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UK Competition Authority fines guitar company for resale price maintenance

Legal Post | February 2020

Carlos Vérgez & Miguel Orellana

On 22 January 2020, the Competition and Markets Authority ("CMA") has hit one of the world's leading and most emblematic guitar manufacturers Fender Musical Instruments Europe Ltd. ("Fender") with a GBP 4.5 million fine (approximately EUR 5.3 million) for online resale price maintenance in the UK (50565-3).

The investigation was launched in April 2018 with a CMA inspection of Fender's headquarters. A GBP 25,000 fine was imposed on the company in March 2019 after it was found that a Fender employee concealed several notebooks containing key information during the inspection. In October 2019, the CMA issued a Statement of Objections to Fender alleging that the company had breached competition laws by restricting online retail discounting of its guitars, specifically the conduct for which it has ultimately been punished.

While the non-confidential decision has not been published, the CMA's press release confirms that the company actively restricted discounts from 2013 to 2018, not to mention the fact that Fender demanded retailers to sell the guitars at or above a minimum price previously set by the manufacturer. What's more, Fender made regular checks on the resale prices of its products and even pressurised retailers who were failing to follow orders.

Despite the best efforts of the company's employees to record as little as possible in writing, the CMA uncovered incriminating emails and messages on Fender's IT servers and mobile phones.

Commission Regulation (EU) No 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices ("Vertical Agreements Regulation") excludes vertical agreements whose purpose comprises "the restriction of the buyer's ability to determine its sale price..." [Article 4.a)] from the exemption under Article 2. The European Commission's 2010 Guidelines on Vertical Restraints define resale price maintenance as "agreements or concerted practices having as their direct or indirect object the establishment of a fixed or minimum resale price or a fixed or minimum price level to be observed by the buyer" (paragraph 48).

These practices can be executed directly through contractual clauses and obligations or indirectly such as by fixing the "maximum level of discount the distributor can grant from a prescribed price level" (paragraph 48). Fender's conduct falls precisely within the second scenario.

Under the CMA's leniency programme (which, as opposed to Spain, also applies to vertical restraints between non-competing enterprises), the company admitted wrongdoing and cooperated with the Authority's investigation in return for up to a 60% reduction of the fine. Fender also obtained an additional 20% discount to reflect settlement (a concept which is yet to exist in Spain), where fines are reduced if companies confess to their misconduct and commit not to contest the charges. Despite applying for leniency, the GBP 4.5 million fine is the highest penalty dished out by the CMA for this type of practice, beating the GBP 3.7 million imposed on Casio in August 2019 (50565-2), also in the musical instruments and equipment sector.

It is safe to say that the competition authorities are placing resale price maintenance firmly under the spotlight at the moment. In July 2018, the European Commission fined Asus, Denon & Marantz, Phillips and Pioneer a combined EUR 111 million for imposing resale prices on their online retailers of consumer electronics products. In Austria, a EUR 650,000 fine was slapped on Bose by the Cartel Court in June 2019 for agreeing resale prices for speakers and headphones with retailers. Over in Portugal, Super Bock suffered a EUR 24 million fine in July 2019 for imposing minimum prices and other conditions on sales of its drinks in hotels, restaurants and cafeterias. Lastly, in November 2019, the Spanish Competition Authority (CNMC) fined Grupo Vaillant EUR 859,763 for fixing the rates charged by its network of authorised customer service engineers, among other reasons. The CNMC is also expected to issue a decision soon on the investigation into Adidas opened in November 2018 for resale price maintenance in its franchisees.

Against this backdrop, all consumer products enterprises, regardless of sector, are advised to keep a close eye on their sales teams' commercial practices in order to avoid any possible risks of infringing competition laws.

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Authors

Carlos Vérgez
Carlos Vérgez
Partner
Madrid