Bridge Cultural & Educational Enterprise, Ltd. violated the Fair Trade Law by restricting distribution regions and holding trading counterparts' distribution contracts in custody

Chinese Taipei



Case:

Bridge Cultural & Educational Enterprise, Ltd. violated the Fair Trade Law by restricting distribution regions and holding trading counterparts' distribution contracts in custody

Key Words:

nine-year education program, textbooks, restrictions on distribution regions

Reference:

Fair Trade Commission Decision of January 9, 2003 (the 583rd Commissioners' Meeting); Disposition (92) Kung Ch'u Tzu No. 092011

Industry:

Book Publishing (8430)

Relevant Law:

Article 19(vi) and 24 of the Fair Trade Law

Summary:

1. This case resulted from investigations initiated by the Fair Trade Commission (FTC) regarding a substantial rise in prices for elementary and junior high school supplementary books and price negotiations for textbooks and whether or not the qualified and approved publishers had violated the Fair Trade Law (FTL). On 14 October 2002, the FTC received a complaint from a publishing company in Pingtung, accusing KST Education Corporation and their central distributor Bridge Cultural & Educational Enterprise, Ltd. (Bridge) of violating the FTL by taking advantage of the new Nine-Year Education Program to drive up prices and restrict freedom of trade.

2. The FTC's investigation found that Bridge's “Distribution Contract for Supplementary Educational Materials” stipulated that “the distributor signing this contract has an obligation to maintain normal market functions, and may not engage in unfair competition by deliberately slashing prices or deviating from the market price.” The terms of the contract described above clearly obligate “school distributors” to either directly promote or assist in the promotion of textbooks, and the extent to which particular textbooks were adopted would be used to calculate subsequent allocations of supplementary books. Hence, Bridge employed order amount limitations and product return ratios as marketing management mechanisms, thus producing a shortage of supplementary books on the market. Bridge's contract prohibited distributors from transferring goods at will to other distributors, thereby constituting an improper marketing region restriction. The FTC also found that Bridge had not turned over the original copy of contracts signed with individual bookstores. In general practice, even if companies withhold contracts in line with guarantor witnessing procedures or in setting up collateral arrangements, contracts should not be withheld for more than half a year. At the time of investigation by the FTC, however, each bookstore had already completed sales of supplementary books for the first semester of 2002, and it would thus seem that Bridge was holding its distribution contracts in custody.

3. Grounds for disposition:
(1) The FTC considered Bridge's market position, the marketing mechanisms employed, and the restrictions on distribution regions contained in its “Distribution Contract for Supplementary Educational Materials,” which resulted in serious disruption of trade opportunities for both the original distributors and the retail book stores due to the institution of the new Nine-Year Education Program combined with their lack of extra inventory and their inability to transfer goods at their own discretion. The above measures imposed improper restrictions on the business activities of Bridge's trading counterparts as a condition of trade and created a likelihood of restraint of competition in violation of Article 19(vi) of the FTL.
(2) With regard to the holding of contracts in custody, these actions caused distributors to accept unanticipated risks or loses in order to exercise their rights. Not only was this obviously unfair, but the impact on the rights and interests of distributors was inconsistent with a trading order founded on ethical commercial competition, thereby violating Article 24 of the FTL.
(3) Pursuant to the provisions of the forepart of Article 41 of the FTL and in consideration of the motives and purposes of the actions, the injury to the trading order and its duration, the scale and economic status of Bridge's operations, their market position, previous violations and expressions of remorse, the Commission imposed respective administrative fines of NT$400,000 and NT$150,000 on Bridge for its violations of Articles 19(vi) and 24.

Appendix:
Bridge Cultural & Educational Enterprise, Ltd.'s Uniform Invoice Number: 12753150

Summarized by Yen, Ting-Tung; Supervised by Wen, Pi-Ju