Jia Lian Multimedia Co., Ltd. & Zhen Yang Multimedia Technology Co., Ltd.

Case:

Key Words:

karaoke product, MIDI, agent, distributor

Reference:

Fair Trade Commission Decision of August 3, 2011 (the 1030th Commissioners' Meeting), Disposition Kung Ch'u Tzu No. 100142

Industry:

Sound Recording and Music Publishing (5920); Renting and Leasing of Sports and Recreational Goods (7731)

Relevant Laws:

Article 19 of the Fair Trade Law

Summary:

1. Jia Lian Multimedia Co., Ltd. (hereinafter referred to as Jia Lian Co.) and Zhen yang Multimedia Technology Co. Ltd. (hereinafter referred to as Zhen Yang Co.) were reported, after receiving the license for the MIDI karaoke products from Mei Hwa Multimedia Technology Co., Ltd. (hereinafter referred to as Mei Hwa Co.), to have conducted presentations in central and southern Taiwan to announce to distributors and karaoke machine proprietors that they had to rent karaoke products from Jia Lian Co. from then on and the charge for coin-operated karaoke machines would be raised from NT$10 per song to NT$20. The conduct was in violation of Article 19 of the Fair Trade Law (FTL).
2. Findings of the FTC after investigation:
   (1)Zui Ing Co., Ltd. (hereinafter referred to as Rui Ing Co.), together with Hong Yin Multimedia Technology Co., Ltd. (hereinafter referred to as Hong Yin Co.), and Mei Hwa Co. were the top two competitors on the karaoke product market. After Jia Lian Co. and Zhen Yang Co. were established at the end of 2008, they acquired the distributorship and agency for the karaoke products from Mei Hwa Co. and Hwa Te Da Qi Multimedia Technology Co., Ltd. (hereinafter referred to as Hwa Te Co.) On behalf of Jia Lian Co. and Zhen Yang Co., Xiao Jin Hui conducted product presentations in Chiayi, Tainan, Yunlin, Changhwa, Kaohsiung and Pingtung in November and December of 2008 and invited local distributors and karaoke machine proprietors to attend the presentation meetings. At these presentations, Xiao announced that Jia Lian Co. and Zhen Yang Co. had already acquired the agency for the MIDI karaoke products from Mei Hwa Co. and Hwa Te Co. and the rent for the MIDI karaoke products from Jia Lian Co. and Zhen Yang Co. would be NT$2,200 per month from then on. Xiao also claimed that Jia Lian Co. and Zhen Yang Co. would also obtain the agency for the products from Hong Yin Co. and Rui Ing Co. and would be responsible for copyright infringement issues.
   (2)When Jia Lian Co. and Zhen Yang Co. conducted a product presentation at a restaurant in Minsiong Township, Chiayi County on November 17, 2008, they handed out to each of the distributors and karaoke proprietors at the venue a sheet containing 16 issues to be discussed during the presentation. After the attendees put down their signatures, the sheets were collected. Afterwards, Xiao Jin Hui continued to hold presentations in Tainan, Yunlin, Changhwa, and Kaohsiung and the "discussion items" were the same.
   (3)The aforesaid "discussion items" included the following: Point 10, "monthly payment of NT$2,200 for two sets of software (Mei Hwa and Hwa Te); Point 7, "rents range from NT$5,500-6,000, with NT$5,500 the minimum, and rents for outdoor equipment are NT$7,500-8,000"; Point 13, "the rent for a machine without accessories but including software is NT$4,500 for MIDI, NT$5,500 for Small V, and NT$4,000 for software only"; and Point 15, "the amount to put in coin-operated machines is readjusted to NT$20 per song", and so forth.
3. Grounds for disposition:
   (1)The inappropriate measures Jia Lian Co. and Zhen Yang Co. employed to make the trading counterparts of their competitor to transact with them were deemed impediment to fair competition on the market and in violation of Subparagraph 3, Article 19 of the FTL:
   (i) After acquiring only the distributorship and agency for the karaoke products from Mei Hwa Co. and Hwa Te Co. in November 2008, and haven't yet receiving the license for the MIDI products from the competitor, Hong Yin Co. and Rui Ing Co., while perfectly aware of the proclamation from Rui Ing Co. on November 24, 2008 that the company "would never have its products marketed together with those from Mei Hwa and Hwa Te by any means," Jia Lian Co. and Zhen Yang Co. still conducted product presentations at various places to announce to distributors that the rental rate for their MIDI karaoke products was NT$2,200 and they would also obtain the agency for the MIDI karaoke products from Hong Yin Co. and Rui Ing Co. and would handle all intellectual property infringement issues. This misled the distributors and karaoke machine proprietors into believing that the MIDI karaoke products distributed by Jia Lian Co. and Zhen Yang Co. were lower than the current market rates and there would not be any intellectual property disputes in the future.
   (ii) Some distributors attending the presentations raised the question of what they could do with the expenses they had already paid by checks in advance to Hong Yin Co. and Rui Ing Co. Xiao Jin Hui replied that lawyers would be hired to handle the matter and Zhen Yang Co. would be responsible for the fees. Later on, these distributors also accompanied Xiao Jin Hui at the presentations held in Yunlin, Changhwa, Tainan, Kaohsiung, and Pingtung and helped explain how to issue legal attest letters to cancel rental leases, withdraw the payments already disbursed in advance, and terminate the contracts. By the beginning of 2009, they helped more than 20 karaoke machine proprietors withdraw over NT$6,000,000 and the success convinced distributors that there wouldn't be any breach of contract or disadvantages in canceling the rental leases for karaoke products with Hong Yin Co. and Rui Ing Co.
   (iii) The conduct of sending legal attest letters to Hong Yin Co. and Rui Ing Co. by the distributors and karaoke machine proprietors in Chiayi, Yunlin and Changhwa areas in December 2008 to cancel the renewal of their contracts and request return of the checks issued as advance payments and the switchover to rent MIDI from Zhen Yang Co. was already an impediment to fair competition on the market. The improper measures Jia Lian Co. and Zhen Yang Co. employed to get the trading counterparts of their competitor to transact with them were an impediment to fair competition and in violation of Subparagraph 3 of Article 19 of the FTL.
   (2)Jia Lian Co. and Zhen Yang Co. were in violation of Subparagraph 4 of Article 19 of the FTL for applying inappropriate measures to make other enterprises refrain from price competition as such measures restricted market competition and impede fair competition.
   (i) By suggesting the criteria for determining karaoke machine rental rates to the karaoke machine proprietors attending the presentations and requesting them to put down their signatures, Jia Lian Co. and Zhen Yang Co. apparently had the intention to prevent them from engaging in price competition. It was therefore considered that Jia Lian Co. and Zhen Yang Co. "more than suggested" that the karaoke machine rental rates shall serve as reference for karaoke machine proprietors. It was also found that Xiao Jin Hui did express during the presentations that the software and hardware rental rate suggestions were made in the hope that proprietors would not engage in price competition because maintaining the rates could bring better profits. As a result, most proprietors concurred with the suggestions. It was evident that Jia Lian Co. and Zhen Yang Co. made the suggestions for the proprietors to increase their profits and in turn made them more interested in renting the MIDI karaoke products the two companies presented. During the presentations, they discussed, suggested, and requested the distributors and karaoke machine proprietors to unify their karaoke machine rental rates and increase the price per song to use coin-operated karaoke machines. They also demanded that the attendees to sign their names and collected the papers right on the spot and then to create a psychologically binding effect on the attendees. This binding effect was likely to have influence on the said attendees' karaoke machine rental rate decisions. It was deemed an "inappropriate measure" to make other enterprises not to engage in price competition.
   (ii) Starting in 2009, karaoke machine proprietors in various places rented up to two, three thousand sets from Zhen Yang Co. or its distributors each month. The result created actual damage to the competition on the karaoke machine rental market that indeed led to restriction on market competition and impediment to fair competition. Jia Lian Co. and Zhen Yang Co. were therefore deemed in violation of Subparagraph 4, Article 19 of the FTL for employing inappropriate measures to make other enterprises refrain from price competition and such measures restricted market competition and impede fair competition.
   (3)Considering the motive of Jia Lian Co. and Zhen Yang Co., the damage caused by their conducts, the seriousness of the violation, the scale of their operations, and their attitude after the violation, the FTC acted in line with the first section of Article 41 of the FTL, ordered the two companies to immediately cease the two aforesaid unlawful acts, and also imposed on them an administrative fine of NT$900,000 respectively.

Appendix:
Jia Lian Multimedia Co., Ltd.'s Uniform Invoice Number: 24270904
Zhen Yang Multimedia Technology Co., Ltd.'s Uniform Invoice Number: 24280683

Summarized by: Chiou, Shwu-Fen; Supervised by: Liao, Hsien-Chou