Bicycle Parts Maker Ordered to Pay in Pricing Scheme
A federal jury, ruling that the world’s leading maker of bicycle parts priced products below cost to destroy competition, has ordered Japan-based Shimano Inc. and its U.S. subsidiary in Irvine to pay about $9 million in damages.
The jury reached its verdict Monday in Santa Ana, capping a four-year legal dispute that pitted Shimano against a much smaller competitor, Chicago-based Sram Corp. Shimano said it will appeal.
Sram contended that Shimano and its U.S. unit, Shimano America Corp., violated California law with its pricing strategy by lowering the price of one product while boosting the prices of others. Shimano cut the price on gear shifters--where competition was stiff--while raising the prices of products for which it had little or no competition, Sram President Stan Day said.
“We brought this action because we felt Shimano wasn’t playing by the rules of business,” Day said. If the verdict stands, the industry eventually will have more competitive suppliers, he predicted.
Shimano Inc. President Yoshizo Shimano said the jury’s verdict was “erroneous.”
“It represents a sad day for consumers of high quality, reasonably priced bicycle components,” he said in a statement. “The verdict is not supported by the evidence or the law.” Experts said the ruling is not likely to have an impact on the industry in general.
On the issue of below-cost pricing, the jury awarded $2.9 million, an amount that is tripled according to California law, Sram said.
The jury also awarded $500,000 to Sram after deciding Shimano had violated terms of a settlement that grew out of a previous lawsuit between the two companies.
That earlier case helped create more competition because it changed the way Shimano sold parts and opened the market to other component makers, industry insiders said.
Shimano is one of the world’s leading makers of bicycle components, including cranks, brakes, shifters and derailleurs. It also makes fishing gear and tackle.
At least 8 million of the 11 million bikes sold in the U.S. each year have Shimano parts, said Fred Clements, executive director of the National Bicycles Dealers Assn. in Newport Beach.
“Shimano is kind of the Intel of the bicycle industry,” he said, “they’re really pervasive.”
But Sram has been on the rise over the past decade and is now considered the No. 2 player, said Jay Townley, executive director of the Bicycle Council, an industry nonprofit marketing association.
Sram launched its business in 1987 with a new-style shifter that allowed cyclists to change gears with a twist of the wrist. It’s sales grew from $1 million in 1990 to about $70 million in 1995. After Shimano “slashed prices” on its shifter products, Sram’s sales dropped to about $40 million, Day said.
In 1997, Sram bought Sachs, a bicycle component division in Germany, broadening its product line and expanding its reach internationally.
Worldwide, Sram’s sales are about $125 million. Shimano America and its parent have worldwide sales of about $2 billion.
But the industry, which has been struggling with flat sales for several years, is “brutally competitive,” Clements said.
