Rui Ing Co., Ltd.

Case:

Key Words:

karaoke products, MIDI, distributor, exclusive dealing restriction

Reference:

Supreme Administrative Court (2012) Pan-Zi Judgement No. 1070

Industry:

Sound Recording and Music Publishing (5920)

Relevant Laws:

Article 19 of the Fair Trade Law

Summary:

1. The appellee (the FTC) decided that the appellant and Mds Multimedia Corp. (hereinafter referred to as Mds) had violated Subparagraph 5 of Article 19 of the Fair Trade Law for restricting their distributors from being the agent, broker, or distributor for any other MIDI karaoke product makers and also for imposing a restriction on the distributors' re-renting prices for their MIDI karaoke products. Both were unjustified restrictions on the business activities of their trading counterparts as a condition for further transactions, thus constituting market competition restraints in violation of Subparagraph 6, Article 19 of the Fair Trade Law. The FTC acted according to the first section of Article 41 of the same law and issued Kung-Ch'u-Tzu Disposition No. 099078 to order the appellant to immediately cease its unlawful acts upon the receipt of the disposition, and also imposed on the appellant an administrative fine of 1 million New Taiwan dollars (the same currency applies hereinafter) and 700,000 on Mds. The appellant found the sanction unacceptable and filed a petition and administrative litigation according to established procedures but both were overruled. Subsequently, the appellant filed an appeal over the case to the Supreme Administrative Court.
2. The appellant, the largest agent in the MIDI karaoke product market, demanded its regional agents and distributors not to represent or distribute karaoke products from other makers. This was clearly indicted in the notification, dated August 13, 2008, from the appellant to the regional agents for the "2009 MIDI Distributor Meeting" and in Paragraph 4, Point 4 of the Statement of Agreement signed with the regional agents - both documents were attached with the original disposition. The exclusive dealing restriction imposed on the distributors by the appellant would obstruct competitors from expanding or obtaining sales channels. It could lead to market closure, weaken or even eliminate "inter-brand competition." The practice was deemed capable of creating substantive damage to market competition and restrain market competition. During the first trial, the FTC had explained that the direct trading counterparts of the appellant were the regional agents or distributors, not end users. Furthermore, when signing the contract or the statement of agreement, each regional agent had issued a check as the rental guarantee calculated according to the rates agreed upon. Then the amount would be gradually retrieved from the income from renting out the MIDI karaoke products. In other words, the regional agents had to take the risk of not renting out enough karaoke products. Since the appellant had already shifted the risk in re-renting onto the regional agents, the re-renting price restriction on the regional agents in the contract was apparently stipulated to ensure that there would be no price competition between the agents. Succumbing to the market power of the appellant, the regional agents were more than likely to comply with the re-renting price restriction lest their contract be terminated. Therefore, in essence, the practice had deprived the regional agents of their freedom to determine their re-renting prices. Due to the market status of the appellant, contract termination would have a serious effect on the business of any regional agent and the regional agents were actually bound by the threat of such a sanction. Even if the appellant has never executed the right as stipulated in the contract, the competition restriction was still obvious. The appellee, the FTC, concluded that the aforesaid conduct of the appellant was in violation of Subparagraph 6, Article 19 of the Fair Trade Law and imposed on the company an administrative fine of 1,000,000 in accordance with the regulation set forth in the first section of Article 41 of the same law. The original court decided that the sanction was legally sound and to be maintained and the appeal from the appellant was overruled.

Appendix:
Zui Ing Co., Ltd's Uniform Invoice Number: 97123274
Mds Multimedia Corp.'s Uniform Invoice Number: 04779781

Summarized by: Lai, Chia-Ching; Supervised by: Lee, Wen-Show