Da Tong Water Co., Ltd.

1255th Commissioners’ Meeting (2015)

Case:

Da Tong Water violated the Fair Trade Law by adopting unlawful practices to market water purifier related products

Keyword(s):

Water purifier, filter, raffle

Reference:

Fair Trade Commission Decision of November 25, 2015 (the 1255th Commissioners’ Meeting), Disposition Kung Ch’u Tzu No. 104127

Industry:

Manufacture of Other Domestic Appliances (2859)

Relevant Law(s):

Article 25 of the Fair Trade Law

Summary:

1. A private citizen filed with Taichung City Government a complaint that he had not been on the prize winner list posted by Da Tong Water Co., Ltd. (hereinafter referred to as Da Tong Water) on its website but had been notified as having won a water purifier. Then, after the water purifier was installed with his consent, Da Tong Water pushed to sell him filters. He suspected the raffle was an excuse the company used to sell the filters and such conduct was in violation of Article 25 of the Fair Trade Law.

2. Findings of the FTC after investigation:

   The Taipei City Government and Da Tong Water were invited to make statements. It was said that Da Tong Water had set up a stand at the “2015 Chinese New Year Celebration in Taipei” organized by Taipei City Office of Commerce and held a raffle. The raffle tickets distributed did not carry the name of the party responsible for the raffle but the activity had nothing to with any government agency. Da Tong Water admitted that it had never purchased any of the prize items, such as motor scooters, refrigerators and tablet computers that were listed among the indicated on the raffle tickets. It had prepared the microwave ovens, electronic rice cookers and LCD TVs but the quantities had been far less than the numbers of such prizes to be given. The company claimed it had given out mops, mosquito lamps and dolls as prizes but was unable to present the list of winners. It could only provide a list of water purifier winners. Therefore, it was doubtful whether Da Tong Water had really carried out the raffle. Furthermore, when informing water purifier winners over the phone, Da Tong Water did tell them the value of the water purifier and those agreed to have the water purifier installed would have to pay 10% of the value (Da Tong clarified that the charges were to cover the expenses for the raffle activity and had nothing to with taxes on prizes). However, the investigation revealed that the actual cost of the water purifier was significantly lower than the 10% a prize winner was required to pay. Then, after installing the water purifiers, the company would push a filter replacement package on the prize winners who did not know the cost of the filters until then. At the same time, there was no way to compare the prices of different filters when they made the transaction.

3. Grounds for disposition:

   (1)

   If a company holds a raffle activity but informs people they have luckily won prizes without really conducting the raffle and is out of the intention to make such people do business with the company, or does not disclose that its real purpose is to sell products or services, while these people make purchases psychologically unprepared, the seller’s use of systematic marketing practices will put the people in the disadvantageous position in information asymmetry compared to the seller.

   (2)

   Da Tong Water set up a stand at an event organized by a government agency to mislead the public into believing it was associated with the government agency. Then, the company held a raffle to attract people without any intention to make business transactions and took advantage of people’s mentality of hoping to be the lucky winners and acquired their personal information. Later, it notified some people that they had won prizes even if their names were not on the prize winner list. Moreover, the cost of the water purifier was significantly lower than the amount that people agreed to have the purifier installed had to pay. Da Tong Water apparently had overestimated the value of the water purifier and the people did not know better due to their information asymmetry, thinking it was worthwhile to pay a small amount to have the water purifier installed. However, they were later pushed to purchase filters. The overall marketing practice was deceptive and obviously unfair conduct able to affect trading order in violation of Article 25 of the Fair Trade Law. According to the first section of Article 42 of the same law, the FTC ordered the company to cease its unlawful act and also imposed on it an administrative fine of NT$150,000.