No Encore for Guitar Price-Fixing Class Action

     PASADENA, Calif. (CN) – The Ninth Circuit refused Tuesday to revive a class action accusing Fender, Gibson and other guitar manufacturers of conspiring to fix prices.
     Consumers flooded courts around the country with such claims after the Federal Trade Commission settled its investigation into music-products price-fixing in 2007.
     Though the National Association of Music Merchants faced a cease-and-desist order as part of the consent decree, it never admitted any wrongdoing and did not even face a fine.
     A federal judge in San Diego eventually consolidated the ensuing consumer complaints, which took aim at five manufacturers, NAMM and Guitar Center Inc., the largest musical instrument retailer in the United States.
     Joshua Ramsey and the other plaintiffs claimed that, between 2004 and 2009, the defendants conspired to implement and enforce minimum-advertised-price policies – which fixed the minimum price at which any retailer could advertise the manufacturers’ guitars and guitar amplifiers – as part of a classic “hub-and-spoke” agreement designed to raise retail prices and restrain competition.
     On Tuesday, a three-judge panel with the Ninth Circuit found that the case had properly been dismissed for failure to state a claim.
     A “hub-and-spoke” conspiracy involves both vertical agreements between manufacturers and retailers and horizontal agreements among competitors.
     The role of the “hub” is typically filled by a dominant purchaser, the “spokes” are competing manufacturers or distributors that enter into vertical agreements with the hub and the “rim” of the wheel consists of the horizontal agreements among the spokes.
     Consumers painted Guitar Center acted as the hub, pressuring the manufacturer defendants (the spokes) to adopt the advertising policies, with the manufacturers’ agreements to adopt the policies forming the rim.
     In the panel’s 29-page opinion, Judge Carlos Bea wondered where the NAMM, who allegedly facilitated the agreements, fit into the “homespun metaphor.”
     “Might we suggest ‘lug nuts’?” he wrote.
     Rather than indicating illegal action, the allegations of the “parallel conduct” might simply show that the defendants responded similarly to similar market pressures.
     “In an interdependent market, companies base their actions in part on the anticipated reactions of their competitors,” he said. “And because of this mutual awareness, two firms may arrive at identical decisions independently.”
     To support their allegations, the plaintiffs identified six “plus factors” – such as the manufacturers’ simultaneous adoption of the policies, and a rise in retail prices occurring during falling demand. Bea said, however, that these factors still indicated nothing more than similar reactions to similar pressures.
     The policies were not adopted all at once, but over a period of several years, which Bea said “does not raise the specter of collusion.”
     Since the consumers alleged rising prices for all guitars, not just for those manufactured and sold by the defendants, Bea dismissed those claims as well.
     Elizabeth Pritzker, an attorney for the would-be class with Pritzker Levine in Oakland, Calif., said in an email that she was “obviously disappointed with the court’s decision.”
     “But the fact that the majority and dissent view the facts of the case differently suggests to us that this was a very close decision for the members of the panel,” she said.
     Judge Harry Pregerson dissented from the majority’s opinion, finding that the plaintiffs alleged a plausible antitrust scheme.
     “When truly analyzed together, the six plus factors strongly suggest that the manufacturer defendants reached an illegal horizontal agreement,” he said.
     The rising prices of the guitars despite falling demand was for Pregerson “perhaps most suggestive of collusion.”
     He said the majority opinion was based on “numerous assumptions” about the guitar and guitar-amplifier retail market.
     “I simply cannot agree with the majority opinion that the plaintiffs’ inference of an agreement is implausible, especially when the litigation is at the motion to dismiss stage, not the summary judgment stage,” Pregerson said (italics in opinion).
     Addressing Pregerson’s dissent, Bea said that the plaintiffs indeed provided a context for the manufacturers’ adoption of the policies, but not one that plausibly suggests illegal horizontal agreements.
     “Instead, the complaint tells a different story, one in which Guitar Center used its substantial market power to pressure each manufacturer to adopt similar policies as in its own interest,” he said.
     “Such conduct may be anticompetitive – and perhaps even violate antitrust laws – but it does not suggest the manufacturers illegally agreed among themselves to restrain competition.”
     Attorneys for the defendants could not be immediately reached for comment.

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