UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

IN RE: MUSICAL INSTRUMENTS AND

EQUIPMENT ANTITRUST LITIGATION,

JOSHUA RAMSEY; DAVID

GIAMBUSSO; DWAYNE WIGGINS;

JASON PARADISE; KATE

MACWILLIAMSON; NIRANJAN

PARIKH; PAULA JENNINGS; RYAN J.

BIGG; MARK O’LEARY; CYNTHIA

SEPULVEDA; RUSSELL D. MELTON;

JERRY JOST; KEVIN GAGNEPAIN;

JOSH PEARSON; JOHN PEARSON;

MARY PEARSON; COLBY GILES;

DAVID KEEL; WILLIAM S. POFF;

ALLEN HALE; DANIEL T. SMITH;

GERALD LOGSDON; AUGUSTIN

CERVANTES; BENN FELTHEIMER;

BRYAN ROACH; BRANDON

ARMSTRONG; RICHARD TABAS;

ALLEN HALE; KENNETH MANYIN;

RUSSELL D. MELTON; JON BANDISH;

MARK O’LEARY; ALEX TELLER;

SCOTT COOK; JOSHUA SEILER;

JOHAN EDWARD RIGOR; WALTER

WITHERSPOON; ROBERT LESKO;

SUZANNE ONDRE; LISA PRITCHETT,

Plaintiffs-Appellants,

No. 12-56674

D.C. No.

3:09-md-02121-

LAB-DHB

OPINION

IN RE: MUSICAL INSTRUMENTS2

NATIONAL ASSOCIATION OF MUSIC

MERCHANTS, INC.; GUITAR CENTER,

INC.; GUITAR CENTER STORES, INC.;

FENDER MUSICAL INSTRUMENTS

CORP.; YAMAHA CORPORATION OF

AMERICA; GIBSON GUITAR

CORPORATION; HOSHINO, U.S.A.,

INC.; KAMAN MUSIC CORPORATION,

Defendants-Appellees.

Appeal from the United States District Court

for the Southern District of California

Larry A. Burns, District Judge, Presiding

Argued and Submitted

October 6, 2014—Pasadena, California

Filed August 25, 2015

Before: Harry Pregerson, Richard C. Tallman,

and Carlos T. Bea, Circuit Judges.

Opinion by Judge Bea;

Dissent by Judge Pregerson

IN RE: MUSICAL INSTRUMENTS 3

SUMMARY

Antitrust

The panel affirmed the district court’s dismissal of a

claim under § 1 of the Sherman Act, alleging a price-fixing

conspiracy among guitar manufacturers.

A putative class of guitar and guitar amplifier purchasers

alleged that certain guitar manufacturers each adopted similar

advertising policies under circumstances suggesting that they

agreed among themselves to adopt those policies. They thus

alleged a hybrid horizontal and vertical agreement, or

“hub-and spoke” agreement. The panel held that the

respective parts of a hub-and-spoke conspiracy are analyzed

separately, the vertical components under the rule of reason

and the horizontal components as violations per se.

The panel stated that the key agreements here were those

among the defendant manufacturers. Plaintiffs’ allegations of

parallel conduct, in conjunction with several “plus” factors,

were insufficient to provide a plausible basis from which to

infer the existence of these alleged horizontal agreements.

Accordingly, plaintiffs failed to state a claim under § 1.

Dissenting, Judge Pregerson wrote that plaintiffs pleaded

enough factual matter (taken as true) to suggest that a

horizontal agreement existed between defendants.

This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

IN RE: MUSICAL INSTRUMENTS4

COUNSEL

Daniel C. Girard, Elizabeth C. Pritzker, Amanda Steiner,

Scott M. Grzenczyk (argued), Girard Gibbs LLP, San

Francisco, California, for Plaintiffs-Appellants.

Margaret M. Zwisler (argued), J. Scott Ballenger, Latham &

Watkins LLP, Washington, D.C.; Christopher S. Yates,

Latham & Watkins LLP, San Francisco, California, for

Defendant-Appellee Guitar Center, Inc.

Daniel A. Sasse, Chahira Solh, Crowell & Moring LLP,

Irvine, California, for Defendant-Appellee Yamaha

Corporation of America.

Paul C. Cuomo, Stephen Weissman, Baker Botts LLP,

Washington, D.C.; Robert G. Abrams, Baker & Hostetler

LLP, Washington, D.C., for Defendant-Appellee National

Association of Music Merchants, Inc.

Neil G. Epstein, Keith E. Smith, Eckert Seamans Cherin &

Mellott, LLC, Philadelphia, Pennsylvania; Christopher M.

Young, DLA Piper LLP (US), San Diego, California, for

Defendant-Appellee Hoshino (U.S.A.), Inc.

Lawrence G. Scarborough, J. Alex Grimsley, Bryan Cave

LLP, Phoenix, Arizona, for Defendants-Appellees Fender

Musical Instruments Corporation and Kaman Music Corp.

Tim Harvey, Riley Warnock & Jacobson, PLC, Nashville,

Tennessee, for Defendant-Appellee Gibson Guitar Corp.

DBA Gibson U.S.A.

IN RE: MUSICAL INSTRUMENTS 5

OPINION

BEA, Circuit Judge:

Where a large musical-instrument retailer pressures

individual guitar manufacturers to set the lowest prices at

which the manufacturers will permit any retailer to advertise

the manufacturers’ products—and each manufacturer

acquiesces—can we infer the manufacturers conspired among

themselves to fix prices?

Plaintiffs ask us to answer this question in the affirmative.

They claim it is plausible to infer a price-fixing conspiracy

based only on allegations that certain guitar manufacturers

each adopted similar advertising policies (“parallel conduct”)

under circumstances that suggest the manufacturers agreed

among themselves to adopt those policies (“plus factors”).

But plaintiffs’ plus factors are no more consistent with an

illegal agreement than with rational and competitive business

strategies, independently adopted by firms acting within an

interdependent market. Plaintiffs’ allegations of “merely

parallel conduct that could just as well be independent action”

are insufficient to state a claim under § 1 of the Sherman Act,

15 U.S.C. § 1. Bell Atlantic Corp. v. Twombly, 550 U.S. 544,

557 (2007). And because plaintiffs’ plus factors add nothing,

we affirm the judgment of the district court dismissing

plaintiffs’ § 1 claim.

Plaintiffs, a putative class, purchased guitars and guitar

amplifiers from defendant Guitar Center, Inc. (“Guitar

Center”), the largest retail seller of musical instruments in the

IN RE: MUSICAL INSTRUMENTS6

United States.

The guitars and amplifiers were manufactured

by five major manufacturers, defendants Fender Music

Instruments Corp., Gibson Guitar Corp., Yamaha Corp. of

America, Hoshino U.S.A., Inc., and Kaman Music Corp.

(“manufacturer defendants”). In their present complaint,

plaintiffs allege that between 2004 and 2009, Guitar Center

and the manufacturer defendants—along with defendant trade

association National Association of Music Merchants

(NAMM)—conspired to implement and enforce minimum-

advertised-price policies (“MAP policies”) that fixed the

minimum price at which any retailer could advertise the

manufacturers’ guitars and guitar amplifiers. According to

plaintiffs, these MAP policies tended to raise retail prices and

restrain competition. Plaintiffs allege that each manufacturer

agreed with Guitar Center to adopt MAP policies and that the

manufacturers agreed among themselves to adopt the MAP

policies proposed by Guitar Center. Plaintiffs claim this

collection of agreements violates § 1 of the Sherman Act and

the antitrust laws of Massachusetts and California.

Prior Federal Trade Commission Investigation and

Settlement

In 2007, before plaintiffs filed any of the cases that now

constitute this consolidated litigation, the Federal Trade

Commission (FTC) initiated a nonpublic investigation into

price fixing in the music-products industry. The FTC alleged

that

Plaintiffs allege that Guitar Center exercises considerable market

power in the musical-instruments industry—especially the market for

guitars and guitar amplifiers—controlling nearly one third of all retail

sales in the United States; Guitar Center also serves as the largest retailer-

customer of many of its instrument manufacturers.

IN RE: MUSICAL INSTRUMENTS 7

[b]etween 2005 and 2007, NAMM organized

various meetings and programs at which

competing retailers of musical instruments

were permitted and encouraged to discuss

strategies for implementing minimum

advertised price policies, the restriction of

retail price competition, and the need for

higher retail prices. . . . At these NAMM-

sponsored events, competitors discussed the

adoption, implementation, and enforcement of

minimum advertised price policies; the details

and workings of such policies; appropriate

and optimal retail prices and margins; and

other competitively sensitive issues.

Complaint, In re National Association of Music Merchants,

Inc., No. C-4255, at ¶ 5. The FTC further alleged that the

exchange of information among NAMM members (which

include Guitar Center and the manufacturer defendants)

“served no legitimate business purpose” and “had the

purpose, tendency, and capacity to facilitate collusion and to

restrain competition unreasonably.” Id. at ¶¶ 6–7. Neither

Guitar Center nor the manufacturer defendants were parties

to this FTC proceeding.

The FTC and NAMM resolved the dispute through a

consent decree. In the consent decree, the FTC ordered

NAMM to cease and desist from “urging, encouraging,

advocating, suggesting, coordinating, participating in, or

facilitating in any manner the exchange of information

between or among Musical Product Manufacturers or Musical

Product Dealers relating to . . . Price Terms, margins, profits,

or pricing policies, including but not limited to Minimum

Advertised Price Policies.” Decision and Order, In re

IN RE: MUSICAL INSTRUMENTS8

National Association of Music Merchants, Inc., No. C-4255,

at *4. NAMM must also file periodic compliance reports and

make a statement before each NAMM trade show informing

members of the organization’s and members’ obligations

under the antitrust laws. Id. at *5–7. NAMM neither admitted

nor denied the FTC’s allegations, and the FTC did not levy

any monetary fine.

Proceedings Below

After the FTC issued its consent decree, numerous

plaintiffs filed complaints alleging that defendants agreed to

fix the retail prices of musical instruments in violation of § 1

of the Sherman Act and state antitrust laws. The Judicial

Panel on Multidistrict Litigation centralized twenty-eight of

these cases in the Southern District of California.

Defendants moved to dismiss plaintiffs’ first consolidated

class-action complaint under Federal Rule of Civil Procedure

12(b)(6). Defendants argued that plaintiffs’ allegations were

insufficiently detailed to satisfy the requirements of

specificity and plausibility that the Supreme Court had

recently outlined in Twombly. The district court granted the

motion to dismiss in part but permitted plaintiffs to amend

their complaint. The district court found that plaintiffs failed

to identify in their complaint “who is alleged to have

conspired with whom, what exactly they agreed to, and how

the alleged conspiracy was organized and carried out.” Nor

did plaintiffs “plead enough of the [MAP policies’] terms to

show how they restrained competition.” The district court

gave plaintiffs a chance to remedy these problems by

permitting some discovery. But because the district court

agreed with defendants that “remarks at open panel

discussions attended by many people at trade shows cannot

IN RE: MUSICAL INSTRUMENTS 9

reasonably constitute the terms of an illegal agreement in

these circumstances,” the court “limited [discovery] to who

attended or participated in meetings alleged in the amended

consolidated complaint and what was said or agreed to

there.”

Following this limited discovery, plaintiffs filed the

operative complaint. Defendants again moved to dismiss the

complaint for its failure to state a claim. The district court

granted defendants’ motion and dismissed plaintiffs’ § 1

claim with prejudice for failure to satisfy the pleading

standard set forth in Twombly. Plaintiffs timely appealed.

We exercise appellate jurisdiction under 28 U.S.C.

§ 1291. We review de novo the district court’s dismissal of a

complaint for failure to state a claim. See Ecological Rights

Found. v. Pac. Gas & Elec. Co., 713 F.3d 502, 507 (9th Cir.

2013). When conducting this review, we accept as true all

nonconclusory factual allegations in the complaint. Id. (citing

Rowe v. Educ. Credit Mgmt. Corp., 559 F.3d 1028, 1029–30

(9th Cir. 2009)).

Discovery consisted of document requests and interrogatories served

on each defendant; plaintiffs also deposed NAMM’s CEO and seven

employees or former employees of the manufacturer defendants and

Guitar Center.

IN RE: MUSICAL INSTRUMENTS10

III

The antitrust laws of the United States aim to protect

consumers by maintaining competitive markets. To that end,

§ 1 of the Sherman Act prohibits agreements that

unreasonably restrain trade by restricting production, raising

prices, or otherwise manipulating markets to the detriment of

consumers. See 15 U.S.C. § 1; State Oil Co. v. Khan,

522 U.S. 3, 10 (1997); Apex Hosiery Co. v. Leader, 310 U.S.

469, 493 (1940).

In analyzing the reasonableness of an agreement under

§ 1, the Supreme Court has distinguished between agreements

made up and down a supply chain, such as between a

manufacturer and a retailer (“vertical agreements”), and

agreements made among competitors (“horizontal

agreements”). The Supreme Court has recognized that certain

horizontal agreements “always or almost always tend to

restrict competition and decrease output.” Broadcast Music,

Inc. v. CBS, 441 U.S. 1, 19–20 (1979). Classic examples

include agreements among competitors to fix prices, divide

markets, and refuse to deal. See, e.g., United States v. Trenton

Potteries Co., 273 U.S. 392, 397–98 (1927) (horizontal price

fixing); United States v. Topco Assocs., 405 U.S. 596, 608

(1972) (horizontal market division); Nw. Wholesale

Stationers, Inc. v. Pac. Stationery & Printing Co., 472 U.S.

284, 293–94 (1985) (concerted refusal to deal). Such

inherently anticompetitive horizontal agreements violate the

Sherman Act per se. Once the agreement’s existence is

established, no further inquiry into the practice’s actual effect

on the market or the parties’ intentions is necessary to

establish a § 1 violation. See N. Pac. Ry. v. United States,

IN RE: MUSICAL INSTRUMENTS 11

356 U.S. 1, 5 (1958). Vertical agreements, on the other hand,

are analyzed under the rule of reason, whereby courts

examine “the facts peculiar to the business, the history of the

restraint, and the reasons why it was imposed,” to determine

the effect on competition in the relevant product market.

Nat’l Soc’y of Professional Eng’rs v. United States, 435 U.S.

679, 692 (1978). That analysis takes into account the fact that

some vertical restraints may have procompetitive

justifications that benefit consumers. See Leegin Creative

Leather Prods. v. PSKS, Inc., 551 U.S. 877, 889–92 (2007)

(noting that vertical price restraints can have the

procompetitive effect of increasing interbrand competition).

But the line between horizontal and vertical restraints can

blur. One conspiracy can involve both direct competitors and

actors up and down the supply chain, and hence consist of

both horizontal and vertical agreements. Plaintiffs here allege

one such hybrid form of conspiracy, sometimes called a “hub-

and-spoke” conspiracy. Although other circuits have

recognized the existence of “hub-and-spoke” conspiracies in

the antitrust context, see, e.g., Howard Hess Dental Labs. Inc.

v. Dentsply Int’l, Inc., 602 F.3d 237, 255 (3d Cir. 2010)

(explaining the configuration of a hub-and-spoke conspiracy);

Toys “R” Us, Inc. v. FTC, 221 F.3d 928, 934 (7th Cir. 2000)

(describing a hub-and-spoke conspiracy without calling it

such), we have not. We write to clarify the analysis of such

conspiracies under § 1.

A traditional hub-and-spoke conspiracy has three

elements: (1) a hub, such as a dominant purchaser; (2) spokes,

such as competing manufacturers or distributors that enter

into vertical agreements with the hub; and (3) the rim of the

wheel, which consists of horizontal agreements among the

spokes. See Howard Hess, 602 F.3d at 255. According to

IN RE: MUSICAL INSTRUMENTS12

plaintiffs, Guitar Center (the hub) pressured each of the

manufacturer defendants (the spokes) to adopt MAP policies,

and the manufacturer defendants, in turn, each agreed among

themselves to adopt the policies (the rim). NAMM acted to

facilitate these illegal agreements by encouraging adoption of

MAP policies—a role that may be illegal but lacks an obvious

wheel analogue (might we suggest “lug nuts”?).

Of course, homespun metaphors for complex economic

activities go only so far. Section 1 prohibits agreements that

unreasonably restrain trade, no matter the configuration they

take or the labels we give them. A hub-and-spoke conspiracy

is simply a collection of vertical and horizontal agreements.

And once the conspiracy is broken into its constituent parts,

the respective vertical and horizontal agreements can be

analyzed either under the rule of reason or as violations per

se.

See Toys “R” Us, 221 F.3d at 933, 940 (endorsing the

Some courts have distinguished between “rimmed” and “rimless” hub-

and-spoke conspiracies. See, e.g., Dickson v. Microsoft Corp., 309 F.3d

193, 203–04 & n.13 (4th Cir. 2002). In Dickson, the Fourth Circuit

characterized a rimless hub-and-spoke conspiracy as one in which

“various defendants enter into separate agreements with a common

defendant, but where the defendants have no connection with one another

other than the common defendant’s involvement in each transaction.” Id.

at 203. The extension of the wheel metaphor here may mislead: a rimless

hub-and-spoke conspiracy is not a hub-and-spoke conspiracy at all (for

what is a wheel without a rim?); it is a collection of purely vertical

agreements. But such a conspiracy may yet unreasonably restrain trade.

See, e.g., Leegin, 551 U.S. at 898–99 (recognizing that purely vertical

restraints may unreasonably restrain trade in violation of § 1).

We note, however, one key difference between a rimless hub-and-

spoke conspiracy (i.e., a collection of purely vertical agreements) and a

rimmed hub-and-spoke conspiracy (i.e., a collection of vertical agreements

joined by horizontal agreements): courts analyze vertical agreements

under the rule of reason, see id., whereas horizontal agreements are

IN RE: MUSICAL INSTRUMENTS 13

FTC’s analysis of the vertical components of a hub-and-spoke

conspiracy under the rule of reason while treating the

horizontal agreements as violations per se).

Here, the key agreements are those among the defendant

manufacturers. Plaintiffs made it clear both before the district

court and on appeal that their theory of the case depends on

establishing those horizontal agreements.

The question

before us is whether plaintiffs have pleaded sufficient facts to

provide a plausible basis from which we can infer the alleged

agreements’ existence. See Twombly, 550 U.S. at 556–57,

560.

Because plaintiffs lack direct evidence of horizontal

agreements among the manufacturers,

they plead that the

violations per se, see United States v. Socony-Vacuum Oil Co., 310 U.S.

150, 223–24 (1940). This distinction provides strong incentives for

plaintiffs to plead a horizontal conspiracy (either alone or as part of a

rimmed hub-and-spoke conspiracy). The prospect of establishing a

violation per se is much more appealing to plaintiffs than the potential

difficulty and costliness of proving a § 1 claim under the rule of reason.

Plaintiffs stated at oral argument that they did not claim the vertical

agreements between the manufacturers and Guitar Center to adopt MAP

policies to be unreasonable vertical restraints under § 1, nor do they

challenge the MAP policies themselves. Plaintiffs’ other allegations (e.g.,

that Guitar Center and NAMM conspired to facilitate and keep in place

the agreements among the manufacturers) are predicated on the existence

of the horizontal agreements among the manufacturers.

Even after the limited discovery permitted by the district court,

plaintiffs still do not plead facts in answer to the district court’s questions:

“who is alleged to have conspired with whom, what exactly they agreed

IN RE: MUSICAL INSTRUMENTS14

defendant manufacturers’ parallel conduct in adopting MAP

policies, in conjunction with several “plus factors,” plausibly

suggests the existence of horizontal agreements. They argue

that the plus factors “nudge[]” their allegations of horizontal

agreements “across the line from conceivable to plausible.”

Id. at 570.

Under Twombly, parallel conduct, such as competitors

adopting similar policies around the same time in response to

similar market conditions, may constitute circumstantial

evidence of anticompetitive behavior. 550 U.S. at 553–54.

But mere allegations of parallel conduct—even consciously

parallel conduct—are insufficient to state a claim under § 1.

Plaintiffs must plead “something more,” “some further

factual enhancement,” a “further circumstance pointing

toward a meeting of the minds” of the alleged conspirators.

Id. at 557, 560.

In this way, Twombly takes into account the economic

reality that mere parallel conduct is as consistent with

agreement among competitors as it is with independent

conduct in an interdependent market. See id. at 554 (“The

inadequacy of showing parallel conduct or interdependence,

without more, mirrors the ambiguity of the behavior:

consistent with conspiracy, but just as much in line with a

wide swath of rational and competitive business strategy

unilaterally prompted by common perceptions of the

market.”). In an interdependent market, companies base their

actions in part on the anticipated reactions of their

competitors. And because of this mutual awareness, two firms

may arrive at identical decisions independently, as they are

cognizant of—and reacting to—similar market pressures. In

to, and how the alleged conspiracy was organized and carried out.”

IN RE: MUSICAL INSTRUMENTS 15

other words, competitors’ behavior may be consciously

parallel. Recognizing that parallel conduct may arise on

account of independent business decisions rather than an

illegal agreement, Twombly requires that when allegations of

parallel conduct are set out to make a § 1 claim, plaintiffs

must plead enough nonconclusory facts to place that parallel

conduct “in a context that raises a suggestion of a preceding

agreement.” Id. at 557. “Allegations of facts that could just as

easily suggest rational, legal business behavior by the

defendants as they could suggest an illegal conspiracy” are

insufficient to plead a § 1 violation. Kendall v. Visa U.S.A.,

Inc., 518 F.3d 1042, 1049 (9th Cir. 2008) (citing Twombly,

550 U.S. at 553–58 & n.5); see also Iqbal v. Ashcroft,

556 U.S. 662, 668 (2009) (“Where a complaint pleads facts

that are merely consistent with a defendant’s liability, it stops

short of the line between possibility and plausibility of

entitlement to relief.” (quoting Twombly, 550 U.S. at 557)

(internal quotation marks omitted)).

This court has distinguished permissible parallel conduct

from impermissible conspiracy by looking for certain “plus

factors.” See, e.g., In re Citric Acid Litig., 191 F.3d 1090,

1102 (9th Cir. 1999) (“Parallel pricing is a relevant factor to

be considered along with the evidence as a whole; if there are

sufficient other ‘plus’ factors, an inference of conspiracy can

be reasonable.”). Whereas parallel conduct is as consistent

with independent action as with conspiracy, plus factors are

economic actions and outcomes that are largely inconsistent

The requirement that plaintiffs allege nonconclusory facts means that

plaintiffs cannot plead merely parallel conduct and allege conspiracy.

Conspiracy is a legal conclusion. See Kendall, 518 F.3d at 1047. Rather,

plaintiffs must plead evidentiary facts: “who, did what, to whom (or with

whom), where, and when.” Id. at 1048.

IN RE: MUSICAL INSTRUMENTS16

with unilateral conduct but largely consistent with explicitly

coordinated action. See Twombly, 550 U.S. at 557 n.4. If

pleaded, they can place parallel conduct “in a context that

raises a suggestion of preceding agreement.” Id. at 557; cf. In

re Citric Acid Litig., 191 F.3d at 1102.

Plaintiffs in their briefs and at oral argument identified the

following six plus factors alleged in the operative complaint:

(1) defendants shared a common motive to conspire; (2) the

manufacturer defendants acted against their self-interest;

(3) the manufacturer defendants simultaneously adopted

substantially similar MAP policies; (4) the FTC’s

investigation and consent decree; (5) the defendants’

participation in NAMM; and (6) retail prices for guitars and

guitar amplifiers rose during the class period as the number

of units sold fell.

We consider each purported plus factor in turn and

cumulatively to determine whether plaintiffs have alleged

nonconclusory facts sufficient to state a claim under § 1.

Common Motive

Plaintiffs allege that the manufacturer defendants shared

a similar motive to collude. But common motive does not

suggest an agreement. Any firm that believes that it could

In In re Citric Acid Litigation, we recognized that circumstantial

evidence in the form of plus factors could support the reasonable inference

of an agreement and thus raise a genuine issue of material fact to defeat

a defendant’s motion for summary judgment. 191 F.3d at 1102, 1108

(affirming the district court’s grant of defendant’s motion for summary

judgment, in part because of a lack of plus factors). The same principle

obtains in the context of a motion to dismiss. Plus factors coupled with

parallel conduct can take a complaint from merely possible to plausible.

IN RE: MUSICAL INSTRUMENTS 17

increase profits by raising prices has a motive to reach an

advance agreement with its competitors.

Thus, alleging

“common motive to conspire” simply restates that a market

is interdependent (i.e., that the profitability of a firm’s

decisions regarding pricing depends on competitors’

reactions). Interdependence, however, does not entail

collusion, as interdependent firms may engage in consciously

parallel conduct through observation of their competitors’

decisions, even absent an agreement. And allegations of

parallel conduct—though recast as common motive—is

insufficient to plead a § 1 violation. See Twombly, 550 U.S.

at 556–57.

Action Against Self-Interest

Plaintiffs allege that defendant manufacturers acted

against self-interest by adopting MAP policies with Guitar

Center. Again, plaintiffs fail to account for conscious

parallelism and the pressures of an interdependent market. An

action that would seem against self-interest in a competitive

market may just as well reflect market interdependence

giving rise to conscious parallelism. For example, each firm

in an interdependent market expects that a widely unfollowed

price increase will be rescinded. But so long as prices can be

easily readjusted without persistent negative consequences,

We note that there are (at least) two ways for firms to increase profit.

They can compete to capture greater market share, carving out a bigger

piece of the existing pie. Or they can keep their market share the same

while increasing prices. If all firms increase prices, they have managed to

grow the pie, though their individual slices remain proportionally the

same. In a competitive market, attempts to grow the pie by charging

supracompetitive prices will be tempered by price competition as

individual firms attempt to capture greater market share. But common

motive for increased profits always exists.

IN RE: MUSICAL INSTRUMENTS18

one firm can risk being the first to raise prices, confident that

if its price is followed, all firms will benefit. By that process

(“follow the leader”), supracompetitive prices and other

anticompetitive practices, once initiated, can spread through

a market without any prior agreement.

More extreme action against self-interest, however, may

suggest prior agreement—for example, where individual

action would be so perilous in the absence of advance

agreement that no reasonable firm would make the challenged

move without such an agreement. Here, if no reasonable

manufacturer would have entered into a MAP policy without

assurances that all other manufacturers would enter into

similar agreements, that would suggest collusion. But the

complaint itself, perhaps maladroitly, provides ample

independent business reasons why each of the manufacturers

adopted and enforced MAP policies even absent an

agreement among the defendant manufacturers. Plaintiffs

allege that each manufacturer was “pressured by Guitar

Center” to adopt MAP policies that were advantageous to

Guitar Center, and the complaint concedes that each

manufacturer “responded to Guitar Center’s pressure and

coercion” by adopting MAP policies “in exchange for Guitar

Center’s agreement to purchase large volumes of the

manufacturer’s product stock.” Manufacturers’ decisions to

heed similar demands made by a common, important

customer do not suggest conspiracy or collusion. They

support a different conclusion: self-interested independent

parallel conduct in an interdependent market. See id.

Simultaneous Adoption of MAP Policies

Plaintiffs allege that the manufacturer defendants

simultaneously implemented and enforced MAP policies with

IN RE: MUSICAL INSTRUMENTS 19

similar terms. Cf. id. at 557 n.4 (“[C]omplex and historically

unprecedented changes in pricing structure made at the very

same time by multiple competitors and made for no other

discernible reason would support a plausible inference of

conspiracy.”). But according to the complaint, the

manufacturer defendants adopted the policies over a period of

several years, not simultaneously. Allegations of such slow

adoption of similar policies does not raise the specter of

collusion. Cf. In re Text Messaging Antitrust Litig., 630 F.3d

662, 628 (7th Cir. 2010) (finding persuasive plaintiffs’

allegation of parallel conduct “all at once”).

Even assuming that the progressive adoption of similar

policies across an industry constitutes simultaneity, that fact

does not reveal anything more than similar reaction to similar

pressures within an interdependent market, or conscious

parallelism. All of the manufacturer defendants were dealing

with the same important customer, Guitar Center, which

ostensibly exercised its considerable market power to demand

similar terms from each manufacturer for its own benefit.

The manufacturers’ similar response to this market pressure

is a hallmark of independent parallel conduct—not collusion.

The FTC’s Investigation of NAMM

Plaintiffs argue that the FTC’s investigation of NAMM

suggests an agreement was made. The FTC alleged violations

of § 5 of the Federal Trade Commission Act (FTC Act),

The operative complaint does not allege Guitar Center violated § 2 of

the Sherman Act (or any provisions of the Federal Trade Commission Act)

in any attempted monopolization of the retail guitar and amplifier market;

nor do plaintiffs allege that the MAP policies themselves are illegal

vertical agreements in restraint of trade under § 1.

IN RE: MUSICAL INSTRUMENTS20

15 U.S.C. § 45, which prohibits “unfair methods of

competition.” But unlike § 1 of the Sherman Act, a violation

of § 5 of the FTC Act does not require allegation and proof of

a contract, combination, or conspiracy. An organization may

violate § 5 of the FTC Act without violating § 1 of the

Sherman Act. See FTC v. Sperry & Hutchinson Co., 405 U.S.

233, 239–44 (1972).

And neither the FTC complaint nor the

consent decree alleged that any company or group actually

conspired or agreed to adopt MAP policies, nor do they

suggest such an agreement was made.

Defendants’ Attendance of NAMM Meetings

Plaintiffs allege that Guitar Center advocated for the

concerted adoption of anticompetitive MAP policies at

NAMM meetings. But mere participation in trade-

organization meetings where information is exchanged and

strategies are advocated does not suggest an illegal

agreement. As we recognized in In re Citric Acid Litigation:

Gathering information about pricing and

competition in the industry is standard fare for

trade associations. If we allowed conspiracy

to be inferred from such activities alone, we

would have to allow an inference of

conspiracy whenever a trade association took

almost any action. As the Supreme Court has

The cases plaintiffs cite as supporting their assertion that government

investigations “bolster the plausibility analysis,” all involved ongoing

criminal investigations into alleged conspiratorial price fixing under § 1

of the Sherman Act. See, e.g., In re Packaged Ice Antitrust Litig., 723 F.

Supp. 2d 987, 1009 (E.D. Mich. 2010). Those cases are inapposite here,

where the FTC complaint was based on § 5 of the FTC Act, 15 U.S.C.

§ 45, which does not require allegation of an agreement or conspiracy.

IN RE: MUSICAL INSTRUMENTS 21

recognized, however, trade associations often

serve legitimate functions, such as providing

information to industry members, conducting

research to further the goals of the industry,

and promoting demand for products and

services.

191 F.3d at 1098.

Moreover, plaintiffs allege that the industry had

encouraged the adoption of MAP policies as in each

manufacturer’s self-interest for years before the class period.

Such an allegation does not suggest agreement; it provides a

context for “merely parallel conduct that could just as well be

independent action.” Twombly, 550 U.S. at 557.

Rising Prices

Plaintiffs allege that the average retail price of guitars and

guitar amplifiers rose during the class period as the total

number of units sold fell. The dissent asserts that these

“allegations that prices rose despite falling demand” are

“perhaps most suggestive of collusion.” Dissent at 27–28. We

are not convinced.

First, plaintiffs do not allege that the average retail price

of guitars and amplifiers manufactured by defendants rose

In this our law differs from the suspicions of Adam Smith, written at

a time before the enactment of the Sherman Act: “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, vol. 1, bk. 1, ch. 10 (1776).

IN RE: MUSICAL INSTRUMENTS22

during the class period. They allege an increase in the average

retail price of all guitars and guitar amplifiers sold, including

products outside the relevant product market, like low-cost

imports. The same can be said of the alleged drop in sales.

But even if plaintiffs had alleged that retail prices of

defendants’ guitars and amplifiers rose in tandem as sales

dropped, such a price increase is no more suggestive of

collusion than it is of any other potential cause.

Plaintiffs do

not allege any facts connecting the purported price increase

to an illegal agreement among competitors. And without such

a connection, there is simply no basis from which we can

infer an agreement. In this regard, parallel price increases,

without more, are no different from other forms of parallel

conduct. They are “merely consistent with a defendant’s

liability” but “stop[] short of the line between possibility and

plausibility of entitlement to relief.” Iqbal, 556 U.S. at 668

Plaintiffs admitted in their initial complaint that the data recited by the

dissent is—to put it mildly—“over-inclusive.” Whereas the complaint

defines the relevant product market as the market for “High-end Guitars

and Guitar Amplifiers,” plaintiffs’ data “include[] products outside of the

relevant product market(s), such as low-cost imports.” As far as we can

tell from the complaint, retail prices of defendants’ products actually

might have fallen during the class period as the average retail price for all

guitars and guitar amplifiers rose. Plaintiffs make no allegation either way.

Plaintiffs make no allegation as to the cause of the increase in price or

the decrease in units sold, aside from noting the data recited are

“[c]onsistent with the formation of the alleged conspiracy.” But

allegations that are merely consistent with conspiracy are not enough. See

Twombly, 550 U.S. at 557. Any manner of economic variables may have

contributed to these fluctuations in prices and sales, from external market

pressures to permissible conscious parallelism. For example, if the cost of

materials or labor rose, prices could rise irrespective of a decrease in units

sold. Indeed, in such a scenario, we would expect a price hike to be

accompanied by a drop in sales.

IN RE: MUSICAL INSTRUMENTS 23

(quoting Twombly, 550 U.S. at 557) (internal quotation marks

omitted).

* * *

The dissent urges that, “when analyzed together,”

plaintiffs’ purported plus factors provide a context that

plausibly suggests that “an illicit horizontal agreement was

made between the manufacturer defendants.” Dissent at 29.

We disagree. Plaintiffs have indeed provided a context for the

manufacturers’ adoption of MAP policies, but not one that

plausibly suggests they entered into illegal horizontal

agreements. Instead, the complaint tells a different story, one

in which Guitar Center used its substantial market power to

pressure each manufacturer to adopt similar policies, and

each manufacturer adopted those policies as in its own

interest. Such conduct may be anticompetitive—and perhaps

even violate the antitrust laws—but it does not suggest the

manufacturers illegally agreed among themselves to restrain

competition.

We find plaintiffs’ allegations here to be readily distinguishable from

those considered by the Seventh Circuit in In re Text Messaging Antitrust

Litigation. There, the four defendants operated in an extremely

concentrated market, in which they controlled 90% of text-messaging

services in the United States. 630 F.3d at 628. Plaintiffs in that case

alleged not merely that prices had risen; they alleged that “all at once the

defendants changed their pricing structures, which were heterogeneous

and complex, to a uniform pricing structure, and then simultaneously

jacked up their prices by a third.” Id. Such uniformity and simultaneity are

lacking here. Plaintiffs do not allege that defendants’ prices rose (in

concert or otherwise); they allege the average price of all guitars and

guitar amplifiers rose. And plaintiffs do not allege these changes occurred

“all at once”; they allege defendants adopted MAP policies over the

course of three years.

IN RE: MUSICAL INSTRUMENTS24

Plaintiffs have failed to allege enough nonconclusory

facts to support the plausible inference that any agreement

among the manufacturers was made. For that reason, their § 1

claim must be dismissed.

AFFIRMED.

PREGERSON, Circuit Judge, dissenting:

I respectfully dissent. Bell Atlantic Corp. v. Twombly

requires plaintiffs in an antitrust action to plead “enough

factual matter (taken as true) to suggest that an agreement

was made.” 550 U.S. 544, 556 (2007) (emphasis added). In

the “hub-and-spoke” conspiracy alleged here, plaintiffs

pleaded enough factual matter (taken as true) to suggest that

a horizontal agreement existed between defendants Fender

Musical Instruments Corp.; Gibson Guitar Corp.; Hoshino

U.S.A., Inc.; Kaman Music Corp.; and Yamaha Corporation

of America (“manufacturer defendants”).

Plaintiffs point to six different “plus factors” to support

their claim of an agreement among the manufacturer

defendants: (1) the manufacturer defendants shared a

common motive to conspire; (2) the manufacturer defendants

acted against their own individual self-interest; (3) the

manufacturer defendants adopted substantially similar

Minimum Advertised Price (“MAP”) policies; (4) the Federal

Trade Commission (“FTC”) investigation of the National

Association of Music Merchants, Inc. (“NAMM”) for price

fixing; (5) the manufacturer defendants participated in

IN RE: MUSICAL INSTRUMENTS 25

NAMM functions; and (6) the retail prices for guitars and

guitar amplifiers climbed despite falling demand.

“[W]hen allegations of parallel conduct are set out in

order to make a [Sherman Act] § 1 claim, they must be placed

in a context that raises a suggestion of a preceding argument.”

Twombly, 550 U.S. at 557. Although the majority opinion

purports to address the six plus factors as a whole, it actually

focuses on each factor individually. Maj. Op. 16–23. After

dissecting each factor individually, the majority opinion

summarily concludes that, though the plaintiffs “provided a

context for the manufacturers’ adoption of MAP policies,”

that context does not “plausibly [suggest that the

manufacturer defendants] entered into illegal horizontal

agreements.” Maj. Op. 23.

When truly analyzed together, the six plus factors

strongly suggest that the manufacturer defendants reached an

illegal horizontal agreement, which “nudge” plaintiffs’

allegations “from conceivable to plausible.” Twombly,

550 U.S. at 570.

First, although a common motive to conspire does not by

itself suggest an agreement, this motive combined with the

other plus factors suggests the manufacturer defendants made

an illegal agreement.

Second, the manufacturer defendants adopted policies

such as limiting online advertisement of prices and discounts,

all while increasing prices and conditioning dealer

authorizations upon strict compliance with the MAP terms.

These policies increased prices even though demand for their

products decreased, which went against each company’s

individual self-interest. Although this factor alone may be

IN RE: MUSICAL INSTRUMENTS26

insufficient to plead a violation, when viewed together with

the other plus factors, this suggests an agreement was made

between the manufacturer defendants.

Third, the manufacturer defendants adopted substantially

similar MAP policies. The majority opinion correctly notes

that the manufacturer defendants adopted MAP policies over

the course of several years, but the majority opinion fails to

appreciate that the manufacturer defendants adopted

substantially similar MAP policies over the course of this

relatively short—three-year—period. Both the district court

and the majority opinion fault plaintiffs for being unable to

show agreement between the manufacturer defendants by

pinpointing the exact terms of the MAP policies and the exact

timing of their adoption. Because plaintiffs have not been

afforded an opportunity to discover these confidential and

proprietary policies, it is unfair to require this level of

specificity at the pleading stage.

While the specific terms

and exact timing of the MAP policies may be an issue at the

summary judgment stage, a plaintiff at the pleading stage is

not required to “allege ‘specific facts’ beyond those necessary

to state his claim and the grounds showing entitlement to

relief.” Id.

Fourth, the FTC investigation and settlement regarding

alleged price fixing in the music-products industry,

specifically at NAMM-sponsored events, during the time

period at issue here, tends to suggest that an illegal agreement

was made between the manufacturer defendants. The FTC

complaint stated that “[t]he exchange of information between

While plaintiffs were allowed limited discovery on the “closed door”

meetings at NAMM-sponsored events, they were explicitly barred from

inquiring about specific terms of the MAP policies.

IN RE: MUSICAL INSTRUMENTS 27

NAMM members [including the manufacturer defendants],

as alleged herein, had the purpose, tendency, and capacity to

facilitate collusion and to restrain competition unreasonably.”

In the Matter of National Association of Music Merchants,

Inc., No. C-4255, at ¶ 7. Although the FTC investigation and

settlement concerned violations of Section 5 of the Federal

Trade Commission Act, 15 U.S.C. § 45, which does not

require allegations of an illegal agreement, the FTC

investigation and settlement make it more plausible that there

was an illegal agreement between the manufacturer

defendants. In general, mere involvement with a trade

organization does not necessarily suggest the existence of

illegal activity; however, allegations by the FTC that a certain

trade association’s meetings “had the purpose, tendency, and

capacity to facilitate collusion” makes it more

plausible—especially when considering all six plus factors—

that an illegal agreement was made.

Fifth, representatives of the manufacturer defendants

attended NAMM-sponsored events where they discussed and

promoted specific MAP pricing structures. In In Re Text

Messaging Antitrust Litigation, 630 F.3d 622, 628 (7th Cir.

2010), the Seventh Circuit held that the defendants—four

United States telecommunications companies accounting for

90% of the text messaging services in the United States—

participated in trade association meetings where specific

pricing structures were discussed, which, among other

allegations, suggested collusion. Similarly here, discussions

at NAMM-sponsored events of specific mutually agreeable

terms are a “circumstance pointing toward a meeting of the

minds[.]” Twombly, 550 U.S. at 557.

Sixth—and perhaps most suggestive of collusion—

despite falling demand for guitars and guitar amplifiers, the

IN RE: MUSICAL INSTRUMENTS28

average retail price of these items increased substantially

from 2005 to 2007. In 2006, for example, the number of

electric and acoustic guitars sold decreased 9.62% from the

year before. Yet, despite the decline in demand, the average

retail price for each unit rose 6.13% from the year before.

Similarly, despite a decline of 12% in the number of amplifier

units sold in 2006 from the previous year, the average retail

price of each unit increased 3.13%. The majority opinion

attributes these statistics to “[a]ny manner of economic

variables.” Maj. Op. at 22 n.13. Nevertheless, the allegations

that prices rose despite falling demand demonstrates that it is

plausible that something outside normal market conditions

was at work: in this case, collusion. See In Re Text

Messaging, 630 F.3d at 628–29 (finding the allegations that

defendant communications companies’ anomalous behavior

of rapidly increasing prices despite falling costs, among other

things, suggested collusion was plausible).

The majority opinion found that each of these plus factors

can be attributed to permissible parallel conduct and that, in

“context,” they do not plausibly suggest that an illegal

horizontal agreement was made. Maj. Op. at 23. Yet the

standard under Twombly requires that the plaintiffs’

allegations must only raise “plausible grounds to infer an

agreement,” which “simply calls for enough facts to raise a

reasonable expectation that discovery will reveal evidence of

illegal agreement.” 550 U.S. at 556 (emphasis added). I

simply cannot agree with the majority opinion that the

plaintiffs’ inference of an agreement is implausible,

especially where the litigation is at the motion to dismiss

stage, not the summary judgment stage.

Moreover, the majority opinion is based on numerous

assumptions of the guitar and guitar amplifier retail market.

IN RE: MUSICAL INSTRUMENTS 29

For example, the majority opinion states that “so long as

prices can be easily readjusted without persistent negative

consequences, one firm can risk being the first to raise prices,

confident that if its price is followed, all firms will benefit.

By that process (‘follow the leader’), supracompetitive prices

and other anticompetitive practices, once initiated, can spread

through a market without any prior agreement.” Maj. Op. at

17–18. This assumes that (1) retail prices in the guitar and

guitar amplifier business can be easily readjusted,

(2) competent business firms are willing to place their

products at a competitive disadvantage in a highly

competitive market, (3) competitive business firms are

independently confident that price increases will be followed

by competitors, and (4) no agreement (either tacit or express)

was ever reached between the manufacturer defendants.

These are a lot of assumptions to make without providing

plaintiffs the opportunity to conduct full discovery.

Here, plaintiffs’ allegations of parallel conduct raise

plausible grounds to infer that an illicit horizontal agreement

was made between the manufacturer defendants. Plaintiffs

allege six plus factors which, when analyzed together,

“nudge[] their [allegations of a horizontal agreement] across

the line from conceivable to plausible[.]” Twombly, 550 U.S.

at 570. Therefore, I would reverse the district court’s

dismissal of plaintiffs’ Sherman Act claim and remand for

further proceedings.