Sanyo Pottery & Porcelain Industry Co., Ltd

Case:

Key Words:

tiles, suggested sales price

Reference:

Fair Trade Commission Decision of December 21, 2006 (the 789th Commissioners' Meeting); Disposition (95) Kung Ch’u Tzu No. 095174

Industry:

Other Porcelain and Ceramic Products Manufacturing (2329)

Relevant Laws:

Article 18 of the Fair Trade Law

Summary:

1. This case originated from a statement faxed by Sheng Wei Construction Engineering Ltd. in Chiayi City stating that: Sanyo Pottery & Porcelain Industry Co., Ltd. (hereinafter called "Sanyo") requested building material businesses not to deliver goods in the name of dividing regional distributors to monopolize the market and drive up the prices of tiles. Construction businesses therefore sustained much loss. It was then requested in the statement that the FTC would commence an investigation.
2. Findings of FTC after investigation:
   Sanyo is a manufacturer of two tile brands, STG and San Marino, with 15 regional distributors who can sell other tile brands besides Sanyo’s products. It was agreed in the contracts entered by and between Sanyo and its distributors that the distributors shall sell Sanyo’s products at the prices according to the suggested price lists appended to the products and shall not reduce the prices without authorization. It was also agreed that the contract should be terminated in the event of default. Additionally, Sanyo enacted a "Cross-Regional Coordination Rules" providing that distributors shall pay attention to the market prices of crossed regions and shall not lower the sales prices for vicious competition. If vicious competition affecting the market prices is proved to be true, such distributor shall remit 3% of the total transactions as penalty. Both Sanyo and its distributors admitted that no price reduction would occur between distributors. It is obvious that the agreed provisions regarding suggested price lists, no price reduction and relevant punishment have affected downstream trading counterparts’ freedom to decide on prices.
3. Grounds for disposition:
   (1) According to Article 18 of the Fair Trade Law, "Where an enterprise supplies goods to its trading counterpart for resale to a third party or such third party makes further resale, the trading counterpart and the third party shall be allowed to decide their sale prices freely; any agreement contrary to this provision shall be void." In other words, an enterprise shall allow its trading counterparts to decide on sales prices freely. Thus, if an enterprise sets limitations on the resale prices of its products and takes measures to request trading counterparts to follow, such an act of restraining downstream business operators’ trading activities has already deprived downstream business operators of their freedom to decide on prices according to their own cost structure and market competition and therefore weakened the price competition among different sales operators within the same brand. This type of act is explicitly prohibited in the Fair Trade Law. Moreover, according to the FTC’s Interpretation Kung-Yan-Shih No. 032, in the event that upstream businesses simply suggest resale prices without specifically requesting or requiring that downstream businesses shall employ such suggested prices to sell or shall not give discounts, such upstream businesses shall not be deemed to violate the aforesaid regulation. Furthermore, the concept of restraint shall not be limited to actual disadvantage sustained due to violation of the measures taken by upstream businesses. On the contrary, the so-called restraint shall be determined according to whether the trading counterparts’ freedom to decide on prices is artificially interfered, such as mental oppressions and that the resale prices are therefore maintained the same.
   (2) Sanyo is a manufacturer of two tile brands, STG and San Marino. It was agreed in the contracts entered by and between Sanyo and its distributors that the distributors shall sell Sanyo’s products at the prices according to the suggested price lists appended to the products and shall not reduce the prices without authorization. It was also agreed that the contract should be terminated in the event of default. Sanyo is currently third largest domestic tile enterprise in terms of reputation and market share. Since the downstream distributors have to bear the risks of tile products, sales and finance, the aforementioned measures have respectable impact and mental oppressions on the downstream distributors and building material businesses. These trading counterparts’ freedom to decide on prices has actually been restrained by the disadvantageous measures mentioned above. Moreover, relevant distributors and downstream retailers stated that any and all quotations and contracts were done according to the prices lists provided by Sanyo. It is obvious that Sanyo’s suggested resale prices and relevant punitive measures set forth in the contracts entered by and between Sanyo and its distributors have affected the freedom of these distributors and retailers to decide on the resale prices. Sanyo’s act has damaged the market competition mechanism and violated Article 18 of the Fair Trade Law.
   (3) After considering the motivation, purpose, and expected improper benefit of the unlawful act of Sanyo; the degree of the act's harm to market order; the duration of the act's harm to market order; benefits derived on account of the unlawful act; the scale, operating condition, sales and market position of the enterprise; whether or not the type of unlawful act involved in the violation has been corrected or warned by the Central Competent Authority; types and number of and intervals between past violations, and the punishment for such violations; remorse shown for the act and attitude of cooperation in the investigation; and other factors, the FTC ordered Sanyo to immediately cease the unlawful act and imposed an administrative fine of NT$720,000 in accordance with the fore part of Article 41 of the Fair Trade Law.

Appendix:
Sanyo Pottery & Porcelain Industry Co., Ltd.’s Uniform Invoice Number: 34263157

Summarized by Yang, Chia-Hsien; Supervised by Sun, Ya-Chuan