In re: Musical Instruments

Horizontal agreements between competitors are generally violations of the Sherman Act per se, whereas vertical agreements, such as those between a manufacturer and retailer, are analyzed under the rule of reason, which considers the facts, history, and reasons for the agreement to determine its effect on the market.

A putative class of guitar and guitar amplifier consumers alleged that between 2004 and 2009, Guitar Center, Inc. (“Guitar Center”), a musical instrument retailer, and various guitar manufacturers, along with the National Association of Music Merchants (“NAMM”), “conspired to implement minimum advertised-price polices (“MAP policies”),” and thus were in direct violation of § 1 of the Sherman Act. The Sherman Act prohibits “agreements that unreasonably restrain trade by restricting production, raising prices, or otherwise manipulating markets to the detriment of consumers.” Following limited discovery, the district court granted Guitar Center’s motion to dismiss for failure to state a claim. On appeal, the Ninth Circuit considered the reasonableness of such agreements within a supply chain, and distinguished between horizontal and vertical agreements. The panel explained that horizontal agreements, which are made between competitors, are many times violations of the Sherman Act per se, whereas vertical agreements, such as between manufacturer and retailer, are analyzed under the rule of reason. The rule of reason considers the facts, history, and reasons for the agreement to determine its effect on the market. The panel noted that either type of agreement may violate the Sherman Act. The panel found that the putative class did not sufficiently suggest a plausible basis to infer that a violating agreement had taken place through Guitar Center’s parallel conduct with the manufacturers in combination with several “plus factors,” which indicate coordinated action. The panel therefore affirmed the district court’s dismissal of the complaint. AFFIRMED.