Battle Over Net Firm's Sales of Music CDs to Play Out in Court

In Britain, the key to its popularity is a flat-rate price of about $16.50 for albums -- about $7.30 cheaper than the average price in British bricks-and-mortar stores -- with free delivery. Some are even cheaper, with Dido's "Life for Rent" -- last year's best-selling British album -- selling for less than $13.

Operating across the world but with a focus on the British, German and Australasian markets, the Hong Kong-based business is estimated to have had sales of about $184 million in 2003. Having spent barely a penny on advertising, it has weathered the technological meltdown of the last few years to emerge, seemingly, as one of the most successful dot-coms.

But for the record industry, CD Wow is a company built on a flawed and potentially illegal business model. It is able to sell CDs so cheaply because it gets products from a variety of countries, mainly in Asia, where prices are low. This enables it to undercut traditional retailers deeply when the CDs are imported to Britain and elsewhere.

The recording industry says CD Wow is engaging in parallel importing -- in which 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," said a British executive at one of the five major record labels.

Soon the recording industry -- through its trade body in Britain, 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 British supermarket chain, sued Levi Strauss & Co. to be allowed to sell cut-price jeans.

The heart of the record industry's case is that, under British 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."