Allegation that President Chain Store Corporation employed coercion, inducement with profit, or other improper means in its franchise recruiting practices to win over trading counterparts of competitors in violation of the Article 19(iii) of the Fair Trade Law

Chinese Taipei

Case:

Allegation that President Chain Store Corporation employed coercion, inducement with profit, or other improper means in its franchise recruiting practices to win over trading counterparts of competitors in violation of the Article 19(iii) of the Fair Trade Law

Key Words:

convenience stores, franchise stores, coercion, methods of competition

Reference:

Fair Trade Commission Decision of June 27, 2002 (the 555th Commissioners' Meeting); Letters (91) Kung Yi Tzu No. 0910006031 and 0910006032

Industry:

Convenience Chain Stores

Relevant Law:

Article 19(iii) of the Fair Trade Law

Summary:

1. Everyday United Convenience Stores Ltd. (Everyday Convenience Stores) accused President Chain Store Corporation (President Chain Stores) of causing a competitor's trading counterpart to trade with itself by coercion, inducement with profit, or other improper means. Specifically, Everyday Convenience Stores claimed that President Chain Stores urged Everyday's franchise stores to switch to President, otherwise President would lease the premises adjacent to such franchise stores (by offering a higher rent) to operate a competing store. Thereupon, the stores in question, fearing the negative commercial impact of such actions, terminated their contracts with Everyday Convenience Stores and joined President Chain Stores. Everyday alleged that President's actions obviously impeded fair competition in violation of Article 19(iii) of the Fair Trade Law.

2. It was found that Everyday Convenience Stores and President Chain Stores are competitors for the recruitment of franchise stores. Before the franchise store in question signed the contract with Everyday Convenience Stores it had originally planned to establish a franchised President Chain Stores at the location in question. To this end its proprietors had attended a President franchise seminar and had held five meetings with President Chain Stores and completed retail sales trials. At that time, however, President Chain Stores development personnel assessed that the location was too small and relevant operational conditions were unsuitable. After a series of negotiations, the store in question entered into a franchise agreement with Everyday Convenience Stores. After signing the agreement with Everyday Convenience Stores, the store in question learned of President Chain Stores' plan to develop a store near the location. After comparing the relative conditions and gross profit of both franchises, the store consequently chose the more beneficial franchise and transferred to President Chain Store. Furthermore President Chain Stores signed the contract according to their own franchise review process and the conditions for franchise switch, and as such, this should be an example of effective competition. There was no basis for concluding that President Chain Stores employed improper or ethically reprehensive methods of competition in their franchise recruitment in this case.

3. It is evident from Everyday Convenience Stores' product sales figures, President Chain Stores' retail income statement, and other related information that although the franchise store in question suffered the loss of the original franchise premium, deposit, investment in facilities, and decoration costs upon the termination of its contract with Everyday Convenience Stores, its average monthly gross profit and average monthly earnings before tax both increased following the franchise switch to President Chain Stores.

The decision to switch to President Chain Stores was made after the franchise store assessed and concluded that its operating profit and overall operational efficiency during the duration of the franchise contract would be greater than the losses incurred as a result of the switch. Furthermore, there is no reasonable basis for concluding that the franchise store in question would have accepted the disadvantages of terminating the contract with Everyday Convenience Stores and signing with President Chain Stores solely on the grounds that President offered favorable conditions for switching the franchise. Rather, the franchisee store would have taken into consideration the brands, franchise system, logistic support, profitability and other related factors offered by the agents of both parties, and then individually decided its preferred franchise system through comprehensive consideration of its own interests and future plans. This is a natural outcome of free competition. Thus, there is no credible reason to doubt that the franchise store entered into the contract with President Chain Store based upon considerations of quality, value, services, trade conditions, and other factors, so the actions of President Chain stores do not meet the elements of Article 19(iii) of the Fair Trade Law.

In summary, based on available evidence, President Chain Stores' franchise recruitment procedures were not found to violate Article 19(iii), which prohibits causing a competitor's trading counterpart to trade with itself by coercion, inducement with profit, or other improper means.

Appendix:

President Chain Store Corp.'s Uniform Invoice Number: 2255503

Everyday Convenience Store's Uniform Invoice Number: 70481451

Summarized by: Chen, Ru-Chen; Supervised by: Chen, Yuhn-Shan