Taiwan Sakura Corporation

1300th Commissioners' Meeting (2016)

Case:

Taiwan Sakura Corp. violated the Fair Trade Law by restricting prices of its products marketed through online auctions

Keyword(s):

Water heater, gas stove, online auction
Reference:
Fair Trade Commission Decision of October 5, 2016 (the 1300th Commissioners' Meeting); Disposition Kung Ch'u Tzu No. 105107

Industry:

Manufacture of Other Domestic Appliances (2859)

Relevant Law(s):

Article 19 of the Fair Trade Law

Summary:

  1. The informer was selling products of Taiwan Sakura Corporation (hereinafter referred as Taiwan Sakura) online at excessively low prices. Taiwan Sakura informed the platform operator that the informer had infringed its copyright or trademark right and the products therefore had to be taken off the shelf provided by the platform. The informer thought Taiwan Sakura's practice was a restriction on online sellers' product prices and this was in violation of Article 19 of the Fair Trade Law.
  2. Findings of the FTC after investigation:
    1. The FTC requested Taiwan Sakura and its general distributor for each region to provide copies of their distribution contract as well as describe their sales practices. Apparently, Taiwan Sakura marketed its products through the general distributors for different regions and their distributors. The products were sold outright and distributors at various levels were responsible for any risk thereafter entailed. With the general distributors, Taiwan Sakura signed the "general distribution contract" which included provisions on resale price restrictions and corresponding penalties.
    2. The FTC requested the said online platform operator to provide the web page involving rights infringement as claimed by Taiwan Sakura and also the information of the sellers who was the targets of the infringement complaints so that the FTC can investigate why and how the products were taken off the shelf. A questionnaire survey was also conducted on distributors authorized by Taiwan Sakura to market online before 2014 and their transactions with the company. The survey result showed that some of the distributors expressed they had not used the logo of Taiwan Sakura, but claims of rights infringement were filed and their products were taken off the shelf because their marked prices were lower than the prices agreed upon between Taiwan Sakura and the general distributors.
  3. Grounds for disposition:
    1. As stipulated in the general distribution contract signed between Taiwan Sakura and its general distributors, the prices for Sakura products were to be set in accordance with those both sides agreed upon. Any price adjustment to be made required further negotiations between both parties. If there was any violation of the above contractual clauses, Taiwan Sakura could issue written statements to demand correction and improvement efforts made by the general distributors within a given period. Meanwhile, it was also stipulated that either party violating or failing to abide by the contract and not making corrections or fulfilling its contractual obligation within 30 days, the other party could issue a written notice to terminate the contract. Some of the contracts also included provisions regarding resale price restrictions, handling of breaches of contract, and punitive fines. The FTC also found out that there had been a few online distributors (who obtained their products from Taiwan Sakura's general distributors or their distributors) ending up having their products taken off the shelf because their prices were lower than the those agreed upon between Taiwan Sakura and the general distributors for different regions.
    2. When requested to provide justifiable causes for restricting resale prices, Taiwan Sakura stated that the complaints filed by the company with the platform operator were mostly against unauthorized use of its trademark. However, most of the web pages removed by the platform operator only displayed product pictures, names, model numbers or descriptions without the logos of the company. Some even did not show any image. Taiwan Sakura claimed trademark infringement had indeed occurred but was unable to prove those products with the Sakura trademark were products from Taiwan Sakura and therefore trademark infringements had happened. Neither was the company able to present any evidence to explain how it could promote intra-brand competition by restricting the resale prices of its downstream distributors. The business scales, operating models and management costs of the distributors were all different. Resale price restrictions would prohibit the distributors from determining their prices, weaken price competition between different retailers, and thus price rigidity on the market could occur. Therefore, it was impossible to conclude that Taiwan Sakura had any justifiable causes as specified in the proviso of Paragraph 1 of Article 19 of the Fair Trade Law.
    3. By restricting the resale prices of its distributors, Taiwan Sakura deprived them of the freedom to make price decisions. The distributors were unable to determine their product prices according to the competition they faced and their management strategies. As a result, intra-brand price competition between different retail outlets would be weakened whereas the excuse of promoting competition was not justifiable. The conduct was in violation of Paragraph 1 of Article 19 of the Fair Trade Law. Therefore, the FTC cited the first section of Paragraph 1 of Article 40 of the same act and imposed an administrative fine of NT$1.2 million on Taiwan Sakura.

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

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