Zhan Yan Ting International Marketing Consultancy Co., Ltd.

Case:

Key Words:

franchise, untruthful advertisement, failure to disclose, trading information

Reference:

Fair Trade Commission Decision of December 7, 2011 (the 1048th Commissioners' Meeting), Disposition Kung Ch’u Tzu No. 100250

Industry:

Other Amusement and Recreation Services (9329)

Relevant Laws:

Article 21(1) and 24 of the Fair Trade Law

Summary:

1. The FTC was informed by a franchisee of Zhan Yan Ting International Marketing Consultancy Co., Ltd. (hereinafter referred to as Zhan Yan Ting) that Zhan Yan Ting had not disclosed in writing important trading information regarding the total number of its franchisees, their locations, and statistics on the ratios of contract cancellation and termination in the previous year before both sides signed the franchise contract in May 2010. Moreover, the informer had to pay a franchise contract deposit of NT$170,000 in spite of Zhan Yan Ting's claim in its advertisement that "no franchise fee required" as posted on the website.
2. The findings of the FTC's investigation revealed that the franchise contract did not provided any information regarding the total number of Zhan Yan Ting's franchisees, their locations, and statistics on the ratios of contract cancellation and termination in the previous year and neither did Zhan Yan Ting disclose such information through any electronic documents. Furthermore, Zhan Yan Ting did post the claim of "no franchise fee required" in its franchise recruitment advertisement on its "Yahoo! Kimo" blog. The advertisement still remains on the Internet and the same information is also posted on Zhan Yan Ting's own website. Hence, there is no doubt that the franchise recruitment advertisement on the blog came from Zhan Yan Ting.
3. Grounds for disposition:
   (1) The investigation revealed that the wording of "no franchise fee required" in the franchise recruitment advertisement Zhan Yan Ting posted on its "Yahoo! Kimo" blog could indeed help attract potential trading counterparts who were interested in joining the franchise and starting their own businesses. Therefore, the said information was considered as meeting the description of "in any other way making known to the public" in Article 21 of the Fair Trade Law. However, it was stipulated in the first clause, first chapter of the franchise contract Zhan Yan Ting signed with the informer that the franchisee was to pay a franchise contract deposit of NT$170,000 and related records showed that 40 of the 42 franchisees of Zhan Yan Ting had paid contract deposits ranging between NT$60,000 and NT$170,000. All the above charges detailed in Zhan Yan Ting's franchise contract were inconsistent with the advertisement which was therefore considered a false, untrue and misleading representation in violation of Paragraph 3, Article 21 of the Fair Trade Law and Paragraph 1 of the same article could apply mutatis mutandis.
   (2) An examination of the franchise contract, startup cost estimates and website information provided by Zhan Yan Ting showed that the important information regarding the total number of its franchisees, their locations, and statistics on the ratios of contract cancellation and termination in the previous year was never disclosed. Yet the said information was what a prospective rental comic book business franchisee needed to assess the potential growth of the franchise, the competitiveness within the franchise chain, and the stability of the brand. As Zhan Yan Ting had the information advantage in the transaction, its failure to disclose the said information was obviously unfair to the trading counterpart that was in a disadvantageous position information-wise. The conduct was also likely to lead to unfair competition against competitors. As the establishment of franchise relations entailed excludability, competitors who could provide the same products or services would lose the opportunity to establish a business relationship with the franchisee once the contract was signed. Zhan Yan Ting had 42 franchisees that it recruited by advertising on its own website and 104boss.com, and participating in chain and franchise exhibitions. The company's continuous use of its relatively advantageous status in franchise negotiation process to establish contracts with different trading counterparts was repeated transactions. If the aforesaid behavior was not stopped, there could be more victims in the future. Hence, the conduct was deemed able to affect the trading order of the chain and franchise market and in violation of Article 24 of the Fair Trade Law.
   (3) Zhan Yan Ting's wording of "no franchise fee required" was regarded a false, untrue and misleading representation with regard to content of service. Its failure to fully disclose important franchise information before signing the contract was obviously unfair conduct able to affect the trading order of the chain and franchise market. The said acts were respectively in violation of Article 21 (3) and Article 24 of the Fair Trade Law. Acting according to Article 41 of the same law, the FTC ordered Zhan Yan Ting (transliteration) International Marketing Consultancy Co., Ltd. to immediately cease the unlawful acts and also imposed on it an administrative fine of NT$$100,000.
   

Appendix:
Zhan Yan Ting International Marketing Consultancy Co., Ltd.'s Uniform Invoice Number: 27844566

Summarized by Hsu, Hsiu-Feng; Supervised by Chiou, Shwu-Fen