And the beat goes on … CMA continues crackdown on RPM in the music sector

United Kingdom

The CMA’s enforcement against resale price maintenance (RPM) in the musical instrument sector continues as the CMA issued fines of over £4 million and £1.5 million to the musical instrument suppliers, Roland and Korg for engaging in RPM at the end of June. Separately, the CMA also took action against a retailer in an RPM case for the first time, with a musical instrument retailer, GAK, agreeing to pay a fine to settle its case.

CMA strikes the warning drum for indirect pressure

The CMA has also sent warning letters to nearly 70 other manufacturers and retailers in the sector and published an open letter and guidance for retailers on avoiding the use of RPM. The CMA’s open letter reminds companies that any indirect pressure to maintain prices, such as those achieved by threats or financial incentives not to sell below a particular price, can breach competition law. Finally, the CMA has issued case studies on its earlier RPM fine decisions against Fender and Casio which we reported on here. These case studies highlight examples of indirect pressure such as reducing the amount of stock a reseller can order (Fender) or a reseller documenting its fear that its supplier will “conveniently” run out of stock if it discounts the product (Casio).

A new instrument to detect RPM – and the role of resellers

In addition, as a result of its investigations, 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 and detect suspicious online pricing activity. As we reported on here in April 2020, some music equipment suppliers and retailers were using similar tools to monitor prices set by retailers across online markets, and the CMA has acknowledged that these tools gave it the idea to use its own tool to detect RPM.

Whilst the CMA is currently using this tool to monitor prices in the musical instruments sector, the CMA has also stated that it intends for this tool to be expanded to monitoring suspicious pricing activity in other sectors in the future.

Comments

Fining companies for RPM is nothing new. The use of warning letters and guidance is also not new: the CMA cannot go after every case. But three things stand out:

  1. This is the first time the CMA has fined a retailer in any industry sector for resale price maintenance. In the past, RPM was thought of as something forced on retailers by suppliers. Clearly the CMA wants to send a signal that it not only thinks retailers are complicit (which as a technical matter is correct) but is willing to fine them for taking part.
  1. Closely linked to that, it appears the role of the retailers in policing the enforcement and “shopping” discounting competitors (Fender case study) is notable and reminiscent of the hub-and-spoke cases in introducing a triangular element to the fact pattern. It seems likely this acted as a strong catalyst for the CMA’s Data, Technology and Analytics Unit to develop its own tool.
  1. Finally, while RPM enforcement has made something of a comeback in the UK recently (see our previous articles), the irony is that the debate as to whether the enforcers have got this right is now beginning to gather momentum. The immediate forum for that is at European level where the European Commission is currently evaluating its verticals regime following an open public consultation. Views are divided in face of the new e-commerce environment: some National Competition Authorities (NCAs) think the rules should be relaxed. And indeed a study commissioned by the Commission recently reported that RPM had positive consumer welfare enhancing effects in the book publishing sector. Other NCAs see the combination of increased price transparency through e-commerce and sophisticated software as exacerbating the harmful effects of the practice.

It seems like the music will go on for a while before this debate settles. In the meantime, the CMA shows no sign of putting down its drumsticks…