Musical instrument firms to pay millions after breaking competition law

29 Jun 2020 04:35 PM

The CMA has fined 2 musical instrument makers a total of £5.5 million, in 2 separate cases, for breaking competition law by restricting online discounting of musical instruments.

The fines on the companies, Roland and Korg, which make, among other things, electronic drum kits and hi-tech music equipment and synthesizers, follow fines recently imposed on two other leading suppliers in the sector, Casio and Fender. All of these companies have been fined for implementing resale price maintenance (RPM) designed to restrict retailer freedom to set prices online by requiring their musical instruments to be sold at or above a minimum price. It brings the total fines imposed by the Competition and Markets Authority (CMA) for this illegal conduct in the musical instrument sector to £13.7 million.

Separately, a retailer of musical instruments, GAK, has also admitted to engaging in RPM with Yamaha and agreed to pay a maximum fine of more than a quarter of a million pounds to settle the case. This is the first time the CMA has taken enforcement action against a retailer in a resale price maintenance case.

The CMA yesterday issued a provisional decision finding in this case that GAK and Yamaha agreed that GAK would not discount the online price of certain Yamaha musical instruments below a minimum price. The amount of the fine was increased by 15% after it emerged the activity appeared to have continued after GAK received an advisory letter from the CMA, making it aware that there was evidence suggesting it might be engaging in RPM. In contrast, Yamaha was granted total immunity from fines for being the first to bring the conduct to the attention of the CMA.

Building on its extensive efforts to monitor and address suspected RPM, the CMA has launched its own in-house price monitoring tool aimed at deterring companies from entering into agreements restricting online discounting. The new software will allow the CMA to automatically monitor price levels amongst musical instrument retailers, enhancing its market intelligence and benefitting consumers in the long-term. The CMA intends that this tool will be used to monitor suspicious pricing activity in other sectors in the future to help protect more customers purchasing online.

Given the prevalence of RPM in the musical instrument sector, the CMA has issued an open letter to the industry highlighting the illegal activity it has uncovered and urging compliance with the law.

The CMA has also written to almost 70 manufacturers and retailers across the sector, warning them about their conduct. These warning letters make the recipients aware that the CMA suspects their online pricing arrangements may have been illegal and that they need to take swift action to ensure they are complying with the law or potentially risk an investigation and fines. As in the case of GAK, any such fines imposed are likely to be increased if a business fails to take adequate action after a CMA warning.

Michael Grenfell, the CMA’s Executive Director of Enforcement, yesterday said:

During the coronavirus outbreak, people are shopping online more than usual, including for musical instruments. Even before the pandemic, the CMA estimated that an average of around 40% of musical instruments were sold online so it’s important that manufacturers and retailers do not illegally work together to keep prices high.

Today’s announcements make clear the CMA’s determination to protect shoppers from illegal attempts to restrict discounting.

This marks the culmination of 5 separate investigations, covering major players across the musical instruments sector. Customers should all be able to buy products at the best price without fear of paying over market value. The size and extent of the penalties for manufacturers and retailers for engaging in RPM highlights how robustly the CMA tackles such illegal activity.

Notes to Editors

The Chapter I prohibition of the Competition Act 1998 covers anti-competitive agreements, concerted practices and decisions by associations of undertakings which have as their object or effect the prevention, restriction or distortion of competition within the UK or a part of it and which may affect trade within the UK or a part of it. Similarly, Article 101 of the Treaty on the Functioning of the European Union (TFEU) prohibits such anti-competitive agreements, concerted practices and decisions by associations of undertakings which may affect trade between EU member states.
The CMA has decided in separate decisions that Roland (U.K.) Limited and Korg (UK) Limited each operated a policy restricting online price competition. The CMA decided that Roland (U.K.) Limited required its electronic drum kits, related components and accessories to be sold at or above a minimum price between 7 January 2011 and 17 April 2018, while Korg (UK) Limited did the same for its hi-tech music equipment and synthesizers, from 9 June 2015 to 17 April 2018. In each case the CMA found an infringement with a single retailer. The CMA has also provisionally decided that Yamaha operated a similar policy in relation to guitars and keyboards in agreement with GAK, from 1 March 2013 to 31 March 2017.
Under the CMA’s ‘leniency’ and ‘settlement’ procedures, a company admits acting illegally and co-operates in return for a reduced fine, which helps make the CMA’s investigation more efficient.
The Roland infringement decision is addressed to Roland (U.K.) Limited which was directly involved in the infringement, and to Roland Corporation as its parent company (together Roland). The amount of the fine was discounted by 20%, under the CMA’s Leniency Programme and by a further 20% under the CMA’s settlement process.
The Korg infringement decision is addressed to Korg (UK) Limited which was directly involved in the infringement, and to Korg Inc. as its parent company (together Korg). The amount of the fine was reduced by 20% under the CMA’s settlement process.
The CMA has applied an uplift to the fines of Roland and Korg for having breached competition law intentionally.
The Yamaha/GAK Statement of Objections is addressed to Yamaha Music Europe GmbH and all relevant GAK companies (GAK.co.uk (Holdings) Ltd, GAK.co.uk Limited, and The Guitar, Amp & Keyboard Centre Limited) (together GAK). Yamaha received total immunity from any fines, under the CMA’s Leniency Programme. The fine GAK has agreed to pay was reduced by 20% under the CMA’s settlement process. The fine GAK has agreed to pay was increased by 15% on the basis that it had taken insufficient action to address concerns about possible RPM raised by the CMA in an advisory letter sent to GAK by the CMA in October 2015. The next stage in the process, once Yamaha and GAK have had an opportunity to respond to the Statement of Objections, will be for the CMA to take a final decision on whether or not there has been an infringement in this case. The CMA currently expects that it will be in a position to take that decision in mid-July 2020.
The CMA has published advice to help businesses understand more about illegal RPM practices and compliance with competition law.
A copy of the CMA’s open letter to the musical instrument sector can be found here.
The CMA’s in-house price monitoring tool collects online price information for many retailers and manufacturers of musical instruments on a regular basis. The price data is then analysed to help identify potentially anti-competitive behaviour as soon as it emerges. The tool has been developed by the CMA’s in-house Data, Technology and Analytics unit, which will continue to improve the tool’s detection capabilities on an ongoing basis. Find out more in our blog.
Media queries should be directed to press@cma.gov.uk, on 020 3738 6460.