Violation of the Fair Trade Law by companies including Ti Hwei Co., Ltd. for maintaining resale price and unduly shifting risks of operation to trading counterparts
Chinese Taipei
Case:
Violation of the Fair Trade Law by companies including Ti Hwei Co., Ltd. for maintaining resale price and unduly shifting risks of operation to trading counterparts
Key Words:
national agricultural dairy product, resale price maintenance, undue shifting of risks of operation
Reference:
Fair Trade Commission Decision of October 19, 1998 (354th Commission Meeting); Dispositions Ref. (87) Kung Ch'u Tzu No. 201 and 202
Industry:
Dairy Product Industry (1120)
Relevant Laws:
Summary:
The distribution contracts between companies including Ti Hwei Co., Ltd. and its distributors contain the provisions that fix the purchasing prices and suggest the wholesale and retail prices. The following restrictions are also specified in Ti Hwei's 1996 Agricultural Dairy Product 250cc Distributor Incentive Rules: (1) selling across assigned territories is prohibited; (2) selling at reduced prices is prohibited; (3) sales targets must be met; and (4) checks issued for goods shipped must be cashed as promised. In a written notice to its distributors, including Mr. Chen and Mr. Huang, on December 3, 1997, they were charged with selling across assigned territories and slashing prices. Although most distributors denied the charge, Ti Hwei retained or collected their security deposits of NT$100,000 and terminated or did not extend their distribution contracts. Based on the findings, the purpose of retaining the security deposits when sales across assigned territories occur is for Ti Hwei to enforce the scheme of resale price maintenance. The term "suggested prices" in the distribution contract is merely a smokescreen to avoid violating the Fair Trade Law (FTL).
In addition, for the purpose of securing advance orders, Ti Hwei has unilaterally used unjust means to effectively restrain the method of payment for advance orders by which the distributors are forced to pay only with checks not bearing the description that it may not be negotiated by endorsements. The aim of using checks bearing the description that they may not be negotiated by endorsements is to preserve the issurer’s right to except when the checks are negotiated to and presented by bona fide third parties to the disadvantage of the issurer. Therefore, whether they may or may not be so described should be agreed upon by both parties to a contract. Insofar as the method of payment is concerned, it is up to the discretion of the distributors to choose to pay by checks or cash. By refusing to supply and providing excessive price discounts or bonuses, Ti Huei has forced or induced the distributors to pay for their advance orders only by the checks that do not bear the descriptions that they may not be negotiated by endorsement. Such unilateral and unjust acts have the obvious effect of suppressing its contractual counterparts and unduly shifting the manufacturer’s business risks to its distributors. In light of the function of commercial competition, the acts were reprehensible under commercial ethics, and could seriously affect market order. Obviously, they constitutes unfair acts.
Although not a party to the distribution contract, it is Kao Fong Manufacturing Co. that initiated the aforementioned acts by Ti Huei. Kao Fong suggested the acts to help its new factory in southern Pingtung County write-off NT$900 million in loans and improve its financial performance. The overall goal is for Kao Fong to meet the operation review criteria to have its securities listed and traded over the counter. Its acts constituted improper administrative acts, violated the ethics of commercial competition, and were highly condemnable under the theory of joint torts in Civil Code or primary offender under the Criminal Code, or under the spirit of the provisions in the FTL governing unfair competition.
Ti Hwei's maintenance of the resale price level violates Article 18(1) of the FTL. In addition, Ti Hwei and Kao Fong's joint efforts to suppress trading counterparts breaches social ethics, violates fair competition the essence of which is to compete by quality, price and services, and constitutes a violation of Article 24 of the FTL.
Summarized by Hou, Wen-Hsien
Supervisec by Shi, Chin-Tsun
Appendix:
Ti Hwei Co., Ltd.’s Uniform Invoice No.: 86044225
Kao Fong Manufacturing Co., Ltd.’s Uniform Invoice No.:
81263191