Giant Manufacturing Co., Ltd.

Case:

Key Words:

bicycle, suggested retail price, online sales

Reference:

Fair Trade Commission Decision of October 17, 2012 (the 1093rd Commissioners' Meeting), Disposition Kung Ch'u Tzu No. 101153

Industry:

Bicycles Manufacturing (3131)

Relevant Laws:

Article 18 and 19(6) of the Fair Trade Law

Summary:

1. After finding out that the distributor contract of Giant Manufacturing Co., Ltd. (hereinafter referred to as Giant Co.) contained provisions to resale price maintenance, the FTC sent a letter to in early 2010 urging Giant Co. to reexamine its contract clauses and advised it not to use any wording in relation to resale price maintenance agreement in order to avoid violation of competition restraints. However, in 2011, comments about the stiffness of prices of Giant bicycles could still be seen on the Internet. Meanwhile, when the FTC visited a number of bicycle businesses to investigate the restriction against online sales imposed on its distributors by Merida Industry Co., Ltd., most of the investigated businesses expressed that the contract of Giant Co. also had the same clauses. The FTC reviewed the distributor contract of Giant Co. and found out the contract was indeed stipulated that the distributors were prohibited from displaying or selling Giant products online and there were also provisions on the breach of the contract.
2. Findings of the FTC after investigation:
   It was set forth in Paragraph 3, Article 1 of the contract Giant Co. signed with its distributors, "Without the written consent of Party B (Giant Co.) in advance, Party A (the distributor) may not directly or indirectly display or sell products from Party B on the Internet." Subparagraph 3 of Article 3 also specified that "Party A is required to sell products from Party B according to the prices suggested by Party B." Meanwhile, according to the approaches for handling breach of contract prescribed in Articles 13 and 17, Giant Co. could terminate the contract and demand compensation from the distributor if the distributor should violate the agreement or fail to fulfill its obligations prescribed in the contract. Giant Co. denied having demanded its distributors to sell its products at certain prices or give certain discounts and contested that the provisions against online sales had been stipulated because there could be safety concerns when consumers purchased parts online to assemble bicycles. The purpose was to protect the brand image and reputation of the company. Moreover, no distributors had ever had their distributorship revoked for failing to sell according to the suggested retail prices or engaging in online sales. The FTC visited the distributors of Giant Co. to understand the prices suggested for nearly 30 bicycle models and the actual prices they were sold for. The actual prices ranged between 80% of the suggested prices and full prices. Giant Co. also disclosed that the profit of a distributor was about 22-25% and all the distributors had expressed the willingness to set their prices according to the suggested prices. The investigation indicated that the distributors seldom gave any discount better than 20% off and this had to be related to the regulation in the contract. The FTC also paid random visits to the distributors of Giant Co. 13 out of the 16 distributors visited all confirmed that Giant Co. had indeed imposed a restriction upon their online sales and the penalties included issuance of warnings, revocation of distributorship and discontinuation of supply. Lastly, the FTC ran a check on the use of the Internet for business purposes by the 260 distributors of Giant Co., only 2 of them had posted prices online but none of them took orders online.
3. Grounds for disposition:
   Giant Co. definitely played a rather significant role in the domestic bicycle market. By stipulating in its distribution contract the restriction on its distributors selling online and threatening to revoke distributorship as a penalty to force distributors to stick to the suggested retail prices and not to engage in online sales, the company had deprived the distributors of their freedom to determine their prices and marketing approaches and therefore violated Article 18 of the Fair Trade Law. Meanwhile, the restriction imposed upon the distributors who conduct online sale was an unjustifiable practice of limiting the business activities of trading counterparts. It was a competition restriction or impediment to fair competition in violation of Subparagraph 6, Article 19 of the same law. According to the first section of Paragraph 1 of Article 41 of the same law, the FTC imposed an administrative fine of NT$3.5 million on Giant Co. and ordered it to cease the unlawful act immediately.

Appendix:
Giant Mfg. Co., Ltd.'s Uniform Invoice Number: 56054251

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