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Anti-Competitive Practices - Musical Instrument Supplier Receives £5 Million Fine

There will always be some who view anti-competitive business practices as an easy route to profits, but those who engage in them can expect deterrent punishments. In one case, a supplier of musical instruments was fined over £5 million for fostering a resale price maintenance scheme to the detriment of consumers.

A Competition and Markets Authority (CMA) investigation focused on the supplier's relationship with a reseller who marketed its products. The CMA found that a resale price maintenance agreement had been in place for several years whereby the reseller refrained from online advertising or sale of relevant products below prices specified by the supplier.

The CMA also concluded that the supplier intended that its pricing policy should be adhered to by all, or at least the vast majority, of its online resellers. Software was used to monitor their compliance with the policy and the supplier occasionally imposed sanctions on resellers in the form of withdrawal of discounts.

The supplier, the CMA found, understood that its communications and interactions with its resellers' network pertaining to its pricing policy were not legal. Measures were taken to conceal the arrangements, including use of coded language and a preference for oral rather than written communications.

Following an unannounced inspection of the supplier's premises, it swiftly admitted the facts alleged by the CMA and entered into a settlement agreement. The penalty for its admitted breaches of the Competition Act 1998 would have been £6,255,189, but that was reduced to £4,003,321. The discount reflected leniency in the light of the supplier's cooperation and its agreement to settle the matter.

Despite the settlement, the supplier appealed to the Competition Appeal Tribunal (CAT) against the size of the penalty. It asserted that the gravity of its infringements had been overstated and that the penalty should have been further discounted. Although its parent company was a global corporation, it pointed out that the penalty represented more than 10 times its average annual profit.

Dismissing the appeal, the CAT found that the penalty, which represented 19 per cent of the supplier's turnover during the relevant years, was justified to mark the seriousness of the infringements and as a deterrent to others. Resale price maintenance schemes, it noted, were particularly prevalent in the musical instrument sector and had a harmful effect on consumers.

The CAT found that the 20 per cent leniency discount afforded to the supplier in respect of its cooperation was fair. Having appealed, the supplier had forfeited its right to the further 20 per cent discount in respect of its prior settlement of the matter. The penalty was therefore increased to £5,004,141.

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