Vidi Video Ltd. imposed inappropriate restrictions on the business activities of its trading counterparts in violation of the Fair Trade Law

Chinese Taipei

Case:

Vidi Video Ltd. imposed inappropriate restrictions on the business activities of its trading counterparts in violation of the Fair Trade Law

Key Words:

inappropriate restrictions of business activities of trading counterparts, and franchise operations

Reference:

Fair Trade Commission Decision of 14 June, 1995 (192nd Commission Meeting); Disposition (84) Kung Ch'u Tzu No. 061

Industry:

Broadcast and Television Industry (8050)

Relevant Laws:

Article 19 of the Fair Trade Law

Summary:

1. Video rental stores, Vidi Video Ltd. had begun to provide movie videos by requiring video rental stores to enter into franchise agreements, causing injury to the operating rights of video rental stores. The Fair Trade Commission has jointly concluded that Vidi Video, relying upon its competitive advantages, violated Article 19(vi) of the Fair Trade Law by imposing restrictions, through standard franchise agreements, on the business activities of video rental stores. If those video rental stores refuses to comply with the restrictions, they will be denied supply of movie videos by Vidi Video.

2. According to the petition to the Commission by video rental stores in Taipei, Vidi Video had made a proposal to promote its business activities through such a franchise program. However, Vidi Video subsequently amended to the franchise agreement, additional provisions which contained unreasonable terms and conditions under which video rental stores would not be able to obtain Vidi Video's products without becoming a franchisee thereof. This restriction has caused great injury to the operating rights of downstream video rental stores.

3. The Commission's investigation shows that a mutually trading pattern has emerged between general video distributors and video rental stores in Chinese Taipei area since the beginning emergence of the video rental business in 1980s. Such trading pattern has been followed by thousands of video rental stores for many years and has become an established order for the video rental industry. In addition, there has been a regulated demand in the market for its distribution of movies made by eight major motion picture companies in the U.S. such as Warner Brothers, Fox, etc. and Golden Festival of Hong Kong. The company's sudden adoption of franchise operation policy will surely create an impact on the existing trading order. As a result, downstream video rental stores will be compelled to accept such franchise operation in order to survive in the market. Vidi Video's conduct constitutes a violation of the Fair Trade Law.

4. Although Vidi Video claimed that its exclusive distributorship status for foreign movie videos conforms to the requirements of the Copyright Law, Vidi Video, nevertheless, relying on its market superiority has declined, to grant rental rights to stores that refused to join the franchise and has imposed undue restrictions.

(1) In light of the competitive advantages of Vidi Video, the market structure and product characteristics thereof, video rental stores seeking to secure the supply of movie videos will be forced to accept all terms and conditions set forth in the franchise agreement drafted by Vidi Video because

(i) video programs are copyrighted works that enjoy exclusive protection,

(ii) general consumers have strong preference to video programs provided by certain motion picture companies, and

(iii) such consumers have greater loyalty for brand video programs than for typical products. Therefore, Vidi Video's franchise requirement as the only means of transaction is an inappropriate undue.

(2) Vidi Video's success in its franchise strategy will strengthen its competitive advantage, based on which Vidi Video will surely formulate more unfavorable terms of trade for video rental stores. This is evidenced by the notification to this Commission from the Association of Video Program Publishers in Taipei on April 14, 1995 regarding its negotiations on franchise agreement with Vidi Video. Therefore, Vidi Video is likely to impede fair competition between upstream and downstream video businesses.

　

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

Appendix:
Vidi Video Ltd.'s Uniform Invoice No.: 30986125

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