Champion Building Materials 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. 095173

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: Champion Building Materials Co., Ltd. (hereinafter called "Champion") 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. Moreover, citizens in Changhua area reported that Champion’s distributors in central Taiwan refused to supply those building material businesses that were offered lower quotes. The FTC therefore initiated an investigation for both complaints.
2. Findings of FTC after investigation:
   Champion is a manufacturer of two tile brands, Champion and Marcobelli, with 10 regional distributors who sell Champion’s products exclusively. It was agreed in the contracts entered by and between Champion and its distributors and building material businesses that Champion’s products shall be sold at the prices according to the suggested price lists appended to the products. In the event that any party fails to comply with Champion’s policies and reduces the prices, the distribution right will be cancelled or supply ceased and penalty imposed. Champion’s distributors admitted that they would sell products based upon the unit price lists in accordance with the agreement. As for special quotes, the distributors shall file an application form with Champion. Champion would decide on the final sales prices. Champion’s distributors and downstream retailers (building material businesses) admitted that any and all quotations and contracts given to and entered with their clients should be consistent with the product unit price lists. It is obvious that Champion’s act of enacting agreed resale prices and relevant punitive measures has affected downstream distributors and retailers’ 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) Champion is a manufacturer of two tile brands, Champion and Marcobelli. It was agreed in the contracts entered by and between Champion and its distributors and building material businesses that Champion’s products shall be sold at the prices according to the suggested price lists appended to the products. In the event that any party fails to comply with Champion’s policies and reduces the prices, the distribution right will be cancelled or supply ceased and penalty imposed. Champion is currently the largest domestic tile enterprise in terms of reputation and market share. Since the distributors have to bear the risks of tile products, sales and finance, the aforementioned punitive measures have respectable impact and mental oppressions on the downstream distributors and building material businesses. Moreover, Champion’s distributors and downstream retailers (building material businesses) admitted that any and all quotations and contracts given to and entered with their clients should be consistent with the product unit price lists. It is obvious that Champion’s act of enacting agreed resale prices and relevant punitive measures has affected downstream distributors and retailers’ freedom to decide on prices. Champion’s act of restraining its downstream trading counterparts’ freedom of deciding on resale prices 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 Champion; 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 Champion 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:
Champion Building Materials Co., Ltd.’s Uniform Invoice Number: 49701774

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