Chyuan Lien Enterprise Co., Ltd. violated the Fair Trade Law by abusing its relatively dominant position to inappropriately collect a "business premises rent" surcharge from suppliers
Case:
Chyuan Lien Enterprise Co., Ltd. violated the Fair Trade Law by abusing its relatively dominant position to inappropriately collect a "business premises rent" surcharge from suppliers
Key Words:
relatively dominant position, surcharge, business premises rent, supermarket
Reference:
Fair Trade Commission Decision on April 18, 2002 (the 545th Commissioners' Meeting); Disposition (91) Kung Ch'u Tzu No. 091066
Industry:
Supermarkets (4752)
Relevant Law:
Article 24 of the Fair Trade Law
Summary:
1. This case originated from a complaint filed collectively by Taiwan's Fermented Food Industry Manufacturers Association, Canning Industry Manufacturers Association, Sweet, Cookie, and Wheat Product Industry Manufacturers Association, and Beverage Industry Manufacturers Association. The complaint alleged that Chyuan Lien Enterprise Co., Ltd. (Chyuan Lien) had improperly collected surcharges that contravened the provisions of the Fair Trade Commission's (FTC) Principles for Cases Concerning Additional Fees Charged By Distribution Businesses, which had violated the Fair Trade Law. 2. After investigation, it is the finding of the FTC that Chyuan Lien had assumed in full the business of Chyuan Lien Association (CLA) since 1 October 1998. Chyuan Lien holds a 13.76% market share of the total estimated business volume of the supermarket industry in Chinese Taipei. When calculated on the basis of business premises, its market share was 16.54%. While still in operation, the chief business of CLA was to supply daily necessities to nation-wide government employees and teachers and it had over 600 suppliers. Accordingly, both consumers and suppliers had a certain degree of reliance on its retail channels. After assuming in full the business of CLA, Chyuan Lien continued to maintain the supply and distribution relations originally established between CLA and its suppliers, and one of the decisive factors that the suppliers were willing to maintain the relations was Chyuan Lien's relatively dominant position. The "business premises rent" was a rent subsidy offered by the suppliers to CLA in consideration of its low gross profit margin as a welfare-oriented distribution channel. After assuming CLA's business, Chyuan continued to collect the rent from the suppliers. Furthermore, from 2001 onward, it specified the fee in its Supply and Distribution Agreement (1) and stipulated therein that it be calculated and collected on the basis of 1% of monthly sales volume. This calculation and collection method applied to all the business premises it subsequently opened in Taipei County and Taipei City. At present, sixteen of its business premises collect such fees. Chyuan Lien provides reconciliation statements, and the fees are deducted from inventory accounts on a monthly basis after reconciliation by the parties. 3. Grounds for disposition and decision made by the FTC are as follows: (1) The "business premises rent" was a rent subsidy offered by the suppliers to CLA for its operation of low gross profit welfare-oriented channels. Either for CLA or Chyuan Lien, however, it was a required cost for running distribution business, not an additional cost incurred to promote the sale of a certain commodity or arising from particular acts by suppliers. To be sure, the formation of welfare-oriented channel was supported by government policy. Nevertheless, after assuming CLA's business and reorganizing itself as a company, Chyuan Lien should have dedicated itself to enhancing its business efficiency instead of shifting the fee on to the suppliers and demanding that they continue to bear the rent for its business premises. Chyuan Lien's following the business practice of CLA and incorporating the "business premises rent" into its Supply and Distribution Agreement (1) had already constituted a violation of any reasonable business practice because it hindered trading counterparts from freely deciding whether to bear such fee or not. Moreover, the fee was not directly related to commodity sales, which had the effect of imposing additional burden on the suppliers associated with Chyuan Lien, increasing their operating costs and depriving their normal business profits. Furthermore, by taking advantage of the suppliers' widespread anticipation to maintain their existing business and forcing them to bear the fee, Chyuan Lien impaired the nature of efficient competition in the market. This conduct was reprehensible in terms of business ethics as well as fair competition and, apart from being at odds with reasonable business practices, was likely to injure the interests of the suppliers. It was thus obviously unfair conduct capable of adversely affecting trading order in the distribution market, in violation of Article 24 of the Fair Trade Law. (2) Weighing Chyuan Lien's motives for the violation, its market scale, and the degree to which its actions adversely affected trading order, the FTC ordered Chyuan Lien to cease and rectify the obviously unfair conduct capable of adversely affecting trading order and imposed an administrative fine of NT$800,000 pursuant to the fore part of Article 41 of the Fair Trade Law.Appendix:
Chyuan Lien Enterprise Co., Ltd.'s Uniform Invoice Number: 16740494 Summarized by Taur, Rong; Supervised by Chen, Yuhn-Shan