Merida Industry Co., Ltd.

Case:

Key Words:

bicycle, online sales

Reference:

Fair Trade Commission Decision of May 30, 2012 (at the 1073rd Commissioners' Meeting), Disposition Kung-Ch'u-Tzu No. 101063

Industry:

Bicycles Manufacturing (3131)

Relevant Laws:

Subparagraph 6 of Article 19 of the Fair Trade Law

Summary:

1. The FTC was informed by one of the distributors for Merida Industry Co., Ltd. (hereinafter referred to as Merida Co.) that it began to advertise on the Kimo auction site after acquiring the distributorship in 2008 but received a notice from Merida Co. on March 4, 2010 demanding it not to advertise and sell online or its distributorship would be revoked. Again in May 2010, it received a legal attest letter from Merida Co. to inform that its distributorship had been cancelled. Up to this point, the said distributor had been buying from Merida Co. to sell the products. Yet, in addition to the distributorship revocation, Merida Co. also announced on its website that it had never authorized any distributors to conduct online sales and the products purchased online would not be covered by the warranty issued from the manufacturer Merida Co.. The informer thought the announcement would render the warranty for the remaining products in its inventory invalid and it was against the principle of fair trade.
2. Findings of the FTC after investigation:
   On the sales outlet web page of Merida website, it was clearly listed that Merida's distribution system was divided into flagship stores, display and sales centers, exclusive stores, and shops without a contract. The "Marketing Newsletter" sent on February 8 and March 4 and the legal attest letter sent to the informer on May 10 by Merida Co. contained messages that" your selling Merida products on the Kimo auction website is a serious violation of our company regulations… If the conduct is not corrected within the specified period or if it is discovered again that you engage in online sales, Merida shall revoke your distributorship," "we notified you in writing on February 8 that your selling Merida products online was a serious violation of our company regulations… Our investigation showed that no correction had been made as of March 4 and your distributorship is therefore revoked in accordance with our company regulations," and "we sent you the notice on March 4 that your distributorship was terminated." According to these documents, the dispute between the two parties was related to online sales. Merida Co. denied that there was any dispute or there is any imposition of any restriction on online sales. The FTC interviewed randomly selected distributors for Merida Co. and 28 out of the 36 interviewed businesses confirmed that they had been told by Merida Co. not to conduct online sales and the punishments for violators included warnings, distributorship revocation, and supply cutoff. Further investigations by the FTC revealed that, besides the informer, there were two other distributors that received warnings and had their name of distributor removed from the web page after Merida Co. found out about their online sales. Therefore, there was no question about the restriction from Merida Co. on its distributors against online sales.
3. Grounds for disposition:
   Merida Co. had certain market power in the domestic bicycle market. By restricting its distributors from making online sales and using distributorship revocation as a penalty to force distributors not to engage in online sales or make disclose the restriction, the company already put a restraint on the freedom of the distributors to compete for business opportunities, deprived them of their right to decide their sales approaches, and suppressed the promotion of transaction information transparency that could enhance performance competition. The conduct was deemed likely to lessen market competition and an illegitimate restriction on the business activities of its trading counterparts as a condition for further business relations. It was likely to restrict competition or impede fair competition in violation of Subparagraph 6 of Article 19 of the Fair Trade Law. Acting according to the first section of Paragraph 1, Article 41 of the same law. Consequently the FTC ordered Merida Co. to immediately cease its unlawful act and also imposed on the company an administrative fine of NT$2,000,000.

Summarized by Lin, Hui-Mei; Supervised by Wu, Lieh-Ling

Appendix:
Merida Industry Co., Ltd.'s Uniform Invoice Number: 59052361