On August 25, 2015, the Ninth Circuit upheld a federal district court’s dismissal of a consolidated class action accusing guitar retail giant Guitar Center (and several large guitar manufacturers) of conspiring to set minimum guitar and amplifier prices. The plaintiffs alleged that Guitar Center and five large guitar manufacturers orchestrated the unlawful price-fixing agreements during meetings sponsored by the National Association of Music Merchants Inc. (NAMM), the main trade association for the musical instrument industry. A divided Ninth Circuit affirmed the dismissal, agreeing with the lower court that plaintiffs had failed to state a claim.

The suit followed a 2007 Federal Trade Commission investigation into price-fixing in the musical instrument industry. The FTC alleged that NAMM organized meetings and programs at which competing retailers of musical instruments were “permitted and encouraged” to discuss setting minimum prices. Critically, the FTC alleged that these information exchanges facilitated by the trade association “served no legitimate business purpose” and “had the purpose, tendency, and capacity to facilitate collusion.” Without admitting fault, NAMM settled with the FTC via consent decree in 2009.

Building upon the foundation laid by the FTC, plaintiffs here claimed that the defendants reached their illicit agreements while attending these NAMM meetings. The Ninth Circuit rejected that argument, however, finding plaintiffs’ allegations of “plus factors” to be “no more consistent with an illegal agreement than with rational and competitive business strategies, independently adopted by firms acting within an interdependent market.”   Because mere parallel conduct cannot form the basis of an antitrust claim, the court held that the dismissal was required.

While NAMM members were able to avoid liability here, their victory followed years of costly court battles. The case illustrates the costs and dangers of price-related discussions with competitors, especially at trade association meetings, and why such discussions should be avoided.