In a humbucker of a decision issued August 25, the Ninth Circuit Court of Appeals affirmed the dismissal of a price-fixing case brought against five guitar and amplifier makers, their industry trade association, and retailer Guitar Center. Basing its decision on the Supremes’ pop standard Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), the Court found insufficient facts pled to support a plausible conspiracy among the manufacturers to enact parallel minimum advertised price (MAP) policies dictating the prices at which retailers could advertise their products.

The backing track to this case was a 2007 investigation by the Federal Trade Commission alleging that the National Association of Music Merchants orchestrated guitar and amplifier companies’ parallel adoption of MAP policies by providing the opportunities to discuss the policies and coordinate their implementation.  The investigation ended in a consent decree with no admission of liability, but the FTC’s theory was covered by many plaintiffs, 28 of which were multidistricted into the case below in the Southern District of California.

The Court noted that the various federal Circuits’ analysis of “hub and spoke” conspiracies, composed and arranged by a customer or other actor at a different distribution level than the horizontal competitors, are somewhat discordant.  Some circuits view a hub-and-spoke-only conspiracy, in which horizontal competitors participate in agreements with the hub actor without direct contact with each other, though perhaps with the knowledge that their competitors are acting in parallel, as tantamount to horizontal collusion.  Others require at least circumstantial evidence that there is not only a hub and a spoke, but a “rim” – a meeting of minds among the competitors – which is to be examined separately from any vertical agreements.  In this case, riffing on precedent from the Fourth Circuit, the Ninth Circuit concluded that in a case focused on horizontal collusion, a rim must be plausibly alleged.  The Ninth Circuit reasoned, “a rimless hub-and-spoke conspiracy is not a hub-and-spoke conspiracy at all (for what is a wheel without a rim?),” but it could just as easily be asked, “if you have a rim (per se unlawful horizontal collusion) why do you need the hub and spokes?”

In an attempt to create a rim, the plaintiffs advanced six “plus factors” beyond the parallel adoption of MAP policies which they contended made it plausible that the policies were the subject of collusion.  None of these licks impressed Judges Bea and Tallman of the Ninth Circult panel.  Judge Harry Pregerson parted company with the band, fretting a dissenting solo in which he criticized the majority for evaluating the six plus factors advanced by the plaintiffs individually, when antitrust analysis requires that they be considered together.  When played as a chord rather than an arpeggio, Judge Pregerson thought the factors formed a plausible hook sufficient to overcome Twombly and permit the show to go on.

This decision appears to be the first time that the Ninth Circuit has laid out its analysis for hub-and-spoke conspiracy allegations, and by adopting one of the more conservative positions, the Court has made it difficult for plaintiffs to require defendants to face the music on this type of theory.