Mei-Hwa Video Ltd. imposed, through tie-in sale, inappropriate restrictions on the business activities of its trading counterparts in violation of Article 19(vi) of the Fair Trade Law

Chinese Taipei

Case:

Mei-Hwa Video Ltd. imposed, through tie-in sale, inappropriate restrictions on the business activities of its trading counterparts in violation of Article 19(vi) of the Fair Trade Law

Key Words:

inappropriate restrictions, business activities, trading counterparts, tie-in sale

Reference:

Fair Trade Commission Decision of October 27, 1995 (the 211st Commission Meeting); Disposition (84) Kung Ch(u Tzu No. 148

Industry:

Broadcast and Television Industry (8050)

Relevant Laws:

Article 19 of the Fair Trade Law

Summary:

1. Since October of 1994, this Commission has received anonymous letters from KTV operators in Kaohsiung and complaints from the KTV Association of Taipei, indicating that Mei-Hwa Video Ltd. monopolized the market by raising the prices of KTV videotapes. Mei-Hwa Video also complained to this Commission on November 28, 1994 about a violation of the Fair Trade Law by the KTV Federation of Chinese Taipei and KTV associations of Taipei and Kaohsiung, which engaged in concerted purchase, caused injury to Mei-Hwa Video's business reputation and discouraged KTV operators from purchasing video tapes from Mei-Hwa Video. Thus, upstream and downstream enterprises accused each other of violation of laws. In the past, single-song KTV videotapes were distributed by retail. Because lawfully licensed distributors such as Mei-Hwa Video suffered to a great extent from rampant unauthorized duplication of such tapes in the market, Mei-Hwa Video initiated in introducing a new trading method through annual single-song licensing and substantially increased, the prices of single songs. Such act caused considerable trade disputes between Mei-Hwa Video and downstream operators.

2. According to the investigation, Mei-Hwa Video has begun to operate its distribution of KTV videotapes through licensing under franchise agreements since October of 1994. Its standard franchise agreement stipulates that the 300 single-song KTV videotapes released by Polygram and other phono record companies of which Mei-Hwa Video is the general distributor are the object of the agreement. KTV operators seeking to obtain the single-song KTV videotapes distributed by Mei-Hwa Video are required to pay NT$50,000 as royalties for the franchise. Mei-Hwa Video's intention of tie-in 300 single-song KTV tapes collectively is quite obvious.

3. Although the franchise agreement states that the single-song KTV videotapes provided by Party A will be sold for NT$2,400 a piece, which seems to indicate that the buyer is still allowed to buy a single video tape separately, such agreement nevertheless contains provisions governing trading methods whereby KTV operators are required to pay Mei-Hwa Video NT$50,000 as royalties for the franchise in exchange for the right to purchase a single-song KTV videotape for NT$2,400. The obvious unreasonableness is indicated by the difference between the price for each single-song videotape and the going market price thereof. Mei-Hwa Video's distribution of its KTV videotapes through licensing under franchise agreements has refrained KTV operators from freely and fairly purchasing any single-song KTV videotape of their choice. This constituted an act of inappropriate restrictions on the business activities of its trading counterparts as set forth in Article 19 of the Fair Trade Law.

4. According to the market information provided by Mei-Hwa Video, the company enjoys a 17.8% market share which is calculated by the distribution volume of videotapes of new songs. This indicates that the company has a certain influence on the market of KTV videotapes. Mei-Hwa Video has taken advantage of product characteristics such as exclusivity in copyright protection and the consumer's preference to new popular songs, to compel KTV operators facing the pressure of maintaining completeness of new popular songs to purchase the whole package of 300 single-song KTV videotapes provided by Mei-Hwa Video. As a result, KTV operators are unable to freely purchase single-song KTV videotapes. Such act of Mei-Hwa Video is likely to impede fair market competition of single-song KTV videotapes. Therefore, the Fair Trade Commission adopted a resolution at the 211st Commission Meeting on October 27, 1995 to penalize Mei-Hwa Video for its act of making royalty provisions in its franchise agreement in violation of subparagraph 5 of Article 19 of the Fair Trade Law. This Commission also requested that Mei-Hwa Video not to set any more royalty provisions and that it should provide its trading counterparts reasonable opportunities for purchasing single-song videotapes selectively.

　

Summarized by Lin, Chin-lang
Supervised by Lin, Yu-ch'ing

Appendix:
Mei-Hwa Video Ltd.'s Uniform Invoice No.: 84486576

＠: For information of translation, click here

[Browse by APEC Member Economies] [Browse by Subject Categories] [Home]
[Decisions] [Approvals] [Interpretations] [Administrative Guidance]