The Webcaster Alliance has filed a suit against the Recording Industry Association of America and five major record labels for anti-competive behavior. The case arises from a deal last year, details of which were first reported by The Register, between a handful of small webcasters and the RIAA to set performance royalty rates.

The WA alleges that the plan was part of a strategy to wipe out an entire industry at birth - the independent webcasters - and the suit has explosive political implications for senior Congressman Sensenbrenner who forced the deal. Sensenbrenner later admitted taking $18,000 from the RIAA for a trip to the Far East.

"A private negotiation between the RIAA and the VOW" - the breakaway group responsible for cutting the deal - "became, by virtue of the SWSA [Small Webcaster Settlement Act of 2002], an industry deal for all small webcasters."

The suit alleges that the VOW agreement "actually put many small webcasters in a worse position" than they had been under the rates set by the Library of Congress' Copyright Office earlier that year, by for example mandating a fourfold increase in in the minimum royalty fee.

The Webcaster Alliance alleges that this and an earlier agreement with Yahoo! "had the intent and effect of restraining competition in the market for domestically recorded sound recordings and in the market for the Internet distribution for such sound recordings."

"Faced with exclusionary licensing rates," continues the suit, "... Plaintiff's members are faced with certain and imminent extinction."

Which may be exactly what the RIAA wants, the suit suggests. The Major Labels named, which own 90 per cent of content, "had a near-exclusive hold on distribution and marketing channels to consumers, such as radio station play, shelf space in major retail outlets, tour books, promotions and music videos" until the advent of the Internet.

The suit notes that the Library of Congress has already established a finding of fact that in the Yahoo! Agreement RIAA members artificially inflated royalty fees, the Librarian noting that "the RIAA created a virtually uniform precedent with rates above those that most buyers would be willing to pay."

A Yahoo! executive subsequently testified before the House that the agreement set "excessive" rates that were "considerably higher" than what the stations could afford.

By sealing a deal, the RIAA sought to wipe out the primary digital distribution mechanism for Independent labels, says the WA.

Sensenbrenner played a crucial role in the VoW settlement: forcing the negotiating webcasters to cut a deal with the RIAA or leave his congressional staff to write a deal for them. ®

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