Antitrust Alert: FTC Charges Trade Association with Facilitating Collusion through Price Discussions Among Members

In a reminder that trade association activities remain a focus of antitrust enforcement, on March 4, 2009, the Federal Trade Commission issued a complaint and consent order settling charges that the National Association of Music Merchants (NAMM) -- a 9,000 member association of U.S. manufacturers, distributors, and dealers of musical instruments -- violated the antitrust laws by enabling and encouraging the exchange of competitively sensitive price information among its members.

According to the Commission, between 2005 and 2007, NAMM organized meetings and programs at which competing musical instrument retailers were encouraged to discuss strategies for implementing manufacturers’ minimum advertised pricing (MAP) policies, restricting retail price competition, and securing higher retail prices. At these NAMM-sponsored events, the FTC contends, competitors discussed "appropriate and optimal" retail prices and margins, how to enforce MAP policies, and other competitively sensitive issues. Retailers exchanged information on how to raise prices, margins, and MAP policies. NAMM not only sponsored these meetings, according to the FTC, but set the agenda for what would be discussed and helped steer the discussions. Finally, the Commission alleges that the challenged conduct served no legitimate business purpose and resulted in no significant efficiency benefits.

The FTC’s proposed consent order is designed to remedy NAMM’s anticompetitive conduct by barring NAMM from coordinating the exchange of price information among musical instrument manufacturers and dealers and from coordinating discussions on the terms on which manufacturers or dealers will buy or sell products. The order prohibits NAMM from aiding musical instrument manufacturers or retailers in forming anticompetitive agreements, such as agreements among competitors relating to price, minimum advertised price, and terms of dealing. However, the order specifically does not prohibit sharing or publishing, "in the context of industry education, including the sharing of best practices and training materials, generic references to Price Terms, Resale Price Maintenance Policy, and the terms and conditions on which Musical Product Manufacturers and Musical Product Dealers do business." In addition, the order requires that NAMM implement an antitrust compliance program and that antitrust counsel review written materials and prepared remarks by any representative of the association related to price terms and MAP policies. Antitrust counsel must also provide guidance to NAMM and its representatives on complying with competition laws. The order will expire in 20 years.

In its Analysis of the Agreement to aid public comment, the FTC stated that it was not contending that "the exchange of information among competitors is categorically without benefit." However, in this case, the FTC, "taking into account the type of information involved, the level of detail, the absence of procedural safeguards, and overall market conditions" concluded that "the exchange of information engineered by NAMM lacked a pro-competitive justification."

This settlement demonstrates that, notwithstanding the Supreme Court's decision in Leegin, rejecting per se treatment for minimum vertical price fixing agreements, antitrust enforcers will continue to give significant scrutiny to practices among horizontal competitors that facilitate coordination at either the manufacturer or retailer level on the administration of vertical pricing arrangements, including MAP programs.

The complaint, consent order, and an analysis to aid public comment can be found on the Commission’s web site. 

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