Bai Mian Dong Industry Co., Ltd.

1263rd Commissioners’ Meeting (2016)

Case:

Bai Mian Dong Industry violated the Fair Trade Law by adopting unlawful practices in franchisee recruitment

Keyword(s):

Franchise, advertising, important information

Reference:

Fair Trade Commission Decision of January 20, 2016 (the 1263rd Commissioners’ Meeting), Disposition Kung Ch’u Tzu No. 105005

Industry:

Beverage Service Activities via Stalls (5632)

Relevant Law(s):

Articles 21 and 25 of the Fair Trade Law

Summary:

1. A former worker of Bai Mian Dong Industry Co., Ltd. (hereinafter referred to as Bai Mian Dong Industry) filed with the FTC a complaint claiming that after joining the “Bai Mian Dong Top Quality Carambola Juice” franchise through the special deal for employees, he found out the contents in the advertisement posted on the company’s website were inconsistent with those in the brochure provided by the company. In addition, the company was prosecuted that it had not disclosed important franchise information before the franchise contract was signed. The informer believed that the company had violated Articles 21 and 25 of the Fair Trade Law.

2. Findings of the FTC after investigation:

   Bai Mian Dong Industry claimed on its website that “Currently there are over 60 franchisees and all of them are making profits.” In its franchisee brochure it was also stated that “ [P]resently there are over 60 franchisees and all of them are making profits,” “[T]here are close to 70 franchisees at present and every one is making money,” and “[P]resently, there are nearly 100 franchisee and they are all making profits.” Apparently, the numbers of franchisees revealed in the above documents were inconsistent. Bai Mian Dong Industry admitted that the numbers of profit-making franchisees had been established according to the Carambola juice concentrate orders placed by franchisees. In reality, the company had no objective figures to support such information. Meanwhile, the written information that Bai Mian Dong Industry provided to prospective franchisees before the contract was signed did not include the numbers of existing franchisees in different counties and cities and their addresses or the ratios of contract cancellation and termination in the previous year.

3. Grounds for disposition:

   (1)	The numbers of franchisees and the claim that every franchisee was making profits as advertised on the website of Bai Mian Dong Industry and in its franchisee brochure were inconsistent. The difference was unacceptable to trading counterparts and was likely to lead to wrong perceptions and decisions of parties interested in joining the franchise. It was in violation of Paragraph 4 of Article 21 of the Fair Trade Law and Paragraph 1 applicable mutatis mutandis.
   (2)	The number s of existing franchisees in different counties and cities and their addresses and the ratios of contract cancellation and termination in the previous year were important information concerning the scale of the market and intra-brand competition condition that potential franchisees needed to assess management performance and risks before deciding whether they would join the franchise or choose other franchisers. As the party having information advantage, Bai Mian Dong Industry took advantage of the information asymmetry and signed contracts with its trading counterparts without fully disclosing important information. It was obviously unfair conduct as stated in Article 25 of the Fair Trade Law. Moreover, Bai Mian Dong Industry applied the practice repeatedly to signed contracts with unspecific trading counterparts and the practice could have an effect on many potential victims in the future if it was not stopped. Furthermore, it might also cause the company’s competitors to lose their opportunity to sign contracts with prospective franchisees and thus would result in unfair competition on the market. The conduct was able to affect trading order in the franchise market and in violation of Article 25 of the Fair Trade Law.
   (3)	After assessing the duration of the advertisement, the number of franchisees recruited during the duration, the duration in which the company did not fully disclose important franchise information, the total sales of the company from 2012 to 2014, the number of franchisees recruited each year from 2013 to July 2015, the total number of new franchisees, the aggregate of franchise fees collected, the attitude of cooperation by the company throughout the investigation, and the first offense by the company for having corrected the false information in the advertisement, etc., the FTC imposed an administrative fine of NT$100,000 on the company for its violation of Paragraph 4 of Article 21 by applying mutatis mutandis Paragraph 1 of the same article as well as NT$50,000 for the company’s violation of Article 25 of the same law. The fines totaled NT$150,000.