Deltamac (Taiwan) Co. Ltd.'s inappropriate tie-in sales of VCDs
Case:
Deltamac (Taiwan) Co. Ltd.'s inappropriate tie-in sales of VCDs
Key Words:
tie-in sales
Reference:
Fair Trade Commission Decision of May 9, 2000 (the 444th Commissioners' Meeting); Disposition (89) Kung Ch'u Tzu No. 078
Industry:
Movie Distribution (8420)
Relevant Laws:
Article 19(vi) of the Fair Trade Law
Summary:
1. A complaint was filed against Deltamac (Taiwan) Co. Ltd. (Deltamac) alleging improper sale of VCDs in violation of the Fair Trade Law. The Fair Trade Commission (the Commission) found that of the 12 rental stores doing business with Deltamac, a total of eight maintained that Deltamac provides only tie-in sales of VCD titles and prohibits purchase of single VCD titles. The Commission also found that Deltamac's contracts and catalogs did not list purchase or sales prices of single VCD titles. Although three other rental stores stated that Deltamac allowed them to buy single VCD titles, two of them were large chain stores with large business operations that entailed sufficient bargaining power, allowing them to purchase single VCD titles or negotiate purchase price in business transactions . The remaining store was subject to a contract executed by its headquarters, placing it in a situation substantially different from franchise or independent rental stores doing business with Deltamac. While Delta mac did provide evidence on sales of single VCD titles, it appeared that parties to such transactions were mostly large chain stores. Only a very small minority of the remaining rental stores was occasionally allowed to buy one or two VCD title(s). The situation is entirely different with the chains, which were able to purchase in varying quantities. 2. Deltamac argued that, as it needed to grasp market conditions for the purpose of placing orders with VCD manufacturers, it executed contracts for packages sales with stores first to learn about the quantity demands before producing additional quantities for single purchases. This argument, however, made it even clearer that when Deltamac first approached its customers, it only allowed customers to make tie-in purchases and did not allow the freedom of purchasing single VCD titles. Under the circumstances, rental stores risked an inability to purchase Deltamac products if they failed to execute such contracts. Even if Deltamac did provide opportunities to purchase single VCD titles later, rental stores would nevertheless be forced to enter into contracts for package purchases to secure their VCD source out of concerns for adequate VCD supply. Deltamac argued that it provided different packages of titles in varying quantities as well as discounted prices, allowing rental stores to designate quantit ies for different individual titles within the total quantity of each package. However, the freedom of rental stores were nonetheless deprived by being forced to purchase titles or quantities of a given title that they did not need. In addition, another six rental stores claimed that Deltamac required them to also execute contracts with Columbia and Fox simultaneously. Deltamac denied this and argued that contracts with these two companies came into force at different times. The rental store stores however clearly explained that Deltamac imposed such requirement on stores that had not execute Columbia contracts only after Fox launched off a contract system. The Commission deemed Deltamac's argument on this point to be without merit. Of the four rental stores that were not subjected to this arrangement, two were large chains that were allowed to purchase individual titles, and one was the franchise store for which contract with Deltamac had been negotiated by its parent company. The remaining store had negotiated the two contracts in question with different Deltamatac agents. Deltamac indicated that these two agents had assumed all liability for their conduct. This testimony, however, did not constitute persuasive counter-evidence . Deltamac also asserted that in addition to the rental editions of VCD titles, rental stores could purchase the direct-sales editions of VCD titles. However, the rental and direct sales editions of each VCD title are released at different times. Therefore, the rental stores cannot know in advance whether a given title will be issued in a direct-sales edition, because the decision is in the hands of the distributor. As a result, rental stores may be forced by customer demand and market competition to buy the rental edition. Even if Deltamac's most recent claim-that it now sells all MGM VCDs on single-title basis-is true, this new sales arrangement does not alter the fact that it previously sold Columbia and Fox titles through tie-ins. 3. The Commission concludes that the transaction data and testimony of the rental store operators is sufficient to determine that Deltamac sold VCDs in packages and went so far as requiring rental stores purchase titles from different studios in each package. Deltamac did not offer rental stores a reasonable opportunity to purchase single titles. Because Deltamac is the exclusive agent in Chinese Taipei for Warner Brothers, Fox, Columbia, MGM, and BBC, rental stores did not have other legal channels through which they could source VCDs produced by these studios. Moreover, Deltamac's market power places it at an advantage over its customers. Rental store owners stated that Deltamac is the largest distributor of VCDs (a claim that Deltamac did not contest in its testimony before the Commission). According to rental store operators, Deltamac is also apparently the market leader in terms of orders for audio-visual products from distributors. This demonstrates that Deltamac is not only a market leader in VCD sales volume and customer satisfaction, but that it is also quite competitive in the distribution market. Thus the Commission determines that the acts in question by Deltamac obstructed fair competition in violation of Article 19(iv) of the Fair Trade Law and imposes a fine of NT$1.25 million. Appendix: Deltamac (Taiwan) Co. Ltd.'s Uniform Invoice Number: 89398566 Summarized by Ch'en Chun-t'ing; Supervised by Lin Yu-ch'ing