Taiwan Sakura Corporation

1169th Commissioners' Meeting (2014)

Case:

Taiwan Sakura Corporation violated the Fair Trade Law by restricting online sales prices

Key Word(s):

Water heater, gas stove, online sales, product supply contract, suggested price

Reference:

Fair Trade Commission Decision of April 2, 2014 (the 1169th Commissioners' Meeting); Disposition Kung Ch'u Tzu No. 103039

Industry:

Manufacture of Other General-purpose Machinery (2939)

Relevant Law(s):

Article 18 of the Fair Trade Law

Summary:

The complainant sells water heaters and other products in stores and online, and signed a distributor agreement with Ying Chun Co., Ltd. (hereinafter referred to as "Ying Chun"). The agreement stipulates that the distributor's price list may not be lower than the cost of products when purchased from the Company, and that the annual bonus and all benefits of violators will be cancelled and the contracted will be terminated. The complainant's products were taken down by the online sales platform because the Company's supplier – Taiwan Sakura Corporation (hereinafter referred to as "Taiwan Sakura") believed that the complainant's online sales price was too low, and reported the complainant to the online sales platform for copyright or trademark infringement. Ying Chun and Taiwan Sakura were thus suspected of violating Article 18 of the Fair Trade Law.

Findings of the FTC after investigation:

(1) After inquiring Taiwan Sakura and Ying Chun about the case and investigating Taiwan Sakura's exclusive distributor of each area and online distributors, the FTC found that Sakura products are produced by Taiwan Sakura and then distributed by exclusive distributors of 10 areas (Ying Chun is the exclusive distributor of Taipei), as well as distributors under each exclusive distributor. Taiwan Sakura signed exclusive distributorship agreements with its exclusive distributors in each area, in which exclusive distributors make outright purchases of products and bear the associated risks. Taiwan Sakura signed online sales agreements with online distributors, and claimed that most online distributors are also distributors under exclusive distributors. Exclusive distributors signed distributor incentive agreements with downstream distributors, which make outright purchases of the product and bear the associated risks.

(2) The FTC asked the operator of the online sales platform to explain its process for handling infringements on intellectual property rights, and learned that only a "formality examination" is performed based on claims brought forth by the owner of intellectual property rights. The operator of the online sales platform usually immediately removes the webpage suspected of rights infringement upon receiving a notification from the owner of intellectual property rights.

Grounds of disposition:

(1) Taiwan Sakura signed the agreements with distributors on the resale of Sakura products and is responsible for the conduct in this case. Ying Chun did not enter into any agreements with its distributors on the resale price of products, and distributors verified that they were almost free to set the price in stores. Taiwan Sakura was the party that reported an infringement to the online sales platform, and also admitted that it was responsible for signing agreements and managing online distribution channels. Hence, Ying Chun cannot be deemed responsible for the conduct in this case.

(2) The abovementioned "exclusive distributorship agreement" and "online sales agreement" contained product pricing principles and penalty provisions in the event they were violated. The agreements or online sales agreements Taiwan Sakura signed with distributors were binding to both parties and the stipulation on pricing clearly restricts the freedom of distributors to decide their prices.

(3) Online distributors signed online licensing agreements for use of trademarks belonging to Taiwan Sakura. The provisions of such an agreement should only cover distributorship licensing, and the distributors should still have the freedom to set the resale price of products they were licensed. However, the agreement in contention contained stipulations on pricing principles and penalty provisions in the event of a violation. Hence, Taiwan Sakura restricted the resale price of its products through the licensing of its intellectual property rights. A considerable proportion of the web pages that were taken down did not use the trademark of Taiwan Sakura, but those with prices lower than the price on Taiwan Sakura's official website were still taken down due to complaints that they "infringed on Taiwan Sakura's trademark or copyright." If the distributors did not comply with stipulations of the agreement, their distributorship might be terminated, their web page might be taken down, or their licensing might be terminated. For the distributors, such conduct was an act of interference and coercion and it indeed had the effect of maintaining resale prices as it deprived the retailers of their freedom to decide their prices, and would eventually weaken price competition between different distributors. The conduct was thus in violation of Article 18 of the Fair Trade Law. The FTC therefore ordered the Taiwan Sakura to cease its unlawful act and also imposed an administrative fine of NT$1 million in accordance with Article 41(1) of the Fair Trade Law.

Appendix:
Taiwan Sakura Corporation's Uniform Invoice Number: 23113940

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

! : For information of translation, click here

(1)	Taiwan Sakura signed the agreements with distributors on the resale of Sakura products and is responsible for the conduct in this case. Ying Chun did not enter into any agreements with its distributors on the resale price of products, and distributors verified that they were almost free to set the price in stores. Taiwan Sakura was the party that reported an infringement to the online sales platform, and also admitted that it was responsible for signing agreements and managing online distribution channels. Hence, Ying Chun cannot be deemed responsible for the conduct in this case.
(2)	The abovementioned "exclusive distributorship agreement" and "online sales agreement" contained product pricing principles and penalty provisions in the event they were violated. The agreements or online sales agreements Taiwan Sakura signed with distributors were binding to both parties and the stipulation on pricing clearly restricts the freedom of distributors to decide their prices.
(3)	Online distributors signed online licensing agreements for use of trademarks belonging to Taiwan Sakura. The provisions of such an agreement should only cover distributorship licensing, and the distributors should still have the freedom to set the resale price of products they were licensed. However, the agreement in contention contained stipulations on pricing principles and penalty provisions in the event of a violation. Hence, Taiwan Sakura restricted the resale price of its products through the licensing of its intellectual property rights. A considerable proportion of the web pages that were taken down did not use the trademark of Taiwan Sakura, but those with prices lower than the price on Taiwan Sakura's official website were still taken down due to complaints that they "infringed on Taiwan Sakura's trademark or copyright." If the distributors did not comply with stipulations of the agreement, their distributorship might be terminated, their web page might be taken down, or their licensing might be terminated. For the distributors, such conduct was an act of interference and coercion and it indeed had the effect of maintaining resale prices as it deprived the retailers of their freedom to decide their prices, and would eventually weaken price competition between different distributors. The conduct was thus in violation of Article 18 of the Fair Trade Law. The FTC therefore ordered the Taiwan Sakura to cease its unlawful act and also imposed an administrative fine of NT$1 million in accordance with Article 41(1) of the Fair Trade Law.