Hsin Shih Po Cable Broadcast System Corp. violated the Fair Trade Law for its acquisition of regional distributorship for certain channels/programs in Chungho and Yungho
Chinese Taipei
Case:
Hsin Shih Po Cable Broadcast System Corp. violated the Fair Trade Law for its acquisition of regional distributorship for certain channels/programs in Chungho and Yungho
Key Words:
cable TV, regional distributorship, differential treatment, to restrict the business activities of the trading counterpart, obviously unfair
Reference:
Fair Trade Commission Decision of the 320th and 325th Commission Meetings; Letter (87) Kung Yi Tzu No. 8601657-012-014
Industry:
Broadcast TV Program Provider (8530)
Relevant Laws:
Articles 19(ii) , (vi), and Article 24 of the Fair Trade Law
Summary:
A cable system operator filed a complaint against Hsin Shih Po Cable Broadcast System Corp. (hereafter Hsin Shih Po), alleging that Hsin Shih Po had sent a correspondence to other system operators in the Chungho and Yungho area on February 3, 1997. The correspondence stated that Hsin Shih Po had acquired distributorship rights from channel/program providers including ERA International, Ltd. (ERA), Filmate International Inc. (Filmate), and Lipa Youlien (actual program agent is Eastern Multimedia Co., Ltd.). In the correspondence, Hsin Shih Po also requested the other system operators to negotiate, within three days, issues relating to program licensing, or to discontinue broadcast of such channels/programs after three days.
Another cable system operator also complained to this Commission against a letter of similar content. In that case, the cable system operator had existing licensing contracts with ERA International, Ltd. and Lung Hsiang Entertainment Corp.
Decisions of the 320th Commission Meeting were as follows:
(1) ERA International, Ltd.:
(i) Article 19(ii) of the Law prohibits an enterprise from giving discriminatory treatment to another enterprise without justifiable reasons, which is likely to impede fair competition. Therefore, if a channel/program provider gives a system operator exclusive distributorship of its channels/programs, the channel/program provider will deprive the other system operators of the opportunity to negotiate directly with it. As a result, the other system operators will have to rely on the system operator who has the exclusive distributorship. Since system operators in the same area are enterprises in horizontal competition, the above-mentioned exclusive distributorship is in effect differential treatment for system operators of the same area.
(ii) For the present case, ERA granted Hsin Shih Po regional distributorship for the areas of Chungho and Yungho. As a result, system operators other than Hsin Shih Po would have to negotiate with Hsin Shih Po in order to obtain ERA programs, and pay for the distribution fees charged by Hsin Shih Po. These system operators were thus placed in a more disadvantageous position than Hsin Shih Po in terms of transaction conditions when dealing with the channel/program provider. ERA failed to provide justifiable reasons for the use of such discriminatory act in the fiercely competitive Chungho and Yungho areas.
(iii) Investigation showed that ERA supplies eight channels/programs, among which are TVBS and TVIS. According to a November survey by the Satellite and Cable TV Magazine, these programs all had a popularity rating of more than 80%, with TVBS and TVIS being the most popular. Thus the market influence of the ERA company was beyond dispute.
(iv) However, the ERA contract for the Chungho and Yungho areas had a provision that clearly stated “ Hsin Shih Po shall not refuse to grant license if the other system operators agreed on the specified price.” Thus Hsin Shih Po could not arbitrarily raise prices or refuse to grant license.
(v) But the aforementioned agreement was signed between Hsin Shih Po and ERA. If the other system operators were not aware of the agreement, Hsin Shih Po could use the price in the agreement as the base price, and ask for the highest possible licensing fee to obtain greater profits. Therefore, the aforementioned agreement was unable to restrict the licensed system operator in determining prices, and the agreement could thus be used for unfair competition practices.
Although ERA had informed the other system operators of the area about the specified prices of the contract, thus preventing the regional distributorship from impeding fair competition, such result should not be a factor subject to the enterprise’s choice. Consequently, this Commission issued a letter to ERA, warning that:
The company (ERA) has a regional distributorship agreement with Hsin Shih Po, which included a provision that clearly stated “ Hsin Shih Po shall not refuse to grant license if the other system operators reached the specific price agreed upon.” Since this provision is known to the other trading counterparts as well, the act is not in violation of the Fair Trade Law. However, to prevent system operators to abuse the regional distributorship and engage in unfair competition practices, the aforementioned provision should be made known to the other trading counterparts when signing regional distributorship agreements with system operators in the future. Otherwise, there is still the risk of violating Article 19(ii) of the Fair Trade Law.
(2) Filmate International Inc. (Filmate):
(i) Investigation showed that in January 1997, Filmate orally agreed to grant Hsin Shih Po the right of “ brokerage distributorship” for a fee of NT$1.1 million per month with respect to the broadcast of Filmate International Inc. programs by Tai Chii Broadcast System.
Notwithstanding the title “ brokerage distributorship” , the license to Tai Chii for the broadcast of Filmate programs was actually transferred to Hsin Shih Po for a fee of NT$1.1 million per month. Although the transaction did not include the granting of distributorship rights covering the entire area, the nature of the transaction was similar to that of a general distributorship. As a result, Tai Chii was deprived of the freedom to negotiate prices with Filmate, and must accept the trade conditions as agreed upon by Filmate and Hsin Shih Po. In addition, Tai Chii was also required to shoulder the added expenses incurred by Hsin Shih Po in the performance of the aforementioned brokerage distributorship.
Filmate had prior knowledge that competition was fierce among system operators within a limited market. The company knew that programs were the most important services offered by the system operators and such programs could not be freely obtained by other means due to copyright laws. Despite the knowledge, however, the company still offered Hsin Shih Po and Tai Chii different trade conditions and differential treatment, resulting in unfair competition. Although the company justified its actions by stating that it failed to reach a licensing fee with Tai Chii, such reason was insufficient to justify the aforementioned act of differential treatment.
(ii) Filmate is the distributor of 17 popular channels/programs, including the Star network of channels, Discovery, ESPN, and Disney. According to the company’ s own survey, six of the channels/programs, including the Star Sports network, enjoy a popularity rating of more than 96%. Thus the market influence of the company is beyond dispute.
The above analysis showed that the company engaged in acts of differential treatment among the different system operators without justifiable reasons by granting regional distributorship to a specific system operator. Since such acts were likely to restrict fair competition, they constituted a violation of Article 19(ii) of the Fair Trade Law.
Eastern Multimedia Co., Ltd.(Eastern):
(1) Notwithstanding Eatern’s channel/program licensing agreements with Hsin Shuang Co. and Tai Chii Broadcast System in 1997 and its oral agreement with Shuang Chan Co. for continued channel/program licensing, it subsequently entered into an agreement with Hsin Shih Po, which agreement was attached to their channel/program supply agreement and granted Hsin Shih Po regional distributorship in the Chungho and Yungho areas. Eastern, together with Hsin Shih Po, collected evidences against system operators broadcasting unlicensed channels/programs and raided the violators before negotiating licensing agreements with such operators. In addition, Eastern terminated signal transmission to such operators upon notification from Hsin Shih Po. Eastern also agreed to renegotiate prices with other system operators upon request from Hsin Shih Po.
The leverage by which Eastern was able to sign agreements with system operators within the region and at the same time grant regional distributorship to Hsin Shih Po was the fact that the systems operators could not effectively prevent all subscribers from broadcasting the programs in public. Once Eastern granted Hsin Shih Po certain rights and started to discontinue channel/program transmission, or when Eastern took advantage of its market position as a major channel/program provider, other system operators would be forced to renegotiate prices with Eastern.
Although in this case, the different system operators had signed separate agreements with Eastern and there was no differential treatment, Eastern was found abusing its market position when it collaborated with Hsin Shih Po in handling cases relating to public broadcast and discontinued channel/program transmission in order to force contract re-negotiation. The purpose was to force the other system operators to accept the licensing fees for the entire region co-determined by itself and Hsin Shih Po. The act was not only blameworthy, but also disrupted the order of trade. It constituted a violation of Article 24 of the Fair Trade Law.
Hsin Shih Po Cable Broadcast System Corp.
(1) Article 19(vi) of the Fair Trade Law stipulates that an enterprise shall not impose improper restrictions on its trading counterparts’ business activities as a condition of doing business with them, which act is likely to impede fair competition.
In January and February 1997, Hsin Shih Po negotiated with ERA, Filmate, and Eastern, requesting regional distributorship in the Chungho and Yungho areas.
As the system operator with the highest market share in the area, Hsin Shih Po used it market position to coerce channel/program providers to signing agreement, stating that, otherwise, the business operations of the channel/program provider in the area will be adversely affected. Hsin Shih Po specially used its market position against two less popular channel/program providers with insufficient marketing capabilities, Lung Hsiang and Patah Broadcasting.
Hsin Shih Po took advantage of its market position to obtain regional distributorship rights, restricting the channel/program providers‘ business activities of dealing with other system providers as a pre-condition to their distributorship agreement. As a result, the other system operators in the area were deprived of the opportunity to negotiate prices independently, and had to abide by the prices pre-determined by Hsin Shih Po and the channel/program providers. In some cases, the system operators also needed to shoulder the expenses of Hsin Shih Po, thus being unable to conduct trade based on their own operations and costs. In the highly-competitive cable TV market, the aforementioned action had obviously adverse effect on market competition, was likely to impede fair competition, and constituted a violation of Article 19(vi) of the Fair Trade Law.
(2) Article 24 of the Law states that an enterprise shall not conduct other deceptive or obviously unfair acts that are sufficient to affect the order of trade.
On February 3, 1997, Hsin Shih Po sent a correspondence to other system operators within the same area, alleging that it had entered into distributorship agreement for the Chungho and Yungho areas with ERA, Filmate and Eastern. Hsin Shih Po requested that these companies dispatch representatives to negotiate licensing agreement with it within three days or to discontinue channel/program broadcast after three days; otherwise legal actions will be taken.” Hsin Shih Po knew that the regional distributorship did not preclude the broadcasting rights of some other system operators. Despite this prior knowledge, however, Hsin Shih Po forwarded written warnings to its competitors and demanded immediate contract negotiation within the specified date with the threat to discontinue broadcast within three days and legal actions against violators. The act of forcing other system operators to either commence contract negotiation or to discontinue broadcast was obviously unfair, had adverse effects on the order of trade, and constituted a violation of Article 24 of the Fair Trade Law.
Summarized by Yeh, Ning
Supervised by Hsing, Chih-chung