CN08 - FCO imposes fines of 21 million on manufacturers and retailers of musical instruments

On 5 August 2021, the German competition authority ("FCO") imposed a total of EUR 21 million in fines on three manufacturers of musical instruments for resale price maintenance ("RPM" - vertical price fixing) and on two retailers for having agreed price increases vis-à-vis end customers (horizontal price fixing). The investigation was triggered by tip-offs from market participants in April 2018.

Key takeaways

• The anti-competitive RPM conduct sanctioned in the present case included: (i) requests to adjust resale prices, (ii) using price-tracking software to monitor end-customer prices, and (iii) threatening or imposing penalties (such as termination of supply or worsening the terms and conditions of supply) for not complying with minimum sales prices. Such conduct remains anti-competitive even if the retailers do not implement the instructions of the supplier.
• Even though the FCO can fine retailers in RPM cases, the regulator typically only imposes fines on suppliers.
• In the present case, the retailers were fined because they had also agreed amongst themselves on prices to end-customers.

Background

On 5 August 2021, the FCO imposed fines amounting to a total of EUR 21 million on three manufacturers of musical instruments – Yamaha Music Group, Roland Germany and Fender Musical Instruments – and on two retailers – Thomann GmbH and Music Store. The manufacturers were fined for RPM and the retailers for having agreed among themselves on price increases towards end-customers.

Dawn raids were carried out by the FCO in April 2018 after tip-offs from other market participants.

The investigation

The investigation revealed that manufacturers and retailers had reached an agreement over several years that retailers would charge minimum sales prices set by the manufacturers. If the retailers did not comply with the minimum sales prices, they were contacted by the manufacturers and asked to adjust their sales prices (which, in many cases, the retailers agreed to). To a certain extent Yamaha and Roland also made use of price-tracking software to monitor consumer end prices. The manufacturers also threatened the retailers or even imposed penalties, such as a suspension of supply or worsening of terms and conditions, in the event the retailers did not respect the minimum price levels.

FCO finding

The FCO found the manufacturers' behaviour to constitute anti-competitive RPM and imposed fines on that basis, even though the retailers often did not follow the manufacturers' instructions or found ways to avoid them (for example, by bundling several products into an overall product). Interestingly, at the same time, the two retailers contacted the manufacturers to complain about other retailers (i.e. their competitors) not observing minimum prices. However, the retailers were not fined for this conduct. 

The grounds on which the retailers were fined in the present case was that the retailers themselves had agreed on price increases for certain instruments vis-à-vis end-customers in 13 cases between 21 December 2014 and 27 April 2018. Such horizontal price fixing among the retailers was uncovered in the course of the FCO's investigation of the RPM conduct of the manufacturers.

All parties settled the case with the FCO and the fines have become final. 

Comment

This case is another example illustrating that the FCO considers RPM to be a serious competition law infringement for which it imposes significant fines. This case also reveals interesting dynamics between manufacturers and retailers, resulting in various horizontal and vertical anti-competitive conduct; the retailers one the one hand contacted the manufacturers to complain that their competitors at the retail level were not observing minimum prices and on the one hand agreed amongst themselves on prices increases.

The FCO's decision also bears resemblance to a series of investigations into musical instrument manufacturers undertaken by the CMA between 2018 and 2020, which resulted in infringement decisions for practices including RPM (see our September 2019 newsletter (Casio), January/February 2020 newsletter (Fender) and May/June 2020 newsletter (Roland and Korg)).

With thanks to Lukas Oldach (trainee in the Munich office) of Ashurst for his contribution.