RT Mart International Ltd. was alleged abuse of its superior market position by inappropriate collection of additional fees from suppliers, in violation of the provisions of the Fair Trade Law
Case:
RT Mart International Ltd. was alleged abuse of its superior market position by inappropriate collection of additional fees from suppliers, in violation of the provisions of the Fair Trade Law
Key Words:
distributors, additional fees, superior market position
Reference:
Fair Trade Commission Decision of September 10, 2003 (the 618th Commissioners’ Meeting); Letter (92) Kung Yi Tzu No. 0920008771
Industry:
Retail Outlets (4754)
Relevant Law:
Article 24 of the Fair Trade Law
Summary:
1. The complainant in this case is a supplier who, from the beginning of 2001, supplied popcorn products to be sold at RT Mart International Ltd. (RT Mart). While sales for that year were over NT$2.59 million, RT Mart collected a total of more than NT1.77 million in additional fees, including fees for returned goods, purchasing discounts, sponsorship fees for openings of new outlets and anniversary celebrations, advertising lightboxes, newsletters, end-of-aisle display rental fees, and new product promotion fees. Together these fees constituted 69% of total sales figures. [The complainant asserted that] RT Mart used its superior market position to collect additional fees from the supplier by means of standardized contracts that RT Mart formulated unilaterally, in violation of the provisions of Article 24 of the Fair Trade Law.
2. Investigation by the Fair Trade Commission (FTC) found that RT Mart collected the various additional fees in 2001 according to the terms of the contract it entered with the complainant. These fees totaled NT$1,481,377 (including purchasing discounts, sponsorship fees for new outlet openings, sponsorship fees for anniversary celebrations for both the head office and branch stores, advertising lightboxes, newsletters, end-of-aisle display rental fees, sampling table fees, and new product promotion fees), representing 61.54% of total purchase orders.
3. Grounds for dismissal:
(1) A distributor's collection of additional fees from a supplier serves to
correct any negative effects that might be produced by asymmetrical product
information, which brings positive implications for economic efficiency in the
area of risk sharing. This is not to say that distributors can collect additional
fees from suppliers without any restrictions whatsoever, as two basic principles
must still be observed, namely, there must be a direct relationship and proportionality
between the additional fees and product sales. Furthermore, these fees must
conform to standard and reasonable commercial trading practices. According to
the “Fair Trade Commission Principles for Reviewing Cases Involving the Collection
of Additional Fees by Distributors,” a violation of the provisions of Article
19(vi) or Article 24 of the Fair Trade Law is suspected where a distributor
with a superior market position requests suppliers to bear additional fees sufficient
to impact the trading order of the distribution market.
(2) Based on a comparison of the list of additional fees paid to RT Mart provided
by the complainant, as well as the explanation and list of the same fees submitted
by RT Mart, it can be ascertained that, if the fees for returned goods were
deducted from the total amount of additional fees RT Mart collected from the
complainant, then those fees would account for as much as 61.54% of purchase
orders. However, the FTC conducted a sampling of the nature and proportional
amounts of additional fees borne by 10 different suppliers during the years
2000 and 2001, and found that the proportion of the additional fees to the amounts
of purchase orders would vary with the increases or decreases in the amounts
of the purchase orders. This was the case with the complainant, that is, the
complainant's purchase order amounts were smaller than other suppliers, so that
the proportionally, the amount of additional fees it bore were relatively higher.
In addition, because the complainant only began doing business with RT Mart
in 2001, it paid additional fees for new product promotion and for renting end-of-aisle
displays in order to increase product exposure and brand recognition. Consequently,
due to the fact that sales were not high as expected, additional fees for new
product promotion and for renting end-of-aisle displays accounted for 61.54%
of purchase orders. With deduction of the two additional fees described above,
however, the proportion of additional fees falls to 26.77% of purchase orders.
(3) Calculating whether the proportions of additional fees are high or low by
simply dividing a supplier’s total additional fees by the amount of purchase
orders would seem to lead to a cause-and-effect reversal, because even if a
distributor collected additional fees from different suppliers at the same rate,
the ratios of additional fees for suppliers whose products did not sell well
would ultimately be relatively high, while for those whose products have high
turnover rates or high purchase orders (sales revenues), there would still be
no disputes claiming the additional fees were charged at an unreasonable rate.
Thus, it is difficult to conclude that RT Mart improperly collected additional
fees based on the fact that sales of the complainant’s products were less than
anticipated which, consequently, drove up the overall ratio of additional fees.
Moreover, all of the fees collected and the associated terms and conditions
were agreed upon by both parties in advance and clearly set out in a written
contract. Thus, based on the evidence currently available, it is difficult to
conclude that additional fees being collected from the complainant by RT Mart
accounted for a proportionally high amount of the purchase order figures, in
violation of the provisions of the Fair Trade Law.
Appendix:
RT Mart International Limited’s Uniform Invoice Number: 97165560
Summarized by Wang, Kuo-Liang; Supervised by Chen, Yuhn-Shan