Violation of Articles 21(1) and 24 of the Fair Trade Law by Chyuan Lien Enterprise Co., Ltd. for its use of the following names at its supply outlets and in its overall business practices: R.O.C. Cooperative Association, Civil Servant and Teacher Welfare Goods Supply Centers, etc.
Case:
Violation of Articles 21(1) and 24 of the Fair Trade Law by Chyuan Lien Enterprise Co., Ltd. for its use of the following names at its supply outlets and in its overall business practices: R.O.C. Cooperative Association, Civil Servant and Teacher Welfare Goods Supply Centers, etc.
Key Words:
business name, service mark, shopping bag labeling, cooperative stores.
Reference:
Fair Trade Commission Decision of November 24, 1999 (the 420th Commissioners' Meeting); Disposition (88) Kung Chu Tzu No. 420
Industry:
Other General Goods Retailing Industry (5319)
Relevant Laws:
Summary:
1. Following the Central Personnel Administration's termination of its commission for the R.O.C. Cooperative Association ("Ch'uan Lien Association") to supply consumer goods to civil servants and teachers, Ch'uan Lien Association agreed on July 30, 1998 to close its operations and 30 September 1998 was fixed as the last day of its operations. The outlets and employees were subsequently taken over by the respondent, Chyuan Lien Enterprise Co., Ltd. ("Chyuan Lien"), who planned to operate them as a consumer goods distribution business (there presently are 66 such outlets in Chinese Taipei not including the outlet in Lu Hsun). Before the termination, the outlets were operated under the placard "Ch'uan Lien Association Civil Servant and Teacher Welfare Goods Supply Centers", which was known in short title by the public as "Civil Servant and Teacher Welfare Goods Supply Centers" or "Welfare Centers". After Chyuan Lien took over the outlets, it continued to use the name R.O.C. Cooperative Association and the name Civil Servant and Teacher Welfare Goods Supply Centers on placards, illuminated signs and shopping bags. In addition, Chyuan Lien also restricted its customers to military personnel, civil servants, teachers and public welfare personnel, and its membership verification counters and personnel remained at the entrances of the outlets. The operations of the outlets under Chyuan Lien remained the same as when they were operated under Ch'uan Lien Association (in terms of the labeling on placards, the name of the business entity on shopping bags, the sales targets and the membership verification system). Although Chyuan Lien changed the labeling on its placards and shopping bags to Chyuan Lien Welfare Centers, the location of its outlets, equipment and personnel, special designation of customers, and membership verification system remained the same. This situation, in total, was likely to ca use consumers to form mistaken perceptions and had influenced fair market competition. 2. According to the fore part of Article 41 of the Fair Trade Law (FTL) before its amendment on February 3, 1999, "with respect to enterprises that violate the provisions of the Fair Trade Law, the Fair Trade Commission may specify a time period within which the enterprise is required to cease or rectify its conduct ...", while the amended provision stipulates that "... the Fair Trade Commission may specify a time period within which the enterprise is required to cease, rectify its conduct, or adopt corrective measures; in addition, the Fair Trade Commission may impose a fine of between NT$50,000 and NT$25,000,000." 3. With respect to the respondent's violation of the FTL, its business practices are listed as follows for comparison, since Chyuan Lien had changed the labeling on its placards and shopping bags after this Commission's investigation: (1) After taking over the outlets, Chyuan Lien continued using Ch'uan Lien Association's labeling (the R.O.C. Cooperative Association and Civil Servant and Teacher Welfare Goods Supply Centers) on its placards and plastic bags: (i) An enterprise's name and practices are important indicators of the business identity and the business identity is an important factor in a consumer's purchasing decision. As Ch'uan Lien Association was commissioned by the Central Personnel Administration to supply consumer goods to civil servants and teachers, Ch'uan Lien Association enjoyed special treatment such as government allowances, lower supplier prices and income tax exemptions and, therefore, its prices were generally lower than the market prices. As a result, consumers' perceptions and trust in Ch'uan Lien Association is distinguishable from those in ordinary profit-oriented retailer of consumer goods. (ii) After taking over the original outlets, Chyuan Lien began operations on October 1, 1998. In November 1998, Ch'uan Lien Association asked Chyuan Lien by letter to change the placards in order to avoid confusing consumers. As of April 1999, however, placards at more than 40 of Chyuan Lien's outlets (Chyuan Lien took over all 66 outlets in Chinese Taipei) still used the name R.O.C. Cooperative Association, XX Outlet, Civil Servant and Teacher Welfare Goods Supply Centers or Ch'uan Lien Association Civil Servant and Teacher Welfare Goods Supply Centers according to the results of a survey conducted by the Civil Servant Residence and Welfare Commission and the former Taiwan Province Cooperative Enterprise Management Office. Although Chyuan Lien submitted an overall plan regarding the placards and name cards and sent an update after the placards had been changed, its delays in making the changes should not have been due merely to difficulties in planning and implementation. With respect to Chyuan Lien's use of the name R.O.C Cooperative Association and the name Civil Servant and Teacher Welfare Goods Supply Centers, membership verification system and sales personnel (in addition to Ch'uan Lien Association's business outlets, Chyuan Lien also acquired its administrative and marketing personnel), any of its placards, illuminated signs or shopping bags would on its own be sufficient to cause consumers to mistakenly presume that Chyuan Lien was a consumer goods supply outlet operated by Ch'uan Lien Association and would be a violation of Article 21(3) of the FTL that applies, mutatis mutandis, Article 21(1). (2) The overall business practices of Chyuan Lien after it changed the names on its placards and shopping bags are stated as follows: (i) The results of a survey (from 105 questionnaires) conducted at 10 of Chyuan Lien's outlets in Northern, Central, Southern and Western Chinese Taipei (including a new outlet in Hsing Lung) are given below: (a) According to the perceptions of the majority of consumers (86.7%), Chyuan Lien's outlets were set up by welfare organizations or cooperatives for military personnel, civil servants and teachers. (b) The major factors in consumers' perceptions that the outlets are cooperatives were their perceptions and habits and the outlets' membership verification practices (50.4% of the respondents thought that the outlets were 58.2% similar). The labeling of advertisements was not a major factor. (ii) Differences remained between the advertisement labeling after it was changed. Ch'uan Lien Association's signs included a general cooperative identification number symbol and the name R.O.C. Cooperative Association, XX Outlet, clearly labeled on an all-blue background. Chyuan Lien's signs included its company identification number symbol (consisting of a design similar to the letter "A" within a round design) and the name Chyuan Lien Welfare Center, XX outlet, on a blue background with a thick red stripe running through the middle. (iii) In terms of membership verification, the special designation of trading counterparts through planning and utilization based on business strategy (where competition in the market is not obstructed and there is no improper differential treatment) is something companies have always been able to do and it is not uncommon nowadays given the current market situation for consumer goods retailers (ex. Carrefour, Makro and COSTCO) to choose their customers through membership systems. Thus it would be difficult to deem that there was a violation of the law solely on the grounds that Chyuan Lien restricted its trading counterparts by using such a system. (iv) In summary, with respect to Chyuan Lien's practices after the names on the placards and shopping bags were changed (including the labeling used on its placards, shopping bags and advertisements, and its verification methods), it seems that there is no way to determine based on evidence that there was a violation of the law. But the perceptions about a business identity constitute an important factor in a typical transaction. If an enterprise improperly, and with deceptive confusion, imitates the presentation or symbol of goods or services of another person causing a trading counterpart to form a mistaken perception about the business identity, which in turn causes the trading counterpart to trade with the enterprise or causes a competitor to miss a trading opportunity, that practice would be in violation of the principle of efficient market mechanisms, it would be deceptive, unfair, and in violation of Article 24 of the FTL. (v) With respect to the outlets taken over by Chyuan Lien, the original business entity was the R.O.C. Cooperative Association consisting of cooperative outlets established by various agencies to supply consumer goods to civil servants and teachers. Different from the typical profit-seeking supermarkets and hypermarkets, these outlets operated under the name Civil Servant and Teacher Welfare Goods Supply Centers, although they were customarily known as Ch'uan Lien Association or Welfare Centers. Civil servants and teachers were specially designated as the outlets' customers through membership verification. Consumers were very familiar with the overall appearance of the outlets' operation. (vi) Chyuan Lien took over Ch'uan Lien Association's outlets in their entirety including the software and hardware (including business personnel). Consumers were very familiar with the outlets' unique operations. The outlets supplied consumer goods to trading counterparts restricted to civil servants, teachers, cooperative personnel and membership verification personnel. Thus, if there were no obvious differences between the presentations or symbols used by Chyuan Lien and Ch'uan Lien Association, it would be difficult for consumers to be certain that Chyuan Lien's outlets were not consumer welfare organizations or cooperatives for military personnel, civil servants and teachers. (vii) Chyuan Lien was established on September 1, 1998 and Ch'uan Lien Association closed its supply business on September 30, 1998. The former date is very near to when Chyuan Lien took over the outlets and when it began operations on 1 October 1998. Chyuan Lien also actively used the name "Ch'uan Lien Association" in its specially chosen name and its business identity name "Chyuan Lien" Welfare Centers, as well as in its cooperative symbol. Thus, it would still be difficult to presume that Chyuan Lien was not under the suspicion of exploiting the existing perceptions of consumers by using a name that was similar to that of Ch'uan Lien Association so as to cause them to form mistaken perceptions. (viii) With respect to Chyuan Lien's membership verification practices, as stated earlier, an enterprise is able to choose its trading counterparts according to its business strategy. Because it is a company, Chyuan Lien could have opened its doors to all consumers at any time. Instead, it followed Ch'uan Lien Association's practice of specially designating trading counterparts (civil servants, teachers and cooperative personnel) whereby only carriers of a purchasing card are allowed to enter and make purchases. The Commission also sent personnel to survey Chyuan Lien's outlets and found instances where membership verification had not been carried out (45% of the 105 respondents indicated that verifications were not necessarily carried out) so its trading counterparts had been broadened to include general consumers. It is obvious that Chyuan Lien intended to take advantage of the consumers' existing perceptions. In summary, even though there were differences between Ch'uan Lien Association and Chyuan Lien's advertisement and placard labeling after the changes to the labeling were made, Ch'uan Lien Association's practices are found to have caused consumers to form mistaken perceptions regarding the business identity and influenced their decisions with respect to making a transaction. The facts for the above finding include: the public's existing perceptions, the unique nature and operation model of Ch'uan Lien Association, Chyuan Lien's active use of the name Chyuan Lien Welfare Centers on its placards, advertisements and shopping bags, and Chyuan Lien's special designation of customers using a membership verification system, According to the results of a survey conducted at Chyuan Lien's outlets by the Civil Servant Residence and Welfare Commission and this Commission, 80% of respondents presumed that Chyuan Lien's outlets were operated by welfare societies or cooperatives for military personnel, civil servants and teachers. What is more, 30% of the 105 respondents thought the above public perceptions would influence the public's decision as to whether to engage in a transaction. 4. In summary, although Chyuan Lien did not disseminate false trading information through active false advertising or through other presentations likely to confuse the general public, its use of Ch'uan Lien Association's name and membership verification system and its active exploitation of the public's long-term perceptions caused the public to form mistaken perceptions and, as a result, make purchases with it. This deceptive practice obstructed the trading opportunities of other competitors in the same industry, infringed upon the spirit of fair competition in the market and was obviously unfair. In summary, the Chyuan Lien's overall business practices, after the changes to the placards were made, constituted "deceptive or obviously unfair acts that are capable of affecting trading order" as stipulated in Article 24 of the FTL. 5. After the changes to the placards and shopping bags had been made, Chyuan Lien's overall business practices still caused consumers to form mistaken perceptions. Considering that the practices had continued after the FTL had been amended and went into force and also taking into consideration Ch'uan Lien Association and Chyuan Lien's operating hours, Chyuan Lien was ordered to post correction notices in obvious places at all of its outlets for a period of at least six months and was fined NT$600,000 pursuant to Article 41 of the amended FTL. Appendix: Chyuan Lien Enterprise Co., Ltd.'s Uniform Invoice Number: 16740494 Summarized by Lin Chiu-shao; Supervised by Wu Ting-hung