Hwe-Hon Enterprise Co., Ltd. & 3 other companies

1125th Commissioners' Meeting (2013)

Case:

Hwe-Hon Enterprise Co., Ltd. and 3 other companies violated the Fair Trade Law by engaging in obviously unfair conduct in selling school edition films

Key Word(s):

Abuse of market power, exclusive license, school edition film

Reference:

Fair Trade Commission Decision of May 29, 2013 (the 1125th Commissioners' Meeting); Disposition Kung Ch'u Tzu No.102098, No.102099 and No.102100

Industry:

Motion Picture and Video Distribution (5913)

Relevant Law(s):

Article 24 of the Fair Trade Law

Summary:

GFA Co., Ltd. (hereinafter referred to as the informer) won the bids for the "2011 Video-audio Material Procurement Project" put up by the municipal libraries of New Taipei City and Kaohsiung City in August 2011. After negotiating the licensing and purchases with Hwe-Hon Enterprise Co., Ltd., Wisdom Win Distributor Co., VideoDB Enterprise Inc., and Proview Entertainment Inc., the above-mentioned four companies raised their supply prices to full rates instead of giving a 30% discount as normally practiced, and asked for full cash payment for this deal. Their intention was to make the informer profitless and withdraw from the video-audio material governmental procurement market. The conduct was a restriction on market competition or impediment to fair competition and was in violation of the Fair Trade Law.

Grounds for disposition:

(1) The offenders had the exclusive license for certain school edition films and there was no other legitimate channel to acquire for such licensed films. In other words, the demand for such films could only be satisfied by the offenders. Therefore, compared to other agents, downstream distributors, the informer, or other related businesses, the offenders definitely dominance position in that product market. According to the New Taipei City Library, the pubic procurements for library video-audio materials were often specification tenders. Under the scheme of specification tender, a list of the films needed by the buyer was announced before bidding was held with the purpose of facilitating interested parties to assess whether to participate in the bidding and prepare the films for the tender. Therefore, the specification of films and agents, as well as the purchasing prices were closely associated with a bidder's competitiveness. In other words, the competitiveness of a bidder was highly dependent on film agents. Normally, the offenders gave a 10% to 30% discount when supplying other film agents or downstream distributors. Before the incident in question, the informer had done only a few transactions with the offenders. According to the informer's past dealing experiences with the offender, a 25% to 30% discount each time had been given and payment by checks had also been accepted even though the transaction amount had never been large. However, despite the larger quantities and amounts of the two procurement projects from the city libraries, the offenders would not give any discount and at the same time demanded that the payment be made in cash. This was obviously inconsistent with the offenders' transaction pattern in the past and could not be deemed as normal and reasonable business conduct. Meanwhile, after supplying the materials for the two library procurement projects, the offenders resumed their practice of giving the informer a 25% to 30% discount on sporadic and small orders or offering a certain promissory amount to be deducted in further orders. Hence, the conduct of rising the supplying requirements by not giving any discount and demanding cash payment by the offenders in this procurement case could not be considered a normal and reasonable business practice.

(2) The investigation conducted by the FTC revealed that the bidders for the two library procurement projects had not been limited to agents for school edition films. The offenders abused their market power and impose the conditions of no discount and cash payment under the pretense that the informer was not a film agent, there wasn't any non-agent parties had ever participated in bidding, and the tenders with offers were below market prices. There wasn't any other channel to acquire the licensing films in question, thus the offenders took advantage of the relatively disadvantageous position of the informer and changed the transaction conditions normally applied in the past after the informer won the said tenders. The conduct could intimidate the informer and other potential competitors and make them withdraw from similar bidding competitions for fear of retaliation from the offenders or the lack of price incentives or profit. In consequence, fair competition in the market would be jeopardized and the function of price competition would be weakened. Therefore, culpability in business ethics undoubtedly existed in this case. It was obviously unfair conduct as described in Article 24 of the Fair Trade Law.

(3) The offenders were highly involved in the competition of video-audio material procurement market put up by libraries. The two procurement projects in question were high in total values. As the supply from the offenders constituted a high or considerable percentage in each of the said two procurement projects, their conduct was able to affect the trading order of the market of procurement projects put up by libraries and was in violation of Article 24 of the Fair Trade Law.

Appendix:
Hwe-Hon Enterprise Co., Ltd.'s Uniform Invoice Number: 86735023
Wisdom Win Distributor Co.'s Uniform Invoice Number: 12993790
VideoDB Enterprise Inc.'s Uniform Invoice Number: 16315414
Proview Entertainment Inc.'s Uniform Invoice Number: 86867895

Summarized by Lin Kuo, An-Chi; Supervised by Chiou, Shwu-Fen

! : For information of translation, click here

(1)	The offenders had the exclusive license for certain school edition films and there was no other legitimate channel to acquire for such licensed films. In other words, the demand for such films could only be satisfied by the offenders. Therefore, compared to other agents, downstream distributors, the informer, or other related businesses, the offenders definitely dominance position in that product market. According to the New Taipei City Library, the pubic procurements for library video-audio materials were often specification tenders. Under the scheme of specification tender, a list of the films needed by the buyer was announced before bidding was held with the purpose of facilitating interested parties to assess whether to participate in the bidding and prepare the films for the tender. Therefore, the specification of films and agents, as well as the purchasing prices were closely associated with a bidder's competitiveness. In other words, the competitiveness of a bidder was highly dependent on film agents. Normally, the offenders gave a 10% to 30% discount when supplying other film agents or downstream distributors. Before the incident in question, the informer had done only a few transactions with the offenders. According to the informer's past dealing experiences with the offender, a 25% to 30% discount each time had been given and payment by checks had also been accepted even though the transaction amount had never been large. However, despite the larger quantities and amounts of the two procurement projects from the city libraries, the offenders would not give any discount and at the same time demanded that the payment be made in cash. This was obviously inconsistent with the offenders' transaction pattern in the past and could not be deemed as normal and reasonable business conduct. Meanwhile, after supplying the materials for the two library procurement projects, the offenders resumed their practice of giving the informer a 25% to 30% discount on sporadic and small orders or offering a certain promissory amount to be deducted in further orders. Hence, the conduct of rising the supplying requirements by not giving any discount and demanding cash payment by the offenders in this procurement case could not be considered a normal and reasonable business practice.
(2)	The investigation conducted by the FTC revealed that the bidders for the two library procurement projects had not been limited to agents for school edition films. The offenders abused their market power and impose the conditions of no discount and cash payment under the pretense that the informer was not a film agent, there wasn't any non-agent parties had ever participated in bidding, and the tenders with offers were below market prices. There wasn't any other channel to acquire the licensing films in question, thus the offenders took advantage of the relatively disadvantageous position of the informer and changed the transaction conditions normally applied in the past after the informer won the said tenders. The conduct could intimidate the informer and other potential competitors and make them withdraw from similar bidding competitions for fear of retaliation from the offenders or the lack of price incentives or profit. In consequence, fair competition in the market would be jeopardized and the function of price competition would be weakened. Therefore, culpability in business ethics undoubtedly existed in this case. It was obviously unfair conduct as described in Article 24 of the Fair Trade Law.
(3)	The offenders were highly involved in the competition of video-audio material procurement market put up by libraries. The two procurement projects in question were high in total values. As the supply from the offenders constituted a high or considerable percentage in each of the said two procurement projects, their conduct was able to affect the trading order of the market of procurement projects put up by libraries and was in violation of Article 24 of the Fair Trade Law.