Blood glucose meter, promotion

1. When checking the condition of the blood glucose meter market in the country, the FTC discovered that the contract signed by Bionime Corporation (hereinafter referred to as Bionime Corp.) with its distributors were in violation of the regulation against resale price restrictions in Paragraph 1 of Article 10 of the Fair Trade Law and, therefore, initiated an ex officio investigation.
2. Findings of the FTC after investigation:
   After talking with Bionime Corp. and inquiring its distributors in writing, the FTC found out that, besides producing and marketing its own Rightest blood glocose meters, Bionime Corp. was also licensed to sell blood glocose meters manufactured by GE. Bionime Corp. supplied the products to its distributors through outright sales.
   1. Bionime Corp. stipulated in the distribution contract that the company had the right to cancel sales performance incentives (according to the contract with distributors for GE and Rightest blood glucose meters in 2013, 2014 and 2015) and overseas travel incentives (according to the contract with distributors for GE and Rightest glucose meters in 2013 and 2014) as well as terminate the contract if any distributor sabotaged prices set by the company. Moreover, Bionime Corp. issued a statement to the distributors to reiterate its policy to terminate contracts with distributors who failed to make product price adjustments in compliance with the company's suggested prices after being requested to do so repeatedly. At the same time, Bionime Corp. also sent its employees to different retail outlets to check the prices that its products were sold, and advise, remind or demand distributors to adjust prices to as close to company's suggested prices as possible if the prices they saw far lower than the suggested prices. The practice restricted the resale prices of goods supplied to its trading counterpart for resale to a third party.
   2. Bionime Corp. contested that the practice was intended to stabilize product prices to maintain brand positioning and its profit. It was also insisted that the company had never really taken any punitive measure. However, Bionime Corp. was unable to provide any evidence to explain how it could achieve the goal of "promoting intra-brand competition" by restricting the resale prices of the distributors. In addition, distributors who did not abide by the contractual clause could have their sales performance and overseas travel incentives canceled or their contracts terminated. This could easily form some psychological pressure on the distributors. Therefore, the abovementioned interference from Bionime Corp. had actually restricted its distributors from determining their resale prices.
3. Grounds for disposition:
   As set forth in Paragraph 1 of Article 19 of the Fair Trade Law, "an enterprise shall not impose restrictions on the resale prices of goods supplied to its trading counterpart for resale to a third party or to such third party for making further resale; however, those with justifiable reasons are not subject to this limitation." Therefore, whether resale price restrictions would restrain or promote market competition and whether an enterprise needed to restrict resale prices for a certain period or within a certain range to achieve promotion of competition were matters the party in concern had to clarify. Bionime Corp. used the contractual means to restrict the resale prices of its distributors for GE and Rightest blood glucose meters and also issued a statement to threaten the distributors that the company would cancel sales performance and overseas travel incentives or even terminated the contract if any distributor failed to comply with its suggested prices. The above practice obviously was a restriction on the freedom of the distributors to make their resale price decisions in accordance with the market competition they faced and their cost structures. In consequence, intra-brand price competition would be weakened and the resale price restriction could not be justified as intended to promote competition. Without question, the practice was in violation of Paragraph 1 of Article 19 of the Fair Trade Law. In addition to ordering Bionime Corp. to immediately cease the unlawful act, the FTC also imposed on it an administrative fine of NT$100,000.