Holiday Entertainment Co., Ltd. violates the Fair Trade Law by making false and untrue representation in its merger report

Case:

Holiday Entertainment Co., Ltd. violates the Fair Trade Law by making false and untrue representation in its merger report

Key Words:

merger report, false and untrue

Reference:

Fair Trade Commission Decision of July 29, 2004 (the 664th Commissioners' Meeting); Disposition (93) Kung Ch'u Tzu No. 093073

Industry:

Audiovisual and Singing Services (9002)

Relevant Laws:

Proviso (ii) under Article 11(5) of the Fair Trade Law

Summary:

1. Complaints were filed by the public and audiovisual/singing service operators alleging that the anti-competition acts conducted by Young Sound Multimedia Co., Ltd. (hereinafter called "Young Sound") were in fact masterminded by the Holiday Entertainment Co., Ltd. (the respondent) and its responsible person Lu Yen-Hsien.
2. Findings of the Fair Trade Commission (FTC) after investigation:
   Although the respondent and its conglomerate, Jung Ti Hsing Co., did not hold any shares of Young Sound, the respondent nevertheless remitted New Taiwan Dollars (NT$)30,000,000 to Young Sound on January 29, 2002. Young Sound's collateral for a loan of NT$65,000,000 from Shanghai Commercial & Savings Bank, land (lot no. 91-5) in the Chiutzung Section of Neihu District, Taipei City, was likewise provided by Jung Ti Hsing Co. Furthermore, Lu Wan-Cheng also remitted NT$15,750,000 million to Young Sound on February 1, 2002. The aforesaid financial aid far exceeded Young Sound's total capital of NT$50,000,000. Moreover, Young Sound was accompanied by the respondent's managerial personnel when expanding its business with karaoke business operators. This is sufficient to prove that the respondent provided the major financial and business support to Young Sound. Therefore, the respondent could directly or indirectly control Young Sound's business management and personnel employment and discharge through said financial and business support. In other words, there is a controlling and subordinate relationship between the respondents and Young Sound.
3. Grounds for disposition:
   1. With regard to the merger report submitted to FTC by the respondent on May 9, 2003, the business information in the document concerning the respondent's controlling relationships did not include Young Sound, and the market structure information stated in the documents, including up- and downstream enterprises, likewise failed to disclose the relationship between the respondent and Young Sound. However, after the content of said document was compared with the investigation file produced by FTC's active investigation regarding whether audiovisual/singing business operators violated the Fair Trade Law's provisions, the respondent cooperated with FTC's investigation by providing written statements or explanations to FTC since January 13, 2003. The respondent emphasized in its explanations at the FTC on May 2, 2003 that, "This company, its affiliates, and its directors and supervisors do not hold any shares of Young Sound Co. The hearsay on the market stating that Young Sound Co. is subordinate to this company is not consistent with the facts." This clearly showed that the respondent was aware, prior to submitting its merger report, that the respondent's relationship with the Young Sound Co. will be crucial when FTC reviewed this case and its merger report with Cashbox Partyworld Co., Ltd. However, the respondent repeatedly denied its relationship with Young Sound during the investigation of this case, and completely failed to disclose the controlling relationship between it and Young Sound in its merger report documents. It is rather obvious that the respondent deliberately attempted to conceal its relationship with Young Sound.
   2. The domestic single-title accompaniment tape market was worth NT$ 1,120,390,000 in 2002. Purchases of accompaniment tapes by the respondent totaled approximately NT$ 370,000,000, and those of Cashbox Partyworld Co., Ltd. totaled approximately NT$ 300,000,000. These two companies thus accounted for respective 33% and 27% of the authorization value of domestic single-title accompaniment tapes. After the merger between the respondent and Cashbox Partyworld Co., Ltd., the new entity would account for 60% of the licensing value of domestic single-title accompaniment tapes (market share of accompaniment tape purchase), and would possess a significant market position. Since the respondent had a controlling relationship with Young Sound, the respondent might exploit its market position to affect the licensing behavior of upstream record companies, as well as affecting the sales volume of the accompaniment tape agencies through Young Sound. Accordingly, it was evident that the respondent's concealment of its relationship with Young Sound had caused its merger report documents to contain false and untrue information.
   3. The respondent's merger report of May 9, 2003 contained false and untrue matters and was in violation of Proviso (ii) under Article 11 (5) of the Fair Trade Law (FTL). After weighing the respondent's sales revenue, motivation, type of act, degree of harm to the trading order, operational status, market position, enterprise scale, and its cooperation during the investigation, FTC imposed an administrative fine of NT$ 400,000 on the respondent pursuant to Article 40 (2) of the FTL.

Appendix:
Holiday Entertainment Co., Ltd.'s Uniform Invoice Number: 84256265