Taiwan Salt Industrial Co., Ltd.

Case:

Key Words:

franchise, distribution, resale

Reference:

Fair Trade Commission Decision of January 18, 2007 (the 793rd Commissioners' Meeting); Disposition (96) Kung Ch'u Tzu No. 096010

Industry:

Cosmetics Manufacturing (1940)

Relevant Laws:

Article 18 of the Fair Trade Law

Summary:

1. This case originated from a complaint submitted by a franchisee of the Taiwan Salt Industrial Co., Ltd.'s (hereinafter called "TAIYEN") to the FTC stating that: TAIYEN constantly increased sales channels besides the original franchisees. TAIYEN provided lower prices for other channels and allowed the new channels to sell at low prices in the market. Additionally, TAIYEN restrained the franchisees from lowering the prices. As a result, the franchisees were unable to fairly compete in the market. TAIYEN's acts of discrimination and improper operation restraints were in possible violation of Articles 18 and 19 of the Fair Trade Law.
2. Findings of FTC after investigation:

Besides the complaints filed by TAIYEN's franchisees about TAIYEN's acts of stipulating relevant rules pertaining to the sales prices and issuing letters to request franchisees to follow such resale price policies, TAIYEN's distributors also submitted contract provisions and letters issued by TAIYEN in regards to sales price restraints. TAIYEN requested these distributors to sell at prices not lower than 90% of the original prices. One of the distributors even submitted proofs showing the punishment it suffered from TAIYEN for selling at low prices. TAIYEN claimed that though the aforesaid provisions and letters used regulative terms, they only served as suggestions and that no company was punished therefore. TAIYEN additionally claimed that the provisions in the relevant franchising contracts and letters were requests for franchisees and distributors not to sell the goods at prices lower than the operating costs. According to the statement of TAIYEN, even if TAIYEN punished franchisees or distributors, the ground for punishment was their violation of channel segmentation rather than selling at low prices.

3. Grounds for disposition:
   1. After investigation, the FTC found that after a product was sold to a franchiser and distributor by TAIYEN, the ownership of such a product was transferred to such franchiser and distributor. Such a franchiser and distributor would then have to resell this product to obtain profits, and would also have to bear the risks of not being able to sell this product. In the contracts signed by TAIYEN with its franchisers and distributors, TAIYEN provided a provision to restrain sales prices. It is obvious that TAIYEN intended to restrain the resale prices. In addition, when the franchising contract or distribution contract was still in effect, TAIYEN continuously issued letters or facsimiles to inform and to warn its franchisers and distributors not to sell at a price lower than a certain amount. TAIYEN even punished distributors that violated such an order. It is obvious that TAIYEN did enforce the aforesaid provision and had certain power to restrain its franchisers or distributors. By doing so, TAIYEN had violated Article 18 of the Fair Trade Law.
   2. TAIYEN had 2.06% market share in 2005, and was ranked the tenth in the cosmetics market. However, TAIYEN's acts of restraining its franchisees and distributors from deciding on resale prices did not profit its own business. Therefore, TAIYEN's expected improper benefits should not be high. Also, TAIYEN had already had a previous violation. In conclusion, the FTC ordered TAIYEN to immediately cease the unlawful acts and imposed an administrative fine of NT$1,000,000.

Appendix:
Taiwan Salt Industrial Co., Ltd.'s Uniform Invoice Number: 89397503