Nexgen Mediatech Inc.

1322nd Commissioners' Meeting (2017)

Case:

Nexgen violated the Fair Trade Law by imposing resale price restrictions on its distributors

Keyword(s):

Household appliance, online sale

Reference:

Fair Trade Commission Decision of March 9, 2017 (the 1322nd Commissioners' Meeting); Disposition Kung Ch'u Tzu No. 106013

Industry:

Manufacture of Other Domestic Appliances (2859)

Relevant Law(s):

Article 19 of the Fair Trade Law

Summary:

1. The informer was a dealer selling the products of Nexgen Mediatech Inc. (hereinafter referred to as "NEXGEN") online at the prices too low and "NEXGEN" complained to the online platform operator that the dealer had infringed its copyright and the dealer was therefore removed from the platform. The informer claimed that NEXGEN imposed restrictions on the prices of online dealers for its products and this was in violation of Article 19 of the Fair Trade Law.
2. Findings of the FTC after investigation:
   (1) NEXGEN and its distributors were requested to provide and explain the contents of their distribution contracts and its actual sales practices. NEXGENH marketed Chimei household appliances both on its own and through the distributors who purchased the products outright and shouldered the risks. It signed distribution contracts with distributors and issued letters of online distribution authorization. Neither the distribution contract nor the letters of online distribution authorization include any clauses regarding resale price restrictions or penalty provisions. However, the FTC found emails dated between Jun. 8, 2015 and Feb. 2, 2016 containing names of distributors who were penalized by NEXGEN and the corresponding penalties.
   (2) The FTC requested the aforementioned online platform operator to provide their web pages and the information associated with the dealer who had been complained by NEXGEN as engaging in copyright infringement for the purpose of investigating how the dealer had been removed from the platform and how his rights to use the platform had been suspended. Quite a few people interviewed by the FTC also confirmed that their supply had been disconnected by NEXGEN for failing to sell products at prices suggested by NEXGEN.
3. Grounds for disposition:
   (1) The emails found by the FTC containing names of distributors penalized by NEXGEN and the penalties imposed included the following contents: "The original manufacturer has always enforced price control," "Subject: Buying back the machines on Jun. 8 from EASY Household Appliances Auction Site, DF-14BOST…Failing to display company certification and selling at prices excessively low—1) Supply to be suspended between Jun. 8 and Jun. 18 as a warning" and "2) Supply to be suspended for one month from Jun. 16 to Jul. 15, etc." NEXGEN contested that most of the contents were internal jokes and the penalties had been imposed as a result of the concerned distributors' credit problems so that the risk of bad debt could be reduced and the distributors could be placed under watch. However, the findings of the FTC's investigation revealed that not all the distributors having their supply suspended were those failing to make payments or the ones whose names were on credit watch list. Meanwhile, some of the distributors having their supply suspended had indeed sold products at prices lower than the prices suggested by NEXGEN. In addition, NEXGEN did not deny it had suspended supply to the distributors indicated in the aforesaid emails and further admitted that the suspension had been decided as a result of the distributors' selling products at prices lower than their purchasing costs. In other words, NEXGEN had indeed imposed resale price restrictions on distributors.
   (2) The FTC requested NEXGEN to justify its imposition of resale price restrictions. The company only responded this was to prevent price competition from affecting service quality and necessary before-sales service (such as arranging product display space, hiring and training sales clerks, and providing explanations), to reduce the possibility of sellers acquiring products from unknown sources or through illegitimate means, and to minimize the risk of bad debt. Nevertheless, it could not provide any concrete measures or related evidences to support its statement. Apparently, its contestation could not justify the imposition of resale price restrictions.
   (3) By restricting the resale prices of its distributors, NEXGEN had deprived them of the freedom to make price decisions. The distributors could not set product prices in accordance with the market competition they faced and their management strategies. In consequence, intra-brand price competition between different retail outlets would be weakened while the conduct could never be justified as for promotion of competition. It was in violation of Article 19(1) of the Fair Trade Law. Therefore, the FTC cited the first section of Article 40 of the same Law and imposed an administrative fine of NT$500,000 on NEXGEN.

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