Asus Computer

1269th Commissioners' Meeting (2016)

Case:

Asus Computer violated the Fair Trade Law by falsely claiming its PadFone S smartphone as equipped with electronic wallet functions

Keyword(s):

Smartphone, electronic wallet, false advertising

Reference:

Fair Trade Commission Decision of March 2, 2016 (the 1269th Commissioners' Meeting); Disposition Kung Ch'u Tzu No.105020

Industry:

Retail Sale of Telecommunications Equipment in Specialized Stores (4832)

Relevant Law(s):

Article 21(1) of the Fair Trade Law

Summary:

1. To market its PadFone S (model no. PF500KL) smartphone (hereinafter referred to as the cell phone in question) AsusTek Computer Inc. (hereinafter referred to as Asus Computer) posted an advertisement on its company website and claimed the cell phone in question was a "smartphone with brand new functions allowing near field communication, contactless transaction and data switch, officially integrating your wallet in your cell phone" (hereinafter referred to as the ad in question). In the meantime, through Asus Technology Incorporation (hereinafter referred to as Asus Technology), the cell phone in question was distributed to be sold by Senao International Co., Ltd (hereinafter referred to as Senao International) while the ad in question was also given to Uitox International Pte. Ltd. Taiwan Branch (hereinafter referred to as Uitox Taiwan), a marketing channel of Senao, to be uploaded to the ASAP shopping website and broadcasted. However, after mobile payment platforms were launched in the country, many consumers who had purchased the cell phone in question because they are attracted by the electronic wallet function later realized that the cell phone did not support electronic wallet functions. Hence, false advertising was suspected.

2. 2. Grounds for disposition:

   (1)	Asus Computer, Asus Technology, Uitox Taiwan and Senao International were all advertisers in this case: (i) The cell phone in question was designed and manufactured by Asus Computer which, based on its expertise and experience, must have been perfectly aware of the quality and functions of the product. The company also provided the funds to have the ad in question produced, as well as reviewed and made the final decision for the ad at issue to be posted to market the said cell phone. In other words, Asus Computer alone decided the production and posting of the ad in question. Meanwhile, Asus Computer provided distributors with the electronic files of the ad in question for them to use. Even businesses that had not signed contracts with Asus Computer could ask Asus Computer for the ad in question to market the said cell phone. This means Asus Computer had had the ad in question produced and provided it to be used by Uitox Taiwan in order to market its own product and gain profits. For this reason, there was no doubt that Aus Computers was an advertiser of the ad in question. (ii) Asus Technology was responsible for marketing the products of Asus Computer. In addition, Asus Technology was the source of information for Senao International regarding which distributors to sign contracts with as well as the supplier of the cell phone in question for Senao International. Asus Technology issued the invoice for every cell phone in question sold to Senao and made a profit from it. Meanwhile, according to Item (3) of Point 3 of Article 6 in the distribution contract signed between Asus Technology and Senao International, Senao required the written consent of Asus Technology before it could use any advertising materials to market the products from Asus Computer. If the content of any advertising material was inconsistent with the reality, Senao had the obligation to inform Asus Technology and wait for Asus Technology to make corrections before it could use such advertising materials. Based on the above facts, it was evident that Asus Technology had the rights to supervise, review and correct the contents of advertisements used by retailers. Therefore, Asus Technology was an advertiser in this case. (iii) Asus Computer provided the ad in question for Uitox Taiwan to upload it to the ASAP shopping website and on that website, the ad in question was labeled with a text and symbols to indicate that it belongs to ASAP, whereas Uitox Taiwan would issue invoices to consumers purchasing the product in question. Therefore, from consumers' point of view, they were doing business with Uitox Taiwan that managed the ASAP shopping website and posted the ad in question. In the meantime, Uitox Taiwan admitted that the company could take a certain cut from the sale of each said cell phone and the cut would become bigger with the increase of sales. Under such circumstances, Uitox Taiwan had to be considered an advertiser in this case. (iv) Senao International bought the cell phone in question from Asus Technology, acquired the products and then provided it to be sold by Uitox Taiwan on consignment. In other words, it used the e-commerce channel of Uitox Taiwan to market its products. It was the provider of the cell phone in question, participated in the marketing process and earned a profit when each cell phone was sold. Therefore, Senao International was deemed an advertiser in this case.
   (2)	The claim posted in the ad at issue that the cell phone in question was a "smartphone with brand new functions allowing near field communication, contactless transaction and data switch, officially integrating your wallet in your cell phone" deliver the impression to the consumers that the cell phone in question had the functions of an electronic wallet. Once it was integrated with the right software and credit cards, it could be used to make electronic payments. However, Asus Computer contested that the wording had been misplaced. Due to the consideration of market maturity, during the design and production processes there had been no plan to equip the phone with electronic wallet functions or future upgrade for the cell phone in question. In other words, the cell phone in question indeed did not equipped with electronic wallet functions. However, the ad in question had been posted on the company's website from July 8, 2014 to January 7, 2015 until the company announced that the cell phone in question did not support electronic wallet functions. Although the company announced on its website on February 4, 2015 that consumers who had purchased the cell phone in question could return it at designated locations, it had been half year after the company posted the correction message. During that period of time, the false advertising had led consumers to make wrong decisions and in turn caused them damages. Obviously, the false advertising had created unfair competition. Despite that Asus Computer later posted the correction message, the company still had to be held responsible for the unfair competition it had created in the market by posting the false advertisement.
   (3)	To have electronic wallet functions, a smartphone has to be equipped with an NFC sensing antenna on its motherboard. In addition, related software and a third party payment environment such as the TSM platform the basic requirements. The special law on third party payment in the country, "the Act Governing Electronic Payment Institutions", was not enacted until January 16, 2015, six months after the cell phone at issue was marketed. For this reason, it was questionable whether the cell phone at issue had electronic wallet functions when it was released and whether, objectively, the NFC mobile payment environment was available to allow it to be equipped with electronic wallet functions. Asus Computer, Asus Technology, Uitox Taiwan and Senao International marketed the cell phone at issue with the ad in question alleging that electronic wallet functions was equipped before the special regulation on third party payment was enacted without confirming whether the cell phone in question really had the functions as claimed. It was a failure to fulfill the obligation of advertisers in violation of Article 21(1) of the Fair Trade Law. Therefore, the FTC imposed an administrative fine of NT$2 million on Asus Computer, NT$600,000 on Asus Technology, and NT$450,000 on each of Senao International and Uitox Taiwan.