Far Eastern New Century Corporation & Far Eastern Textile Ltd.

Case:

The FTC initiated an ex officio investigation on FENC's suspected violation of failing to file a pre-merger notification regarding its possession of 100% shares of FET

Key Word(s):

Solid polyester granule, polyester staple fiber

Reference:

Fair Trade Commission Decision of July 10, 2013 (the 1131st Commissioners' Meeting)

Industry:

Basic Chemical Material Manufacturing (1810)

Relevant Law(s):

Articles 6, 11, 11-1 and 12 of the Fair Trade Law

Summary:

1. When Far Eastern New Century Corporation (hereinafter referred to as FENC) was established on December 28, 2011, it already possessed 100% shares of Far Eastern Textile Ltd. (hereinafter referred to as FET). In the year of 2011, FENC claimed 51.4% and 42.9% market share of the solid polyester granule and polyester staple fiber respectively. However, the company never filed a pre-merger notification to the FTC and was therefore suspected as having violated the Fair Trade Law.
2. Findings of the FTC after investigation:
   

   (1)

   As FENC did hold 100% shares of FET when it was established on December 28, 2011, the condition met the description in Article 6(1)(ii) of the Fair Trade Law, that is"where an enterprise holds or acquires the shares or capital contributions of another enterprise to an extent of more than one-third of the total voting shares or total capital of such other enterprise." According to FENC's annual report in 2011 and its statements presented to the FTC as well as information retrieved from the FTC's industrial database,FENC accounted for over one quarter of the domestic polyester staple fiber market and therefore reached the threshold for pre-merger notification filing set forth in Article 11(1)(ii) of the Fair Trade Law that"one of the enterprises in the merger has one fourth of the market share." Hence, holding 100% shares of FET without filing a pre-merger notification with the FTC, FENC was suspected in violation of this regulation.

   (2)

   However, the findings of the FTC's investigation revealed that the name FET had been adopted for nearly 60 years since the company's establishment in 1951 until it was changed to FENC as a result of its shareholders assembly's decision in 2009. According to the first section of Article 18(1) of the Company Act,"No company may use a corporate name which is identical with that of another company." In other words, the name of a company is an important basis in distinguishing a company from others and therefore should be regarded an intangible asset with economic value.

3. Grounds for disposition:

   Considering that the accumulated business reputation of FET in the last six decades and how consumers and its trading counterparts would relate the name FENC with the business entity, FENC therefore held 100% shares of FET to prevent confusion in case that the name FET being registered and used by another business. This meant that the company was aware of the significance of the name FET to its business operations and the order of the relevant market and the name FET has been an important part of the company's assets. Meanwhile, since the business items of newly set-up FENC did not include manufacturing of solid polyester granules and polyester staple fiber, there was no impact on these two product markets. In other words, the establishment of FENC and its holding of 100% shares of FET could be considered an enterprise expanding its scale by transferring the principal part of its property to a newly set-up independent business. Under such circumstances, the case shall be regarded as meeting the requirement for exemption from filing pre-merger notifications with the FTC as set for in Article 11-1(iii) of the Fair Trade Law. In short, there was not enough evidence to conclude that FENC had violated the Fair Trade Law.