Ho Chen Co., Ltd. ["the Company"] was complained for imposing restrictions on distribution channels in violation of the Fair Trade Law

Chinese Taipei

Case:

Ho Chen Co., Ltd. ["the Company"] was complained for imposing restrictions on distribution channels in violation of the Fair Trade Law

Key Words:

impede fair competition, general distributors making sales outside their designated districts

Reference:

Fair Trade Commission Decision of 21 December 1994 (the 167th Commission Meeting); Disposition (85) Kung Ch'u Tzu No. 017

Industry:

Ceramics Manufacturing for the Construction Industry (2614)

Relevant Laws:

Article 19(vi) of the Fair Trade Law

Summary:

1. The Fair Trade Commission took the initiative to conduct an investigation and found that except for its place of business, Ho Chen Co., Ltd.'s had a general distributor, for each city and county. Under which there were distributors. In order to manage the sales business conducted by these general distributors, the Company developed the "Regulations on the Sales Outside Designated Districts" and incorporated them into the general distributor contract. Moreover, Item No. 10 of that contract also provided that "if Party B (the general distributor) violates any of the provisions of the contract, Party A (the sanctioned party) may unilaterally terminate the contract." Therefore, it could be concluded that the aforesaid Regulations were binding, thus tantamount to one kind of restraint on activity of the trading counterpart.

2. The investigation also revealed that the on-the-spot project quotation implemented by Ho Chen Co. adopted a system that each quotations must be filed. In addition, in enforcing the Regulations on Sales Outside the Designated Districts, the company would intervene and coordinate distributors designated to different districts to offer the identical quotations based on the largest discount ever quoted. Though in practice the Company did not prohibit its distributors from making sales outside their own designated districts, the aforementioned attempt was to avoid the situation where there might be different quotations on the same construction site causing vicious rivalry and thus jeopardizing the harmonious relationship among different districts. Thus, the Company intervened by picking out among their quotations the one which offers the greatest discount and making them offer the same specific quotation to the potential customer. On the surface, quotations at a greater discount seemed to benefit the subscribers, yet the effect of price competition within the same brand had been lowered. In addition, pursuant to the same Regulations, the boundary-overstepping distributors had to rely on the boundary-overstepped distributors to supply the goods and pay a specific percentage of transportation and after-sales services fees to the overstepped distributors, which further restrained the freedom of general distributors and other subordinate distributors to supply goods to customers located outside their designated districts. Such acts were not justifiable as they impeded the competition among distributors of the same brand. Furthermore, in both the market of household ware and the market of sanitary ware, the Company has a leading brand name with a market share far exceeding that of other members of the industry. Though its purpose of the aforesaid acts was to maintain its market position or the efficiency competition of services within the brand, such acts had impeded the intra-brand competition among the distributors, thus constituting a violation of Article 19(vi) of the Fair Trade Law.

Summarized by Huang, Chuang-chie
Supervised by You, Su-su

Appendix:
Ho Chen Co., Ltd.'s Uniform Invoice No.: 03228304

＊＊: For information of translation, click here

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