Complaint against Lung T'eng Co. for forcing booksellers into agreements on maintaining resale price of books under threat of discontinued supply, of in violation of the Fair Trade Law.
Case:
Complaint against Lung T'eng Co. for forcing booksellers into agreements on maintaining resale price of books under threat of discontinued supply, of in violation of the Fair Trade Law.
Key Words:
Discontinuation of supply; reference books; discounts; school textbook distributors
Reference:
Fair Trade Commission Decision of November 30, 2000 (the 473rd Commissioners' Meeting); Disposition (89) Kung Chu Tzu No. 207
Industry:
Book publishing industry (8330)
Relevant Laws:
Article 18 of the Fair Trade Law
Summary:
1. The Lung T'eng Co. was reported to have been forcing booksellers to sell the reference books it publishes at discounts of no more than 20% off list price (for schools) or 15% off (for bookstore sales), under threat of discontinuation of supply. The informant was selling Lung T'eng books at a 25% discount, and upon being informed of this, Lung T'eng's southern district manager telephoned the informant to say that its supply would shortly be discontinued. This constitutes a violation of the Fair Trade Law. In addition, according to the informant's understanding, Lung T'eng's sales representatives or school textbook distributors sold books directly to schools at an 20% discount, and the ads of a particular bookstore in Pintung advertised Lung T'eng books for 20% off. All the above facts demonstrate the demand for uniform pricing by that company. 2. Our investigation showed that 28 bookstores have reported that Lung T'eng have provided them with suggested re-sale prices either verbally or in writing; one of those reported discontinuation of supply by Lung T'eng when it failed to follow such a directive. Lung T'eng's high-school reference books were sold wholesale to distributors at 28% off; to smaller bookstores at 26.5% off; and to large bookstores and chains at a larger discount of 30-32%. In the first half of 2000, contracts between Lung T'eng and its distributors included a clause stating that "the Distributor agrees to sell the product to clients for at least 80% of the list price." However, as the legal council of Lung T'eng determined this was inappropriate, during the second half of the year the statement was revised to read as the following: Lung T'eng suggests the publications be sold to clients at a suggested price of 80% of the list price, and that the provisions of the Fair Trade Law be honored to maintain the operation of norma l market mechanisms." 3. Grounds for disposition: Measures implemented by producers to contractually set re-sale prices limit the freedom of retailers to set their own price and thus prevent them from arriving at reasonable retail prices based on the particular cost structures and competitive environments they face. Our investigation has showed that 28 distributors and bookstores reported that Lung T'eng has been using either verbal or written means to set re-sale prices, with its distributors' contracts for the first half of 2000 including the clause "the Distributor agrees to sell the product to clients for at least 80% of the list price." While Lung T'eng Co. claimed that the 80% figure was only a suggested retail price and was not mandatory in its nature, the complainant and other bookstores has described a practice of discontinuing supply connected with the amount of discount given in retail pricing. Furthermore, since the restrictions were contractual in essence, Lung T'eng Co. was preventing bookstores and distrib utors from freely setting retail prices in violation of Article 18 of the Fair Trade Law. In consideration of the respondent's motives, expectations of improper gains, the degree of impact on the trading order and its duration, the profits gained, the size of the enterprise and its profitability and market position, as well as its past record and its compliance with the investigation, an administrative fine of NT$500,000 was assessed pursuant to the forepart of Article 41 of the Fair Trade Law. Appendix: Lung T'eng Cultural Enterprise Co., Ltd.'s Uniform Invoice Number: 23593217 Summarized by Chen Shu-Hwa; Supervised by Wu Te-sheng