[Federal Register Volume 74, Number 56 (Wednesday, March 25, 2009)]
[Notices]
[Pages 12867-12869]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-6486]


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FEDERAL TRADE COMMISSION

[File No. 001 0203]


National Association of Music Merchants, Inc.; Analysis of 
Agreement Containing Consent Order to Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the complaint and 
the terms of the consent order--embodied in the consent agreement--that 
would settle these allegations.

DATES: Comments must be received on or before April 2, 2009.

ADDRESSES: Interested parties are invited to submit written comments 
electronically or in paper form. Comments should refer to``NAMM, File 
No. 001 0203'' to facilitate the organization of comments. Please note 
that your comment--including your name and your state--will be placed 
on the public record of this proceeding, including on the publicly 
accessible FTC website, at (http://www.ftc.gov/os/publiccomments.shtm).
    Because comments will be made public, they should not include any 
sensitive personal information, such as an individual's Social Security 
Number; date of birth; driver's license number or other state 
identification number, or foreign country equivalent; passport number; 
financial account number; or credit or debit card number. Comments also 
should not include any sensitive health information, such as medical 
records or other individually identifiable health information. In 
addition, comments should not include any ``[t]rade secret or any 
commercial or financial information which is obtained from any person 
and which is privileged or confidential. . .,'' as provided in Section 
6(f) of the FTC Act, 15 U.S.C. 46(f), and Commission Rule 4.10(a)(2), 
16 CFR 4.10(a)(2). Comments containing material for which confidential 
treatment is requested must be filed in paper form, must be clearly 
labeled ``Confidential,'' and must comply with FTC Rule 4.9(c).\1\
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    \1\ FTC Rule 4.2(d), 16 CFR 4.2(d). The comment must be 
accompanied by an explicit request for confidential treatment, 
including the factual and legal basis for the request, and must 
identify the specific portions of the comment to be withheld from 
the public record. The request will be granted or denied by the 
Commission's General Counsel, consistent with applicable law and the 
public interest. See FTC Rule 4.9(c), 16 CFR 4.9(c).
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    Because paper mail addressed to the FTC is subject to delay due to 
heightened security screening, please consider submitting your comments 
in electronic form. Comments filed in electronic form should be 
submitted by using the following weblink: (https://secure.commentworks.com/ftc-NAMM) (and following the instructions on 
the web-based form). To ensure that the Commission considers an 
electronic comment, you must file it on the web-based form at the 
weblink:(https://secure.commentworks.com/ftc-NAMM). If this Notice 
appears at (http://www.regulations.gov/search/index.jsp), you may also 
file an electronic comment through that website. The Commission will 
consider all comments that regulations.gov forwards to it. You may also 
visit the FTC website at http://www.ftc.gov to read the Notice and the 
news release describing it.
    A comment filed in paper form should include the ``NAMM, File No. 
001 0203`` reference both in the text and on the envelope, and should 
be mailed or delivered to the following address: Federal Trade 
Commission, Office of the Secretary, Room H-135, 600 Pennsylvania 
Avenue, NW, Washington, DC 20580. The FTC is requesting that any 
comment filed in paper form be sent by courier or overnight service, if 
possible, because U.S. postal mail in the Washington area and at the 
Commission is subject to delay due to heightened security precautions.
    The Federal Trade Commission Act (``FTC Act'') and other laws the 
Commission administers permit the collection of public comments to 
consider and use in this proceeding as appropriate. The Commission will 
consider all timely and responsive public comments that it receives, 
whether filed in paper or electronic form. Comments received will be 
available to the public on the FTC

[[Page 12868]]

website, to the extent practicable, at (http://www.ftc.gov/os/publiccomments.shtm). As a matter of discretion, the Commission makes 
every effort to remove home contact information for individuals from 
the public comments it receives before placing those comments on the 
FTC website. More information, including routine uses permitted by the 
Privacy Act, may be found in the FTC's privacy policy, at (http://www.ftc.gov/ftc/privacy.shtm).

FOR FURTHER INFORMATION CONTACT: William Lanning, Bureau of 
Competition, 600 Pennsylvania Avenue, NW, Washington, D.C. 20580, (202) 
326-3361.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Sec.  2.34 the 
Commission Rules of Practice, 16 CFR 2.34, notice is hereby given that 
the above-captioned consent agreement containing a consent order to 
cease and desist, having been filed with and accepted, subject to final 
approval, by the Commission, has been placed on the public record for a 
period of thirty (30) days. The following Analysis to Aid Public 
Comment describes the terms of the consent agreement, and the 
allegations in the complaint. An electronic copy of the full text of 
the consent agreement package can be obtained from the FTC Home Page 
(for March 4, 2009), on the World Wide Web, at (http://www.ftc.gov/os/2009/03/index.htm). A paper copy can be obtained from the FTC Public 
Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW, Washington, 
D.C. 20580, either in person or by calling (202) 326-2222.
    Public comments are invited, and may be filed with the Commission 
in either paper or electronic form. All comments should be filed as 
prescribed in the ADDRESSES section above, and must be received on or 
before the date specified in the DATES section.

Analysis of Agreement Containing Consent Order to Aid Public Comment

    The Federal Trade Commission has accepted, subject to final 
approval, an agreement containing a proposed consent order with the 
National Association of Music Merchants, Inc. (``NAMM'' or 
``Respondent''). NAMM is a trade association composed of more than 9000 
members that include manufacturers, distributors, and dealers of 
musical instruments and related products. The agreement settles charges 
that NAMM violated Section 5 of the Federal Trade Commission Act, 15 
U.S.C. Sec.  45, by arranging and encouraging the exchange among its 
members of competitively sensitive information that had the purpose, 
tendency, and capacity to facilitate price coordination and collusion 
among competitors. The proposed consent order has been placed on the 
public record for 30 days to receive comments from interested persons. 
Comments received during this period will become part of the public 
record. After 30 days, the Commission will review the agreement and the 
comments received, and will decide whether it should withdraw from the 
agreement or make the proposed order final.
    The purpose of this analysis is to facilitate comment on the 
proposed order. The analysis does not constitute an official 
interpretation of the agreement and proposed order, and does not modify 
their terms in any way. Further, the proposed consent order has been 
entered into for settlement purposes only, and does not constitute an 
admission by Respondent that it violated the law or that the facts 
alleged in the complaint (other than jurisdictional facts) are true.

I. The Complaint

    The allegations of the complaint are summarized below:
    NAMM is a trade association. Most U.S. manufacturers, distributors, 
and dealers of musical instruments are members of NAMM. NAMM serves the 
economic interests of its members by, among other things, promoting 
consumer demand for musical instruments, lobbying the government, 
offering seminars, and organizing trade shows. In the United States, 
NAMM sponsors two major trade shows each year, where manufacturers 
introduce new products and meet with dealers. In addition, NAMM's trade 
shows provide competing manufacturers, distributors and retailers of 
musical instruments an opportunity to meet and discuss issues of 
concern to the industry.
    An ongoing subject of concern to NAMM members in recent years has 
been the increased retail price competition for musical instruments, 
and whether that competition benefitted consumers more than it 
benefitted NAMM members. Between 2005 and 2007, NAMM organized various 
meetings and programs for its members at which competing retailers of 
musical instruments were permitted and encouraged to exchange 
information and discuss strategies for implementing minimum advertised 
price policies, the restriction of retail price competition, and the 
need for higher retail prices. Representatives of NAMM determined the 
scope of information exchange and discussion by selecting moderators 
and setting the agenda for these programs. At these NAMM-sponsored 
events, NAMM members discussed the adoption, implementation, and 
enforcement of minimum advertised price policies; the details and 
workings of such policies; appropriate and optimal retail price and 
margins; and other competitively sensitive issues.

II. Legal Analysis

    Adam Smith famously warned of the danger of permitting competitors 
even to assemble in one place.\2\ The Federal Trade Commission does not 
take nearly so jaundiced a view toward trade association activities. 
The Commission is aware that trade associations can serve numerous 
valuable and pro-competitive functions, such as expanding the market in 
which its members sell; educating association members, the public, and 
government officials; conducting market research; establishing inter-
operability standards; and otherwise helping firms to function more 
efficiently.
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    \2\ ``People of the same trade seldom meet together, even for 
merriment and diversion, but the conversation ends in a conspiracy 
against the public, or in some contrivance to raise prices.'' Adam 
Smith, An Inquiry Into the Nature and Causes of the Wealth of 
Nations 55 (Great Books ed. 1952) (1776).
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    At the same time, it is imperative that trade association meetings 
not serve as a forum for rivals to disseminate or exchange 
competitively-sensitive information, particularly where such 
information is highly detailed, disaggregated, and forward-looking. The 
risk is two-fold. First, a discussion of prices, output, or strategy 
may mutate into a conspiracy to restrict competition. Second, and even 
in the absence of an explicit agreement on future conduct, an 
information exchange may facilitate coordination among rivals that 
harms competition. In light of the long-recognized risk of antitrust 
liability, a well-counseled trade association will ensure that its 
activities are appropriately monitored and supervised.\3\
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    \3\ See, e.g., Steven J. Fellman, Antitrust Compliance: Trade 
Association Meetings and Groupings of Competitors: The 
Associations's Perspective, 57 Antitrust L. J. 209 (1988) (``Counsel 
should receive agendas of all committee meetings in advance of the 
meetings and make sure that he or she monitors committee meetings 
that may involve antitrust-sensitive issues.''); Kimberly L. King, 
An Antitrust Primer For Trade Association Counsel, 75 Fla. Bar J. 26 
(2001):
    Here are a few things trade association counsel, executives, and 
members generally should and should not do: DO encourage the trade 
association to help expand the markets within which its members 
compete; . . . . DON'T let the association be used as a forum for 
discussion of members' price-related terms of sale, geographic areas 
or customers to be served, or the kinds of goods or services to be 
offered; DON'T let the association adopt rules governing price-
related terms under which members sell goods or services; DON'T let 
the association be used as a conduit for anticompetitive exchanges 
of information, such as current pricing to particular customers or 
planned price increases; DON'T let the association be used to 
facilitate an agreement among competitors to refuse to deal with any 
third person . . .

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[[Page 12869]]

    According to the Complaint, NAMM's activities crossed the line that 
distinguishes legitimate trade association activity from unfair methods 
of competition. A respondent violates Section 1 of the Sherman Act and 
Section 5 of the FTC Act when it engages in concerted conduct that has 
the principal tendency or the likely effect of harming competition and 
consumers. California Dental Ass'n v. Federal Trade Commission, 526 
U.S. 756 (1999).\4\ The conduct of a trade association or its 
authorized agents is generally treated as concerted action. E.g., 
California Dental Ass'n v. FTC, 526 U.S. 756 (1999); North Texas 
Specialty Physicians v. FTC, 528 F.3d 346, 356 (5\th\ Cir. 2008) 
(``When an organization is controlled by a group of competitors, it is 
considered to be a conspiracy of its members.'').
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    \4\ Although the Commission does not directly enforce the 
Sherman Act, conduct that violates the Sherman Act is generally 
deemed to be a violation of Section 5 of the FTC Act as well. E.g., 
Fashion Originators' Guild, Inc. v. FTC, 312 U.S. 457, 463-64 
(1941).
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    The Complaint alleges that at meetings and programs sponsored by 
NAMM, competing retailers of musical instruments and other NAMM members 
discussed strategies for raising retail prices. Firms also exchanged 
information on competitively-sensitive subjects--prices, margins, 
minimum advertised price policies and their enforcement. And not only 
did NAMM sponsor these meetings, but its representatives set the agenda 
and helped steer the discussions. The antitrust concern is that this 
joint conduct can facilitate the implementation of collusive strategies 
going forward.\5\ For example, such discussions could lead competing 
NAMM members to refuse to deal with a manufacturer, distributor, or 
retailer unless minimum advertised price policies, or increases in 
minimum advertised prices, were observed and enforced against 
discounters.\6\ Alternatively, NAMM members could lessen price 
competition in local retail markets. Any or all these strategies may 
result in higher prices and harm consumers of musical instruments. Any 
savings from lower manufacturing costs would be reserved to NAMM 
members, and not shared with consumers in the form of lower retail 
prices.
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    \5\ Concerted action that impairs competition by facilitating 
collusion may be challenged under Section 1 of the Sherman Act. 
E.g., United States v. Container Corp., 393 U.S. 333 (1969) 
(agreement to exchange price information); Sugar Institute, Inc. v. 
United States, 297 U.S. 553 (1936) (agreement to exchange price 
information); C-O-Two Fire Equipment Co. v. United States, 197 F.2d 
489 (9\th\ Cir. 1952) (agreement to standardize product); United 
States v. Rockford Memorial Hospital Corp., 898 F.2d 1278 (7\th\ 
Cir. 1990) (merger).
    Unilateral conduct that impairs competition by facilitating 
collusion may be challenged under Section 5 of the FTC Act. E.g., 
E.I. du Pont de Nemours & Co. v. FTC, 729 F.2d 128 (2d Cir. 1984); 
In the Matter of Valassis Communications, Inc., C-4160, 2006 FTC 
LEXIS 25 (April 19, 2006) (invitation to collude); In the Matter of 
Sony Music Entertainment, Inc., C-3971, 2000 FTC LEXIS 95 (Aug. 30, 
2000) (minimum advertised price policy).
    \6\ In Leegin Creative Leather Products, Inc. v. PSKS, Inc., 127 
S. Ct. 2705, 2717 (2007), the Supreme Court explained that competing 
retailers, by acting together to compel a manufacturer to implement 
or enforce a vertical distribution restraint, may harm competition:
    A group of retailers might collude to fix prices to consumers 
and then compel a manufacturer to aid the unlawful arrangement with 
resale price maintenance. In that instance the manufacturer does not 
establish the practice to stimulate services or to promote its brand 
but to give inefficient retailers higher profits. Retailers with 
better distribution systems and lower cost structures would be 
prevented from charging lower prices by the agreement.
    The Court also observed that antitrust condemnation may be 
appropriate where resale price maintenance policies are adopted or 
enforced pursuant to an agreement among manufacturers.
    Resale price maintenance may, for example, facilitate a 
manufacturer cartel. . . . An unlawful cartel will seek to discover 
if some manufacturers are undercutting the cartel's fixed prices. 
Resale price maintenance could assist the cartel in identifying 
price-cutting manufacturers who benefit from the lower prices they 
offer. Resale price maintenance, furthermore, could discourage a 
manufacturer from cutting prices to retailers with the concomitant 
benefit of cheaper prices to consumers. . . . To the extent a 
vertical agreement setting minimum resale prices is entered upon to 
facilitate either type of cartel [i.e., a manufacturer cartel or a 
retailer cartel], it, too, would need to be held unlawful under the 
rule of reason.
    Id. at 2717-18.
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    The potential for competitive harm from industry-wide discussions 
must be weighed against the prospect of legitimate efficiency benefits. 
Here, the Complaint alleges that no significant pro-competitive benefit 
was derived from the challenged conduct. The Commission does not 
contend that the exchange of information among competitors is 
categorically without benefit.\7\ Rather, the allegation is that here--
taking into account the type of information involved, the level of 
detail, the absence of procedural safeguards, and overall market 
conditions--the exchange of information engineered by NAMM lacked a 
pro-competitive justification.
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    \7\ See United States v. United States Gypsum Co., 438 U.S. 422 
(1978) (explaining that the exchange of information can, in some 
circumstances, increase economic efficiency and render markets more, 
rather than less, competitive). See also Richard A. Posner, 
Information and Antitrust: Reflections on the Gypsum and Engineers 
Decisions, 67 Geo. L. J. 1187, 1193-97 (1979).
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III. The Proposed Consent Order

    NAMM has signed a consent agreement containing a proposed consent 
Order. The proposed Order enjoins NAMM from encouraging, advocating, 
coordinating, or facilitating in any manner the exchange of information 
among musical instrument manufacturers and dealers relating to the 
retail price of musical instruments or the conditions pursuant to which 
any manufacturer or dealer will deal with any other manufacturer or 
dealer. The proposed Order also enjoins NAMM from facilitating any 
musical instrument manufacturer or dealer in entering into or enforcing 
any agreement between or among musical instrument manufacturers or 
dealers relating to the retail price of any musical instrument or the 
conditions pursuant to which any manufacturer or dealer will deal with 
any other manufacturer or dealer.
    In addition, the proposed Order requires NAMM to institute an 
antitrust compliance program. The proposed Order requires, inter alia, 
the review by antitrust counsel of all written materials and prepared 
remarks by any member of NAMM's board of directors, employee, or agent 
of NAMM relating to price terms and minimum advertised price policies; 
the provision by antitrust counsel of appropriate guidance on 
compliance with the antitrust laws; and annual training of NAMM's board 
of directors, agents, and employees concerning NAMM's obligations under 
the Order.
    The proposed Order would not interfere with the ability of NAMM to 
engage in legitimate trade association activity, including its 
sponsorship of trade shows and other events. The proposed Order 
explicitly excludes from its prohibitions the ordinary commercial 
activities of NAMM's members on the show floor, and any conduct 
protected by the Noerr-Pennington doctrine. In addition, the proposed 
Order excludes from its prohibitions the publication or dissemination 
of aggregated survey data, the sharing of best practices and training 
materials, and the communication of information relating to 
creditworthiness, product safety, and warranty issues.
    The proposed order will expire in 20 years.
    By direction of the Commission.

Donald S. Clark,
Secretary.
[FR Doc. E9-6486 Filed 3-24-09: 8:45 am]
[BILLING CODE 6750-01-S]