Liberty Times violated the Fair Trade Law for improperly restricting the business activities of trading counterparts by setting and reiterating rules controlling the market order of classified advertisements
Case:
Liberty Times violated the Fair Trade Law for improperly restricting the business activities of trading counterparts by setting and reiterating rules controlling the market order of classified advertisements
Key Words:
restraints on competition, classified advertisements, advertising agency
Reference:
Fair Trade Commission Decision of the 414th Commissioners' Meeting (October 13,1999); Disposition (88) Kung Ch'u Tzu No. 133.
Industry:
News Publishing Industry (8310)
Relevant Laws:
Articles 19 (vi) of the Fair Trade Lawof the Fair Trade Law
Summary:
Under the Liberty Times' rules, the penalties listed below may be imposed
for acts such as "providing larger-than-normal advertising space,"
"selling advertising space at less rate," "giving advertising
space to clients free of charge," and "improperly pooling ad copy":
(1) First occurrence: The agency will be required to pay the regular advertising
rate (higher than the agency rate).
(2) Second occurrence: The agency's monthly bonus for sales promotion advertising
copy will be cancelled (suspended).
(3) Third occurrence: The agency's publication privileges will be suspended
for one month.
(4) Fourth occurrence: the agency right will be terminated.
It is the finding of the Fair Trade Commission ("the Commission") after investigating the common practices in the business of posting classified advertisement in the newspapers that most classified advertisements fall into the categories of business-related services and information such as "help wanted," "housing for rent or sale," "missing," and "public notices." Prices are generally based on the number of "lines" printed, with nine words (individual Chinese characters) counted as one line, and could vary with whether an advertisement is to be carried nationwide or in a local edition(s) only. Customers that contact the newspaper directly to publish advertisements must pay the regular rates. While a customer goes through an agency, the agency generally shares a portion of its discount (the difference between the regular rate and the agency rate) with the customer, depending on such factors as prevailing market conditions and credit risk. Besides profiting on the difference in rates, agencies also receive bonuses in proportion to the amount of advertising they solicited, or are given special promotional prices by newspapers as an incentive to actively solicit advertising customers. In the classified ad market of the Kaohsiung area, the Liberty Times' regular rate for classified ads is NT$180 per four lines, and the agency rate is NT$132. The Liberty Times' rules restrict agencies from spending their incentive bonuses or funds from their own promotional budgets to "reward" existing classified ad customers or solicit new ones through means such as "providing larger-than-normal space," "selling space at less than cost," "giving advertising space free of charge," and so forth, as mentioned above.
The Commission examined whether such restrictions on the agencies constitute
"improper restrictions on the business activities of a trading counterpart"
under Article 19(vi) of the Fair Trade Law, based on the criteria given
in Article 25(1)(ii) of the Enforcement Rules of the same law. It found
as follows:
(1) The intent and purposes of the respondent:
As presented in the respondent's letter giving notification of its "rules"
and as admitted by the respondent in a statement made before the Commission,
the respondent's intent and purpose in reiterating the rules was to "preserve
reasonable profit of its advertising agencies and avert destructive competition."
By restricting advertising agencies from spending their incentive bonuses
or funds from their own promotional budgets to "reward" existing
classified ad customers or solicit new ones, the rule guaranteed the agencies
profit margins and limits intra-brand competition.
(2) The market position of the respondent and the structure of the market
to which it belongs:
The respondent commands a sizeable 12% market share in the newspaper advertising
market, according to tax-related statistics for the newspaper advertising
industry for 1998 which were calculated primarily on publishers' advertising
revenues and were compiled by the Commission's industry information center.
(3) The characteristics of the goods and the impact on market competition:
According to the common practices in the classified ad market, the agency
generally shares a portion of its discount with the customer, depending
on such factors as prevailing market conditions and credit risk. Besides
profiting on its rate discount, agencies also receive bonuses in proportion
to the amount of advertising they publish or are given special promotional
prices by newspapers as an incentive to actively solicit advertising customers.
The aforesaid restrictions imposed on agencies by the respondent's rules
thus not only restrain fair competition in the particular market, they also
obviously harm the rights and interests of the advertising customers in
that market. Furthermore, the penalties provided, such as suspending an
agency's advertising rights and terminating business with an agency would
be sufficient to interfere with customers' choices of advertising agency,
and, given the respondent's market position, would be likely to impede fair
competition in the particular market.
The respondent improperly restricted the business activities of trading counterparts as a condition of trade and in a manner likely to restrain competition or obstruct fair competition, in violation of Fair Trade Law Article 19(vi). Since the violation continued after the date the amended Fair Trade Law took effect in February 1999, it should be reviewed under the provisions of the fore part of Article 41 of the amended Law. The Commission therefore imposed a fine of NT$800,000 pursuant to those provisions, after taking into consideration all relevant factors enumerated in Article 33 of the Implementing Regulations of the Fair Trade Law, including the respondent's motivation, purpose, and expected improper benefit; the degree and duration of the act's threat to trading order; the scale, operating condition, and market position of the respondent's enterprise; substantive evidence of remorse; and attitude of cooperation in the investigation.
Summarized by Cheng Chia-lin
Supervised by Lin You-ch'ing
Appendix:
Liberty Times' Uniform Invoice Number: 52570683