Hocheng Corporation

Case:

Key Words:

bathroom equipment, cross-district sale approval

Reference:

Fair Trade Commission Decision of January 5, 2011 (the 1000th Commissioners' Meeting), Disposition Kung Ch'u Tzu No. 100005

Industry:

Manufacture of Ceramic Sanitation Fixtures (2323)

Relevant Laws:

Article 18 , and Subparagraph 6 of Article 19 of the Fair Trade Law

Summary:

1. Residents in Kinmen complained that when trying to purchase from a local distributor for Hocheng Corporation (hereinafter referred to as Hocheng Corp.) on the main island, they were stopped by the general distributor in Kinmen and Hocheng Corp. The FTC investigated the case but found nothing illegal. However, during the investigation, the FTC discovered that Hocheng Corp. was involved in other illegal activities and therefore continued to investigate on this matter.
2. Findings of the FTC after investigation:
   (1)Hocheng Corp. has about 20% of the domestic bathroom equipment market share. Its products are sold either through "general distributors (who buy off from Hocheng Corp.)" or "sales offices (run by Hocheng Corp. and their sales areas do not overlap with those of general distributors.)"
   (2)The product pricing of Hocheng is divided into "normal dales" and "housing project special offers":
   (i)Normal sales: All bathroom equipment from Hocheng Corp. has list prices and different discounts are given when it is sold to general distributors or when a general distributor (sales office) resells it to distributors. This is referred as the "bathroom equipment price policy" of Hocheng Corp.
   (ii)Housing project special offers: With housing projects that require large quantities of bathroom equipment, general distributors (sales offices) or their distributors need to fill out the "Housing Project Special Offer Registration Form" for Hocheng Corp. to approve the discount before the contract can be signed officially, and the profit for general distributors is uniformly set to be 7% of the closed deal.
   (iii)With "housing project special offers" that involves cross-district transaction, Hocheng Corp. has not established any written regulation but distributors are required to obtain approval from Hocheng Corp. for each case, it is initialed by the concerned general distributor (sales office) filling out the "Housing Project Special Offer and Cross-District Contact Detail List". In principle, when Hocheng Corps receives the document, the distributor who has first filed the document is given the priority to complete the deal. However, when there are two distributors from different districts contending for the business opportunity at the same time, Hocheng Corp. will determine a flat discount rate for the builder to choose one of the said two distributors to close the deal with, on the condition that the general distributor (sales office) with jurisdiction over the location of the project will handle the delivery while the cross-district general distributor (sales office) handling the deal is required to give 2% of the amount of the deal to cover the transportation cost.
3. Grounds for disposition:
   (1)Hocheng Corp. established the "bathroom equipment price policy" to set a limit on the resale prices of general distributors in normal sales and demand general distributors to resell in accordance with the discount rates the company determined. This practice restricted the freedom of general distributors to decide their resale prices. It was in violation of Article 18 of the Fair Trade Law (FTL). The FTC therefore imposed on Hocheng Corp. an administrative fine of NT$1,000,000.
   (2)Hocheng Corp. restricted the freedom of distributors to contend and pursue business opportunities in "housing projects" while at the same time requested that distributors had to file "housing project" cases that involved cross-district transaction individually and comply with the company's rules of cross-district transaction registration and coordination. This practice was deemed restriction upon market competition or impediment to fair market competition in violation of Subparagraph 6 of Article 19 of the FTL. The FTC therefore imposed on Hocheng Corp. an administrative fine of NT$2,000,000.

Appendix:
Hocheng Corporation's Uniform Invoice Number: 03228304

Summarized by: Chang, Ching-Yi; Supervised by: Sun, Ya-Chuan