Violation Of the Fair Trade Law by Joy Communication Co., Ltd. for its substantial price-increase of single-song tapes to force tie-in purchase of set tapes

Chinese Taipei

Case:

Violation Of the Fair Trade Law by Joy Communication Co., Ltd. for its substantial price-increase of single-song tapes to force tie-in purchase of set tapes

Key Words:

tie-in, likelihood of anti-competition

Reference:

Fair Trade Commission Decision of September 10, 1997 (the 307th Commission Meeting); Fair Trade Commission Decision of September 24, 1997 (the 308th Commission Meeting); Letter (86) Kung Yi Tzu No. 8601717-005 and Disposition (86) Kung Ch'u Tzu No. 168

Industry:

Entertainment Industry (8703)

Relevant Laws:

Article 19(vi) of the Fair Trade Law

Summary:

1. Kaohsiung City Audio-Video Entertainment Association brought a complaint to this Commission in April 1997 alleging that Joy Communication Co., Ltd. ("the Company") had violated the Fair Trade Law by engaging in tie-in sales, and asked the Commission to look into the case.

2. The investigation showed that prior to 1995, single-song accompaniment tapes were sold by retail. At that time, there was prevalent piracy of the accompaniment tapes. Meihua Video Company therefore adopted the policy of signing annual licensing agreements in October 1994. Meihua Video Company in the standardized agreement incorporated terms and conditions requiring its trading counterparts to pay a certain amount of royalty before the purchase of single tapes. This Commission found that such acts constitute tie-in and thus imposed sanctions on Meihua Video Company for the violation of Article 19(vi) of the Fair Trade Law.

3. The Company's 1997-version agreement provided that: each single-song accompaniment tape offered by Party A (the Company) was priced NT$ 3,600; preferential prices (NT$ 72,000 for a whole set) were available to member customers, i.e., customers who purchase and make full-payment for more than 5 sets (each set being 60 single song accompaniment tapes) at one time. The price for a single-song accompaniment tape was NT$ 1,200 in 1996, which was revised upward to NT$3,600 in 1997. The difference of NT$ 2,400 meant an increase of 200%. However, the investigation revealed that in 1996 about NT$ 355 out of NT$ 1,200 was allocated for royalties whereas in 1997 the figure rose to NT$ 580, a jump of 63% from the previous year. So the increase in the royalties was patently out of proportion to that in the price of single-song accompaniment tape. In addition, the revised price was obviously too high when compared with that of tapes sold in sets. The average preferential prices as defined above was lowered to NT$ 1,200 each. Therefore, it was obvious that the Company attempted to do tie-in sales by revising upward the prices of each single-song accompaniment tape so that its trading counterparts could not choose freely but to buy the tied-in 60-song accompaniment tapes.

4. The Company launched 60 new songs in 1997, which accounted for 5.3% of the total new-single-song accompaniment tapes in the same year. As song accompaniment tapes are products of exclusive copyright, and the Company was one of the major distributors in the market, the Company certainly had a considerable market power. Since its trading counterparts had to purchase comprehensive accompaniment tapes to satisfy their customers, the Company's price increase of single-song accompaniment tapes had deprived its trading counterparts the free choice and had restricted the competition of single-song accompaniment tapes.

5. Article 19(vi) of the Fair Trade Law prohibits "transaction conditions that are improper restrictions on the business activities of the trading counterparts". Moreover, Article 24 of the Enforcement Rules of Fair Trade Law provides that "the 'restrictions' as used in Article 19(vi) of the Law refer to tie-in, exclusive dealing, territorial restrictions, customer restrictions, restrictions on use, and other restrictions restraining trading counterparts' business activities. In order to determine whether the restrictions mentioned in the preceding paragraph are reasonable, the totality of such factors as intent, objective, market power of the parties, structure of the relevant market, nature of the goods and the effect on market competition resulting therefrom shall be considered." The first half of Article 41 of the same Law also states that the Commission may order any enterprise violating the provisions of this Law to cease and desist or rectify its act within a time limit prescribed by the Commission.

6. In conclusion, the Company's substantial price-increase of single-song accompaniment tapes forcing its trading counterparts to procure tie-in tapes constituted a violation of Article 19(vi) of the Fair Trade Law and shall be rectified pursuant to the first half of the provisions of Article 41.

　

Summarized by Chan, Li-ling
Supervised by Lin, Yu-ch'ing

Appendix:
Joy Communication Co., Ltd's Uniform Invoice Number: 86078596

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