Vicovation Company & Digital Star Technology Co., Ltd.

Case:

VicoVation and Digital Star violated the Fair Trade Law by restricting online auction prices

Key Word(s):

Event data recorder, online auction, product supply contract, suggested price

Reference:

Fair Trade Commission Decision of August 14, 2013 (the 1136th Commissioners' Meeting); Disposition Kung Ch'u Tzu No. 102135 and No. 102136

Industry:

Other Communications Equipment Manufacturing (2729)

Relevant Law(s):

Article 18 of the Fair Trade Law

Summary:

1. The complainant purchased a batch of VICO DS2 event data recorders from A-Mego Information Technology Co., Ltd. (hereinafter referred to as A-Mego), a distributor for Digital Star Co., Ltd. (hereinafter referred to as Digital Star) and marketed them on the auction platforms of Yahoo! and Ruten. However, Digital Star would either make phone calls or leave messages on the platforms to force the complainant to auction the products at prices set by the company and also threatened to cut its supply to the complainant or not provide warranty or tell Yahoo and Ruten auction sites that the complainant had infringed its copyright and trademark right if the complainant failed to comply. As a consequence, the complainant was unable to sell the products and suffered financial losses. The complainant therefore believed Digital Star had violated Article 18 of the Fair Trade Law.
2. Findings of the FTC after investigation:
   

   (1)

   The statements from VicoVation, Digital Star and A-mego are as follows: (i) VicoVation produced the VICO event data recorders and delegated Digital Star as its sales agent. The two companies signed a product supply contract. According to the contract, Digital Star purchased the products from VicoVation and was required to cooperate with VicoVation to maintain product prices. If retailers failed to comply, Digital Star had to take action immediately. If the prices went out of control or the products became difficult to market, VicoVation could terminate the exclusive agency contract with Digital Star. It was set forth in the contract that VicoVation also authorized Digital Star to control the prices of its products marketed online and the copyrights of corresponding texts and images. However, the distributors were not authorized to control prices. (ii) Meanwhile, Digital Star also produced its own event data recorders under the brand name of Star Eye and delegated A-mego to market this product. Digital Star and A-mego signed a product supply contract according to which the two companies would consult each other to determine the suggested prices before the products were supplied to the clients of A-mego. The contract also stipulated that A-mego had to cooperate with Digital Star to maintain product prices and take immediate action if any retailers (or sale agents) did not comply with the price policy. If A-mego failed to maintain prices as set forth in the contract, it would be considered a breach of contract and the contract would be terminated. As a result, Digital Star and A-mego looked closely on the Internet for sellers marketing the products at prices too low. Once they found any such case, they would demand rectification or notify the online platform to take the products in question off the shelf. However, they did not check whether there was any intellectual property right infringement involved in the said case.

   (2)

   At the request of the FTC, online auction platform operators explained their procedure when they receive complaints about intellectual property right infringement. Normally, they would review the patentability requirements presented by the intellectual property right holder as a formality. However, once they received an infringement notification, they usually removed the web page in concern right away.

3. Grounds for disposition:
   

   (1)

   The contract signed between VicoVation and Digital Star contained provisions on price agreement. In the meantime, the texts and images for the complainant's products that were taken off the shelf were not the same as those for VicoVation's products although the prices of the former were indeed lower than the latter. Moreover, the complaint was made to the online platforms by Digital Star who had been authorized by VicoVation to exercise price control, indicating that VicoVation was indeed serious about maintaining and controlling the prices of its VICO event data recorders, while Digital Star was bound by the contract and had to monitor the prices, taker immediately action against businesses violating the price policy and inform online action platforms of infringement practices, and requested such products be taken off the shelf. In other words, the inclusion of the provisions against those violating VicoVation's price policy was an act of interference and coercion intended to achieve price control. It was therefore in violation of Article 18 of the Fair Trade Law. As for Digital Star, being bound by the contract, it had no choice by to maintain the retail prices. Therefore, the party responsible for the conduct in question was VicoVation, not Digital Star.

   (2)

   Digital Star, besides being the agent for VicoVation, also produced its own Star Eye event data recorders. The contract Digital Star signed with A-mego also contained provisions requiring A-mego to exercise price control and take immediate action against businesses or other agents failing to comply with the price policy. Punitive measures were also stipulated when violation arises. Both Digital Star and A-mego admitted to making consultations, jointly determining product prices and establishing a price list for retailers. They also looked on the Internet for sellers marketing the products at lower prices. When such sellers were found, they would demand rectification or notify online auction platforms to remove the products at issue off the shelf. For the distributors, such conduct was an act of interference and coercion and it indeed had the effect of maintaining product prices as it deprived the retailers of their freedom to decide their prices and would eventually weaken intra-brand price competition between different distributors. The conduct was thus in violation of Article 18 of the Fair Trade Law. However, being bound by the contract, A-mego had no choice but to exercise its price control power for Digital Star. Hence, the party responsible for the conduct in question was Digital Star, not A-mego.

Appendix:
Vicovation Company's Uniform Invoice Number: 25113396
Digital Star Technology Co., Ltd's Uniform Invoice Number: 53226581

Summarized by Ma, Ming Ling; Supervised by Wu, Lieh-ling