Kung Yan Shih No. 8: Standards for determination of "primary" and "reasonable market prices" in Article 23 of the Fair Trade Law
Case:
Kung Yan Shih No. 8: Standards for determination of "primary" and "reasonable market prices" in Article 23 of the Fair Trade Law
Reference:
Fair Trade Commission Decision of March 23, 1992 (the 19th Commissioners' Meeting); (81) Kung Ts'an Tzu No. 652
Relevant Laws:
Article 23 of the Fair Trade Law
Summary:
1. Request for explanation An interpretation of the standards for "primary" and "reasonable market prices" in Article 23 of the Fair Trade Law (the "Law") was requested. Article 23 provides that "multi-level sales shall not be conducted if the participants thereof receive commissions, bonuses, or other economic benefit primarily from introducing others to participate, rather than from the marketing or sale of the goods or services at reasonable market prices." 2. The Fair Trade commission (the Commission) resolved that: The Commission's interpretation of the standards for determination of the words "primary" and "reasonable market prices" in the Law are as follows: (1) "Primary" (i) Profits from Multi-level sales may be divided into two sources: [1] straightforward introductions of others to participate and [2] goods or services promoted or sold. The source of profits should be determined first. If profits are primarily derived from introducing others to participate, then Article 23(1) of the Law has been violated. The word "primary," is understood by the American courts to mean "obviously." U.S. courts also use 50 percent as a reference standard for judgments. They then make a reasonable determination in individual cases based on the presence of intent to violate the law and the level and degree of injury entered in the complaint. (ii) In most multi-level sales schemes, one cannot accurately determine how much of the participants' profits come from introductions and how much comes directly from promotion and sales of goods and services. In this case, one should determine whether a violation of Article 23 of the Law has occurred based on whether or not goods and services are being marketed or sold at "reasonable market prices." (2)"Reasonable market prices" (i) If one wishes to determine whether a given good or service has a "reasonable market price," retail prices and quality in domestic and foreign markets for similar or identical goods and services should serve as the primary basis of reference. In addition, one may also compare profitability for multi-level sales organizations and non-multi-level sales organizations that sell similar or identical goods. Other reference factors include costs, special technologies, and levels of service. (ii) Absence of similar competing goods on market In this case, determination of "reasonable market price" is more difficult because there are no similar goods or services to be compared. However, so long as multi-level sales organizations make rules that comport with the Supervisory Regulations Governing Multi-Level Sales and then follow those rules in practice, the prices of the products or services marketed or sold may, in principal, be deemed "reasonable market prices. Summarized by Kuo An Chi; Supervised by Lin Ching Tarng