BIONET Corp.

Case:

Key Words:

market share percentile, customer quantity, market territory, sales quantity (amount)

Reference:

Fair Trade Commission Decision of July 19, 2007 (the 819th Commissioners' Meeting); Disposition Kung Ch'u Tzu No. 096122

Industry:

Other Human Health Services Not Elsewhere Classified (8699)

Relevant Laws:

Article 21(3) of the Fair Trade Law applied mutatis mutandis to Section 1 of the same Law

Summary:

1. Summary of the report from the complainant: Bionet Corp. (hereinafter referred to as "Bionet") stated in its advertisement that "Bionet umbilical cord blood" is the "only listed emerging stock", "market share No. 1", "customer quantity No. 1" etc. and other violations to the Fair Trade Law.
2. Matters related to Bionet's advertisement "Market No. 1" are false:
   1. Article 4(1) of the Enforcement Rules to the Fair Trade Law provides that "production, sales, inventory, and import/export value (volume) data for the enterprise and the particular market shall be taken into account when calculating the market share of an enterprise." Furthermore, market share means the proportion of products sold or service provided by an enterprise in a particular market to that of whole of the products sold or serviced provided in that particular market. "Market share" may be calculated based upon, in a particular time frame, the proportion of the sales quantity or amount, or other variables of an enterprise in a particular market compared to that of the total sales by all of the suppliers in that particular market.
   2. According to the Department of Health, Executive Yuan and the Development Center for Biotechnology, the main activities of the umbilical cord blood market are collection, safekeeping, and other related activities regarding umbilical cord blood. Although Bionet alleged that apart from umbilical cord blood, the umbilical cord blood market also include the researches on spinal muscular strophy, placenta, collection and maintenance of umbilical cord and umbilical cord blood, written inquiries to the related professional organizations and Department of Health, Executive Yuan on the provisions on storage of umbilical cord blood revealed that, in accordance with the current concept of the industry and medical clinical experiences, usually stem cells of umbilical cord and placenta are not defined as included in the umbilical cord blood market. Summarized as the above, the advertisement at issues is for umbilical cord blood bank; hence the basis for defining the market should be consistent with industry and medical clinical concepts of "collection and storage of umbilical cord blood".
   3. The said advertisement was published on the fourth quarter of 2005, and the investigation showed that, at that time, there were 7 enterprises engaging in the paid service of umbilical cord blood collection and safekeeping business. Further check with ITIS (Industry & Technology Intelligence Services) revealed that the umbilical cord blood market turnover reached NT$610 million for the year of 2004 and NT$750 million for the year of 2005. The estimation of market share held by the 7 enterprises in the years of 2004 and 2005 confirmed that there were enterprises with higher market share than Bionet. Although Bionet's market share was higher than the other enterprises in the year of 2004, its market shares were not the highest in the industry in the years of 2005 and 2006. Given that the market share percentage is related to an enterprise's operation effectiveness, the umbilical cord blood market is a relative new industry that did not flourish until 2004. Apart from the scale of capital and facilities, there is not any other entry barriers. Because the market competition is fierce, enterprises' scales had declined. However, sales volumes or operation revenues are internal information, unless the enterprise is listed or launched, the general public would not be able to verify and other enterprises would have difficulties obtaining related information. Business scale, operation status and efficiency are important factors consumers use to assess an enterprise's credibility and are important reference numbers for opening up more trading opportunities. Although Bionet did not have any competitors since its establishment in 2000, or due to the fact that it was the earliest one to enter into the market and thus held the largest market share back then. The said advertisement was launched in the fourth quarter of year 2005, and the situation of market competition has changed from year 2000. Bionet confessed that it did not verify and had no way of knowing, prior to the launch of the advertisement, the sales status of each competitor. This led it to hold no objective evidences of competitors' operation information and thus did not state the basis upon which the market share was calculated, the basis for the comparison, time comparison, and competitor comparison, and other important information stated in the said advertisement. Media's estimation on market share ranking does not give consumers any chance to verify the correctness of the information and there is no fair objective evidence to confirm whether "market share No. 1" is a fact. According to currently available evidences, the said advertisement's statement on "market share No.1" is false and misleading and violates Article 21(3) of the Fair Trade Law and the applicable provisions in Article 21(1) of the same Law.
   4. Furthermore, as far as the said advertisement on the issue of "customer quantity No. 1" is concerned, investigation on Bionet since its establishment till 2005 revealed that valid contracts for umbilical cord blood aggregated to 15,000 cases, and between 2004 and 2005, valid contracts on umbilical cord blood aggregated to over ten thousand cases. In addition, the investigation of other enterprises providing paid service for umbilical cord blood collection and safekeeping business between the year of 2004 and 2005 indeed showed some competitors do hold more customer quantity than Bionet although Bionet did achieve No. 1 status on the marketplace in 2003. Given that umbilical cord blood market was relatively new, the market competition was fierce, and business's operation status fluctuates from time to time, customer quantity is an important factor for customers to judge whether a business is reliable. Although during its continued operation Bionet had at times the most customer quantity, different reference period would show different results. As the said advertisement failed to disclose the basis period and comparison object, Bionet would inevitably mislead customers to believe in Bionet's operation performance and attract customers to trade with it. This is in violation of business ethics and there are now evidences in support of the determination that the advertisement's "customer quantity No. 1" statement is false and misleading and violates Article 21(3) of the Fair Trade Law and the applicable provisions in Article 21(1) of the same Law.
3. After considering Bionet's motivation of the unlawful acts, the degree of harm of the unlawful act, the circumstances under which the unlawful act is committed, the scale of operation and remorse shown for the unlawful act, and other factors, apart from ordering Bionet to cease the fore-mentioned acts, it is decided that Bionet shall be fined for an amount of NT$400,000 in accordance with the fore-section of Article 41 of the Fair Trade Law.

Appendix:
BIONET Corp.'s Uniform Invoice Number: 70836411