Used-CD Policy Is Challenged by Wherehouse : Music: Four of the largest record distributors face multimillion-dollar antitrust suit.

Wherehouse Entertainment has gone to court over its right to sell used compact discs, filing a multimillion-dollar antitrust suit against the nation’s four largest record distributors: Sony, Warner Elektra Atlantic Corp., CEMA Distribution and UNI Distribution Corp.

The lawsuit by the Torrance-based, 340-outlet record retail, filed in Los Angeles federal court Monday, charges that the four corporations conspired to “unreasonably restrain trade” by withholding advertising and promotional allowances from retailers who traffic in used CDs.

“This is truly a case of David taking on Goliath,” said Bruce Jesse, vice president of marketing communications at Wherehouse. “These are the biggest and most powerful companies in the music business and they’ve implemented extremely harsh financial penalties in an effort to stop us from selling used CDs.”

The nine-page suit also challenges the “artificially” high suggested retail price of new compact discs and calls into question the affiliation of the four major distributors with record clubs that market music recordings directly to the public at prices significantly less than retail.

Executives at Time Warner’s WEA, Thorn-EMI’s CEMA and Matsushita Electric’s UNI declined to comment. Sony did not return calls.

Wherehouse caused a stir in the record industry in December when it became the first major retail chain to enter the used-CD market. In the last seven months, the firm has expanded its used-CD sales program from 25 to 260 outlets.

Record executives staunchly oppose the sale of used CDs because they fear such transactions will cut into sales of new music and diminish the perceived value of the industry’s biggest money-making audio format.

In recent months, the four defendants named in the suit haveretaliated against merchants who sell used CDs by tightening restrictions on returns of opened productsand refusing to underwrite print and radio advertisements that feature their artists. These measures are costing Wherehouse and other used-CD vendors across the nation millions of dollars in advertising subsidies.

Wherehouse is not alone in challenging the major labels’ anti-used-CD policies. The Independent Retailers Music Assn., a coalition of hundreds of small record store owners that also sell used CDs, have voiced their opposition since May to anti-used-CD policies by slashing pre-orders and halting promotional displays, in-store airplay and sale pricing for all new artists affiliated with Sony, CEMA, MCA and WEA.

A growing number of independent merchants have also refused to report computerized tallies of new-product sales for the four firms to SoundScan, the research company that compiles information for the Billboard pop charts.

Independent Retailers Music Assn. co-founder Roman Kotrys said his group supports Wherehouse’s move.

“We applaud Wherehouse for having the guts to open the doors to discussion on this matter,” Kotrys said. “And if a courthouse is the place where it has to be done, then so be it.”

The courts may not be the only government body willing to arbitrate the matter. Last week, the Federal Trade Commission contacted several used-CD merchants and began quietly looking into the controversy, sources said.

“What the record companies are doing is unfair to us and our customers,” Wherehouse’s Jesse said. “Not only is it unfair, it’s illegal.”