an entitlement to “remuneration based on [TransWorld’s] conduct of business within the Scope as set forth in the Business Plan.”
337. The term sheet also anticipated that I would be appointed to an Advisory Board to “establish in good faith a rate and method of remuneration”.
338. In February 2001, TransWorld submitted further terms, describing the
“Aimster (Peer-to-Peer) Test Requirements.”
339. Specifically, the Objectives of the Test Requirements were to:
340. (1) Gain an understanding of the effectiveness of Aimster for “targeted marketing”;
341. (2) Gain an understanding of “purchasing behaviors of online customers.”
342. In sum, the term sheet and the Aimster Test Requirements provide proof that I had a reasonable expectation that my targeted marketing would be utilized in a dealer contract with the distributor TransWorld to advertise and promote pricing based on “targeted marketing” and “understanding of purchasing behaviors of online customers.”
343. I also had a reasonable expectation that I and TransWorld would together share both the dealer profits or promotional funds and the expenses or losses resulting from the use of my invention for targeted marketing, in return for my granting to TransWorld the exclusive rights to my invention.
344. My targeted marketing quickly proved its value in the market when consumers flocked to my dealer’s Internet site using my targeted marketing, which rapidly gained market share at the expense of traditional retailers.
345. Obviously, the competitive nature of the market required that TransWorld and I work rapidly and efficiently to complete our work. In fact, the Aimster Test Requirements set rapid deadlines for completion of our work.
346. However, the entry into the market of my targeted marketing gave rise to a competitive threat that Internet dealers who used it could profitably undercut the prevailing high prices charged for CD/DVDs by Label and Studio defendants and sold through traditional dealers.
7. The Scheme to Stop Competition
347. The Defendants belong to the Recording Industry Association of America (“RIAA”), an industry trade association, and to the Motion Picture Association of America (“MPAA”). Representatives of the Defendants regularly attend meetings of RIAA and MPAA.
348. RIAA and MPAA provided a forum for private discussions between labels regarding policies and pricing levels.
349. In or around January-February 2001, a senior executive at the distributor TransWorld approached various executives of Label and Studio Defendants about TransWorld’s term sheet that provided a dealer contract to me.
350. At the same time, discovery orders had been issued in the District Court of Maine, In re CD Minimum Advertised Price Antitrust Litigation, and TransWorld was required by these orders to produce in good faith retail sales data relating to the pricing polices of TransWorld and the Label Defendants. My targeted marketing provided TransWorld with access to such retail sales data material to the discovery orders.
351. The Label and Studio Defendants reacted by pressuring both myself and TransWorld to impose increased pricing policies, rather than use the my targeted marketing. Increased pricing policies effectively established the retail price levels at which CD/DVDs could be advertised, promoted or sold.
352. The increased pricing policies thus effectively eliminated the possibility of competition from my targeted marketing. My targeted marketing required that the discounted price be advertised and promoted, without any restriction by minimum advertised price policies.
353. For example, at least four recording executives warned me personally that my efforts to develop my targeted marketing would be disrupted if the I entered into a dealer contract with TransWorld.
354. In another example, at a meeting of the RIAA in or around March 2001, a RIAA representative told the members who were present that the I “was asking for it”. This threat was announced to the members for the first time immediately after it became known that the I had provided my targeted marketing of discounted prices in a dealer contract with TransWorld.
355. This pressure to increase advertised prices also took the form of harsh coercive policies adopted by the Label and Studio Defendants.
356. For example, the Label and Studio Defendants participated in and prosecuted unlawful and sham litigation against me personally in jurisdictions far-removed from my personal forum. The sham litigation was objectively baseless, except as an unlawful means to increase dealer prices, and was designed solely to interfere with and delay the timely completion of work on the my targeted marketing invention.
357. As a further example, the Label and Studio Defendants colluded to bring sham litigation unlawfully in contempt of an injunctive order issued in May 2000 by Judge Kahn in the Northern District of New York, which restrained and enjoined eighteen Label Defendants and “those acting in concert with them” from “prosecuting or participating in any other action against plaintiff herein, John Deep, or BuddyUSA, Inc. in the Southern District of NY or elsewhere relating to any claims for copyright infringement or related state claims involving the operation of the Internet service known as Aimster.”
358. As a result of the coercive financial pressure and unlawful and sham litigation against me personally, work on the Aimster Test Requirements was in fact delayed and various mileposts could not be met.
359. In the summer of 2001, the Antitrust Division of the Department of Justice launched an investigation into whether the joint ventures MusicNet and pressplay restrained competition among the Label Defendants, or allowed the Label Defendants to impede the growth of the Internet as a channel for the authorized promotion and distribution of music, and thereby help the major labels solidify their central roles in the existing music market. My targeted marketing provided TransWorld with access to retail sales data material to the Department of Justice investigation. I conveyed truthful information to the Department of Justice law enforcement officers relating to the possible commission of the federal offenses of criminal antitrust violations and securities fraud.
360. The coercive pressure was applied so broadly and punished violations so severely that it effectively precluded me or any discount dealer from selling CD/DVDs below the prices approved by Label and Studio Defendants. I initially protested vigorously, but the severe financial penalties that Label and Studio Defendants imposed made resistance too costly.
361. For example, in its 10-K filed in or around May 4, 2001, TransWorld warned its investors that “a loss of a major supplier could cause a loss of sales, which would have an adverse effect on operating results and also result in a decrease in vendor support for the Company's advertising programs”.
362. Then, in or around June 2001 the President of RIAA Hilary Rosen called Robert Higgins, chairman of TransWorld, and delivered an implied threat saying, “Let’s just work this out.”
363. Label and Studio Defendants then used the promotional funds paid to the distributor TransWorld, amounting to millions of dollars each year, to exert coercive pressure on the distributor to increase dealer prices.
364. To coerce TransWorld to increase its advertised prices during the relevant period, Label and Studio Defendants and various co-conspirators paid bribes to TransWorld’s affiliates and subsidiaries, using slush funds, improper accounting, and money laundering, knowing full well that there was no fair value received in exchange for the cash considerations, in violation of Generally Accepted Accounting Principles (“GAAP”). As a result, defendants and their co-conspirators misrepresented their revenue numbers in their annual reports mailed to shareholders and their 10-K filings with the S.E.C. during the relevant period.
365. As a result of the coercive pressure to increase prices and the concerted actions of defendants to conceal their violations of GAAP and their fraudulent revenue numbers, the distributor TransWorld was thereafter prevented from performing its contractual obligation to me – specifically, TransWorld’s obligation, in accordance with GAAP, to track and make payments of promotional funds and remuneration to which I am entitled
366. I was thus denied the promotional funds due to me as a dealer, during the relevant time period, and the denial was a direct result of the coercive pressure of the Label and Studio Defendants to increase the price or price level at which CD/DVDs were advertised or promoted.
367. Acting in concert with the Label Defendants, the Studio Defendants in the year 2001 exerted coercive pressure on Trans World to increase the price levels at which the following DVDs were advertised or promoted – Universal: The Last Castle, Josie and the Pussycats; Warner Bros.: The Majestic, Osmosis; New Line: Town and Country; Paramount: Enemy at the Gates; Columbia: Final Fantasy-Spirits Within; Twentieth Century Fox: Glitter.
368. Because each of the movies had failed to meet its expectations in box office receipts, the Studio Defendants further exerted coercive pressure on Trans World to inflate the profit and revenues of the subsequent DVD sales, in return for kickbacks as described above.
369. But the Federal Trade Commission, in August 2000, had entered an Injunctive Order, which broadly enjoined Label Defendants from imposing any such advertised price policies, and specifically stipulated:
370. “It is further ordered that for a period of seven (7) years, [Label Defendants], directly, indirectly, or through any corporation, subsidiary, division or other device, in connection with the offering for sale, sale or distribution of any [Defendant] Product in or into the United States of America in or affecting "commerce," as defined by the Federal Trade Commission Act, shall cease and desist from directly or indirectly adopting, maintaining, enforcing or threatening to enforce any policy, practice or plan which makes the receipt of any Cooperative Advertising or Other Promotional Funds contingent upon the price or price level at which any [Defendant] Product is Advertised or Promoted.” The Order further stipulated that the term “Advertised or Promoted” is defined in the Order to include Internet advertisements.
371. The concerted actions of Label and Studio Defendants and TransWorld as described above violate the Injunctive Order.
372. Further, these concerted actions were intended to tamper with records or otherwise impede an official proceeding by 1) concealing violations of the Injunctive Order; and 2) willfully disobeying discovery orders in official proceedings in the District Court of Maine, In re CD Minimum Advertised Price Antitrust Litigation.
373. Finally, as a direct result of the concerted actions during the relevant time period, I was prevented from conveying truthful information to law enforcement officers relating to the possible commission of the federal offenses of obstruction of justice, willful antitrust violations and other securities fraud.
8. The Injury To Competition and Consumers
374. The agreements reached between the Label and Studio defendants, and enforced market wide by coercive pressure on my joint venturer Trans World, acting as my distributor, were in commercial reality and practical effect agreements on resale prices, for at least three reasons.
375. First, because my targeted marketing was prevented from being used except contingent on increased prices, the increased advertised price levels effectively fixed actual retail price levels. The purpose of Internet advertising is to induce consumers to purchase at the Internet retail store. Advertising CD/DVDs at prices that are higher than consumers are willing to pay would serve no logical business purpose.
376. Second, the broadening of the increased pricing policies to cover virtually all price communications by me to the market, and even to communications involving products not owned by Defendants – and especially involving the consumers’ fair use of a purchased digital product - essentially ended my ability to sell any prerecorded music or movie products at discounted prices.
377. Third, the fact that a violation of the Label and Studio Defendant increased pricing policies could entail the loss of all advertising funds that the distributor received for all its retailers meant that the cost of violating the policies was simply too high. For example, Label and Studio Defendants were providing upwards of millions of dollars per year in advertising funds to the distributor TransWorld.
378. As a result of these price agreements, retail and wholesale prices for prerecorded music were increased above the my targeted-price. Such increases were exactly what the Label and Studio Defendants intended to achieve by implementing their agreements on price levels.
379. There was no legitimate business reason for the increased pricing provisions; their sole purpose was to eliminate competition and create barriers to entry. Indeed, the precise levels at which advertised prices affected the Internet consumer’s willingness to pay was a frequent topic of discussion between the Label and Studio Defendants.
380. I, who more efficiently advertised discounted prices, was effectively forced out of the dealer business. At the same time, the causal connection between the increased advertised pricing agreements of Label and Studio Defendants and the high retail prices that Internet consumers were unwilling to pay was apparent to industry observers.
381. When free from artificial barriers to entry, the broad range of retailing opportunities presented by the Internet is pro-competitive for retailers, artists and other resellers of recorded music and movies. However, the conduct of Label and Studio Defendants in engaging in price agreements, while forcing retail competitors to increase advertised prices on designated Internet retail sites, raises artificial barriers to entry for others who wish to sell music and movie products through the Internet. The barriers to entry — initially established by giving special pricing and promotional benefits to traditional retail operations designated by the Label and Studio Defendants — inhibit competition by other Internet retailers.
382. These retail and wholesale price increases occurred despite the fact that per-CD and DVD unit costs had decreased sharply during the 1990s. As a result of the higher retail prices, I have suffered economic injury, and so has the market of consumers, artists and retailers.
9. Defendants’ Anticompetitive Conduct In the Market for the Online Distribution of Recorded Music
383. The label, manufacturing and distribution segments of the recorded music industry are highly concentrated. In addition, nearly all important labels are corporate affiliates of one of the major five distribution companies, making the label segment only slightly less concentrated than the distribution segment. At all times relevant to my allegations, the “major five” distributors of pre-recorded music—UMG, EMI, Bertelsmann Music Group (“BMG”), Warner Music and Sony Music — sold and distributed 85% of all pre-recorded music in the United States. The advent of the Internet and the development of the technology capable of delivering music to consumers in the form of a digital file threatened the major five’s traditional dominance of the market for recorded music. Labels’ and Studios’ initial response to the possibility of online distribution was a concerted effort to stop online distribution altogether, by a coordinated campaign of litigation and refusal to license.
384. Ultimately Labels and Studios and their co-conspirators could not resist the technological tide and had to recognize that online music distribution was not going to go away. During 2000, each of the major five distribution companies launched its own digital distribution website. But Labels and Studios and their co-conspirators acting in concert had larger designs—they joined together and embarked on a scheme to cartelize that market and its financial promise for themselves. Their goal was simple: to destroy any online music distribution service they did not own or control, or force such services to do business with them on exclusive and/or other anticompetitive terms. And to do so, Labels and Studios and their co-conspirators had at their disposal a potent weapon—the exclusivity rights inherent in their copyrights—that they deployed with a vengeance, by unlawfully extending and pooling those rights to cartelize the network for the online distribution of recorded music.
385. Labels and Studios and their co-conspirators pursued and effected their aim to dominate the market for online recorded music distribution by various means. Chief among these was the formation and use of two captive joint ventures—MusicNet and pressplay—that became the exclusive vehicles through which Labels and Studios and their co-conspirators would license music content for online distribution. These joint ventures were formed in mid-2001, with the ostensible aim of providing platforms for the digital distribution of music. MusicNet was a joint venture among plaintiff EMI, BMG and Warner Music. Pressplay was a joint venture between plaintiff UMG and Sony Music. Between them, these two joint ventures controlled access to over 85% of the world’s copyrighted musical works. I allege that the principals of MusicNet and pressplay agreed to cross-license the recorded musical content of each joint venture to the other.
386. During the time period relevant to the allegations in my claims, Labels and Studios and their co-conspirators persistently and concertedly refused to license any online distribution of their copyrighted works by any entity other than their own captive joint ventures. MusicNet and pressplay thereby served as the vehicles through which Labels and Studios and their co-conspirators imposed anticompetitive contract terms in the form of unduly restrictive licensing agreements.
387. In the early stages of my business, I entered into exclusive licensing agreements with Trans World to distribute music on online, in which my Lawyers purported to represent my interests in the transaction.
388. The terms of the exclusive licensing agreements with Trans World were known to my Lawyers, but my Lawyers have so far fraudulently concealed such terms from me.
389. I allege that Boies, Trans World and Labels and Studios have attempted to hinder and delay the emergence and expansion of online distribution of music provided by businesses independent of Boies, Trans World and Labels and Studios in order to protect and control their kickback scheme involving CDs and DVDs from which they now profit illegally.
390. Moreover, Labels and Studios received proprietary information about and control over my business which is the result of defendants’ fraudulent scheme, including but not limited to proprietary information about and control over my valuable contract with Trans World, which defendants transferred to the entity MusicNet on or about October 2004.
391. Subsequently, on or about April 2005, certain Labels sold MusicNet for an amount in excess of $25 million dollars, the benefit of which directly resulted from the transfer to MusicNet of my proprietary information including but not limited to my contract with Trans World.
10. Defendants’ Anticompetitive Conduct In the Market for the Online Distribution of Video-on-demand
392. Video-on-demand services allow consumers to order and watch theatrical motion pictures through a personal computer at any time, 24 hours per day, 7 days per week. With a video-on-demand service, a consumer may order a specific theatrical motion picture for a per-program fee and typically has unlimited access to that movie for a 24-hour period. While watching the theatrical motion pictures, the consumer has the ability to stop, pause, fast forward, rewind and replay.
393. Video-on-demand services are available to consumers in the United States over internet protocol (“IP”) networks. To access IP video-on-demand services, a consumer must use a high speed IP connection, generally through digital subscriber line (”DSL”) technology or cable modems that offer high-speed data transmission.
394. My invention of Aimster was designed to be used for the technology and services necessary to provide video-on-demand through the use of IP technology.
395. My IP video-on-demand service does not operate on the public internet, but is available only on what the Federal Communications Commission defines as “advanced telecommunications capability” systems (see FCC Section 706, Advanced Service Inquiry). The public internet has been defined as “any non-proprietary (i.e., accessible to the general public regardless of physical location, means of access and whether or not a fee is charged by an internet service provider for such access) digital network that interconnects computers so as to allow open two-way access for the origination and reception of data.” By contrast, my IP video-on-demand service operates as a secure, end-to-end connection between Aimster media servers and the consumer. A first-time user begins by establishing an account and a password.
396. Once a user is validated as an Aimster subscriber, the user may select and order a licensed theatrical motion picture. The encrypted movie is then “streamed” or downloaded only to validated subscribers.
397. When a user receives an encrypted stream or download, the user must also acquire a license that contains a key to “unlock” the file before the content can be viewed. A one-time license is transmitted which contains the key to decrypt the stream. The license is removed from the user’s computer as soon as the key has been used. If the user stops the stream and returns later to watch the rest of the movie, a new license is issued and the new key is removed as soon as it has been used. This license and key process is invisible to the user and distinguishes Aimster’s IP video-on-demand service from services available on the public internet. In contrast to IP video-on-demand service, cable has no session-based encryption technology.
398. The backend systems used to provide encrypted streams or downloads to Aimster users are or were located in secure facilities at 80 State St., Albany, New York, with restricted administrative access, limited physical access and numerous security devices, such as firewalls.
399. Video-on-demand services delivered by IP technology to consumers in the United States constitute a relevant market for antitrust purposes. Consumers do not perceive other services as reasonably interchangeable substitutes. Video-on-demand services are not available as a practical matter through dial-up modems using standard telephone line (generally referred to as “narrow band”) access. Although a few digital cable services offer video-on-demand to television sets on a trial basis, the technology is very limited and is available to significantly fewer consumers in the United States. For the vast majority of video-on-demand consumers, narrow band access and digital cable are not technically feasible and are not interchangeable substitutes for IP technology.
400. For customers, the main selling feature of a video-on-demand service is the availability of theatrical motion pictures made by the Studios. Although Aimster also offers other programming, no IP video-on-demand service can survive as a practical matter unless the service makes a material and significant number of theatrical motion pictures available to consumers on an ongoing basis.
401. While I have developed the technology and support system necessary to provide IP video-on-demand service, it must obtain theatrical motion pictures to distribute on its video-on-demand service through licensing agreements from the Studios that own or control the motion picture.
402. Defendants account for over 50% of the box office receipts for motion pictures released for theatrical exhibition in the United States.
403. In the early stages of my business, I entered into exclusive licensing agreements with Trans World to distribute movies on Aimster’s video-on-demand system, in which my Lawyers purported to represent my interests in the transaction.
404. The terms of the exclusive licensing agreements with Trans World were known to my Lawyers, but my Lawyers have so far fraudulently concealed such terms from me.
405. I allege that Boies, Trans World and Labels and Studios have attempted to hinder and delay the emergence and expansion of IP video-on-demand services provided by businesses independent of Boies, Trans World and Labels and Studios in order to protect and control their kickback scheme involving CDs and DVDs from which they now profit illegally.
406. In or about April 2001, Sony announced that it intended to distribute theatrical motion pictures to consumers in the United States on a video-on-demand basis through IP networks, through a joint venture called Movielink. The participants in the Movielink venture are one or more of the Sony defendants and Warner defendants.
407. The service to be provided by Movielink is of a lesser quality than Aimster. I allege that Boies, Trans World and Labels and Studios engaged in the anti-competitive conduct alleged herein in part because my more advanced and sophisticated pricing technology is of higher quality and gives Aimster a competitive advantage that Boies, Trans World and Labels and Studios are trying to eliminate by their agreement to fix prices and group boycott, in order to perpetuate their kickback scheme involving CDs and DVDs from they now profit illegally.
408. I allege that, realizing that it would be more difficult to control and delay the expansion of IP video-on-demand services and launch their Movielink joint venture if Aimster achieved wide distribution, Boies, Trans World and Labels and Studios are engaging in a conspiracy and combination to unreasonably restrain competition in the IP video-on-demand services market in the United States (“the Conspiracy”). Beginning at a date unknown to me, and continuing through the filing of this complaint, Boies, Trans World and Labels and Studios acted in concert to conspire and combine to fix prices, organized a group boycott of Aimster, reneged on their licensing agreements that Boies, Trans World and Labels and Studios promised me were negotiated, and otherwise tried (and continue to try) to destroy Aimster’s viability. The Movielink joint venture was a device for Boies, Trans World and Labels and Studios to collude on these activities.
409. I allege that this conspiracy and combination is intended to delay and, unless restrained by this court, will delay the expansion of IP video-on-demand services, will eliminate consumer choice, and will produce higher prices, reduced output, and lower quality services than what would prevail in a competitive market.
410. I allege that Boies, Trans World and Labels and Studios have acted with the knowledge and expectation that, absent a continued supply of theatrical motion pictures and other programming from the defendants, my business will become an ineffective competitor and will likely be eliminated as a competitor for the exhibition of IP video-on-demand services. The most recent concerted conduct by Boies, Trans World and Labels and Studios has resulted in the shutdown of my basic IP video-on-demand service.
411. Beginning in or about September 2000, and continuing thereafter until the present, Boies, Trans World and the Labels and Studios and their co-conspirators engaged in unlawful contracts, combinations, or conspiracies in restraint of interstate trade and commerce, in violation of Section 1 of the Sherman Act.
412. The combinations and conspiracies consisted of continuing agreements, understandings, or concert of action between Boies, Trans World and the Labels and Studios and their co-conspirators, the substantial terms of which were to fix, raise, maintain or stabilize the retail prices at which prerecorded music and movie products were advertised and sold to the consuming public. Such combinations or conspiracies are per se violations of Section 1 of the Sherman Act.
413. For the purpose of forming, effectuating, and furthering the conspiracies, Boies, Trans World and the Labels and Studios and their co-conspirators did those things which they combined, agreed, and conspired to do as, among other things, set forth above.
11. Effects
414. Each of the aforesaid unlawful contracts, combinations and conspiracies by each of the defendant distributors and their co-conspirators had the following effects, among others:
415. The retail purchase prices for prerecorded music and movie products sold throughout the United States were fixed, raised, maintained or stabilized at artificial noncompetitive levels;
416. Price competition among retailers for the sale of prerecorded music products was restrained; and
417. I was denied the benefits of free and open competition among retailers and among wholesalers of those products, and as a result, was prevented from profiting in a competitive market.
12. Injury
418. As a result of each of the illegal contracts, combinations, and conspiracies alleged above, I have sustained injury to my property.
419. I am threatened with further imminent and irreparable injury to my property unless Defendants are enjoined from their illegal conduct.
C. THIRD CAUSE OF ACTION – Rule of Reason Violation of Section 1 of the Sherman Act
420. I repeat and reallege the allegations contained above as if fully stated herein.
421. Beginning in or about September 2000, and continuing thereafter until the present, Defendants and their co-conspirators engaged in unlawful contracts, combinations, or conspiracies in unreasonable restraint of interstate trade and commerce, in violation of Section 1 of the Sherman Act.
422. The combinations and conspiracies consisted of continuing agreements, understandings, or concert of action among Defendants and their co-conspirators, the substantial terms of which were to fix, raise, maintain or stabilize the retail prices at which Defendant’s prerecorded music and movie products were advertised and sold to the consuming public. Such combinations or conspiracies are unreasonable restraints of trade in violation of Section 1 of the Sherman Act.
423. For the purpose of forming, effectuating, and furthering the conspiracies, Defendants and their co-conspirators did those things which they combined, agreed, and conspired to do as, among other things, set forth above.
