Twenty-eight states filed suit Tuesday against the five biggest record companies and two music retailing giants, accusing them of conspiring to fix CD prices.


"This illegal action by record companies and retailers has not been music to the ears of the public," New York State Attorney General Eliot Spitzer said in a statement. "Because of these conspiracies, tens of millions of consumers paid inflated prices to buy CDs of artists including Santana, Whitney Houston, Madonna, and Eric Clapton."

The lawsuit, filed in U.S. District Court in New York, alleges that traditional retailers pressured the record companies to set minimum advertising prices after a price war brought by discount retailers dropped the average price of CDs from $15 to $10.

"Our nation's business economy has been built on the notion of fair and free competition," Spitzer said. "When there is illegal activity to fix prices — as was the case here — the consumer is always the loser."

Defendants in the suit are Capitol Records, Sony Music, BMG Music, Universal Music, and Warner Music. On the retail side, defendants include Tower Records, Musicland, and Trans World Entertainment. Musicland also owns Sam Goody; Trans World operates retail outlets Camelot, Music & Movies, Planet Music, and Record Town.


A spokesman for music giant BMG said the company would prevail in the courts, adding that it did no wrong by implementing a policy known as minimum advertised pricing. Under that policy, retailers could not get advertising subsidies from the record labels if they advertised prices below the minimum price set by the label.


"We still believe that the MAP was a legitimate and appropriate practice and we are confident that the courts will reach the same conclusion," said BMG spokesman Nathaniel Brown.


But the advertising subsidies totaled millions of dollars, in some cases making it difficult for a retailer to compete without them, the complaint alleges.