Digilion Inc.

1164th Commissioners' Meeting (2014)

Case:

Digilion Inc. violated the Fair Trade Law by restricting resale price

Key Word(s):

ATM IC card reader, price list, quotation, suggested retail price

Reference:

Fair Trade Commission Decision of February 26, 2014 (the 1164th Commissioners' Meeting); Disposition Kung Ch'u Tzu No.103027

Industry:

Manufacture of Other Computer Peripheral Equipment (2719)

Relevant Law(s):

Article 18 of the Fair Trade Law

Summary:

The FTC received complaints from a retailer of Digilion Inc. (hereinafter referred to as the "Company") that it received an e-mail from the Company in April 2013 demanding that distributors may only sell the DIGILION EasyATM Pro2 (hereinafter referred to as the "Product"), the Company's second generation ATM IC card reader, at a price of NT$700, and will demand distributors to take down the Product and seek compensation in the event they do not comply within a specified period. The retailer thus sent a letter to the FTC inquiring whether if the conduct violated the Fair Trade Law.

Findings of the FTC after investigation:

(1) The Company indicated that the retail price of its products is specified on its quotations, which also states that "distributors must strictly abide by the pricing strategy of the Company," and the Company irregularly notified its distributors of the latest market price list. The Company indicated that if a distributor does not follow the pricing strategy, it will potentially impact profit and result in vicious competition, and the Company will no longer supply products to the distributor. Furthermore, e-mails in 2012 also contained information requesting clients of distributors to abide by the pricing strategy.

(2) The FTC sent letters to 28 distributors of the Company and downstream trading counterparts, 4 (including the complainant) received the price list in contention, of which 3 adjusted prices accordingly. None of the downstream businesses (including the complainant) were penalized for not adjusting sales prices accordingly.

Grounds of disposition:

(1) The "distributor contract" signed between the Company and distributors contains stipulations on prices and is also attached with a price list. The contract also contains penalties in the event distributors do not abide by the retail price. The FTC found that the quotations provided by the Company to distributors (or retailers) not only specified the price of their transaction, but also the "retail price," and the bottom of the quotations stated that: "Distributors shall strictly abide by the pricing strategy set by the Company." The "online distribution channel price list" sent by the Company to distributors (retailers) specified the "suggested retail price,""buyout price," and the description "1. To maintain...please sell products according to the price strategy announced by the Company…4. The Company shall no longer supply products in the event the pricing strategy is not followed..." This provision clearly deprives distributors or retailers of their freedom to determine resale price.

(2) The Company admitted that when it found a distributor or retailer that set prices too low, it would ask the distributor or retailer's upstream distributor to communicate with the distributor or retailer. If the distributor or retailer refused to adjust its prices, the Company would ask the upstream distributor to take back products and refund the client to stop the client from harming the balance of market prices. Although the Company claimed that it did not impose any penalties or seek compensation for damages, it admitted that distributors, such as TsannKuen Trans-Nation Group and Sunfar Computer Co., Ltd., all sold their products at the suggested retail price. Quite a few distributors of the Company indicated that they were indeed restricted by the contract and price list. Since there were contracts and written agreements between the Company and distributors (retailers), they were restraining to both parties. In the event a distributor (retailer) did not abide by the stipulations in the contract, a penalty might be imposed on the distributor (retailer), or the Company might stop supplying products or terminate the contract, forming pressure on distributors (retailers) psychologically. The freedom of distributors to set prices has been restrained by the aforementioned penalties. The Company's conduct has therefore interfered with and pressured distributors (retailers) to maintain resale price.

(3) The contract that restricted the resale prices of distributors had deprived the freedom of distributors to make their own price decisions. The distributors were thus unable to set prices in accordance with the level of market competition they faced and their business strategy, and it also restricted their sales arrangements for different brands. The conduct was in violation of Article 18 of the Fair Trade Law. The FTC therefore ordered the Company to cease its unlawful act and also imposed an administrative fine of NT$50,000 in accordance with Article 41(1) of the Fair Trade Law.

Appendix:
Digilion Inc.'s Uniform Invoice Number: 80690251

Summarized by Liou, Wan-Jhen; Supervised by Wu, Lieh-Ling

! : For information of translation, click here

(1)	The "distributor contract" signed between the Company and distributors contains stipulations on prices and is also attached with a price list. The contract also contains penalties in the event distributors do not abide by the retail price. The FTC found that the quotations provided by the Company to distributors (or retailers) not only specified the price of their transaction, but also the "retail price," and the bottom of the quotations stated that: "Distributors shall strictly abide by the pricing strategy set by the Company." The "online distribution channel price list" sent by the Company to distributors (retailers) specified the "suggested retail price,""buyout price," and the description "1. To maintain...please sell products according to the price strategy announced by the Company…4. The Company shall no longer supply products in the event the pricing strategy is not followed..." This provision clearly deprives distributors or retailers of their freedom to determine resale price.
(2)	The Company admitted that when it found a distributor or retailer that set prices too low, it would ask the distributor or retailer's upstream distributor to communicate with the distributor or retailer. If the distributor or retailer refused to adjust its prices, the Company would ask the upstream distributor to take back products and refund the client to stop the client from harming the balance of market prices. Although the Company claimed that it did not impose any penalties or seek compensation for damages, it admitted that distributors, such as TsannKuen Trans-Nation Group and Sunfar Computer Co., Ltd., all sold their products at the suggested retail price. Quite a few distributors of the Company indicated that they were indeed restricted by the contract and price list. Since there were contracts and written agreements between the Company and distributors (retailers), they were restraining to both parties. In the event a distributor (retailer) did not abide by the stipulations in the contract, a penalty might be imposed on the distributor (retailer), or the Company might stop supplying products or terminate the contract, forming pressure on distributors (retailers) psychologically. The freedom of distributors to set prices has been restrained by the aforementioned penalties. The Company's conduct has therefore interfered with and pressured distributors (retailers) to maintain resale price.
(3)	The contract that restricted the resale prices of distributors had deprived the freedom of distributors to make their own price decisions. The distributors were thus unable to set prices in accordance with the level of market competition they faced and their business strategy, and it also restricted their sales arrangements for different brands. The conduct was in violation of Article 18 of the Fair Trade Law. The FTC therefore ordered the Company to cease its unlawful act and also imposed an administrative fine of NT$50,000 in accordance with Article 41(1) of the Fair Trade Law.