Alterna International Haircare

1332nd Commissioners' Meeting (2017)

Case:

Alterna International Haircare violated the Fair Trade Law by restricting the resale prices of hair salons for its products

Keyword(s):

Hair salon, price competition

Reference:

Fair Trade Commission Decision of May 17, 2017 (the 1332nd Commissioners' Meeting); Disposition Kung Ch'u Tzu No. 106036

Industry:

Wholesale of Cosmetics (4572)

Relevant Law(s):

Article 19 of the Fair Trade Law

Summary:

1. The FTC received complaints from private citizens about Alterna International Haircare Co. Ltd. (hereinafter referred to as Alterna International Haircare) illegitimately restricting the resale prices of hair salons for its Moroccanoil (hereinafter referred to as argan oil products) in violation of Article 19 of the Fair Trade Law.
2. Findings of the FTC after investigation:
   (1) The main business item of Alterna International Haircare was selling Moroccanoil products (including argan oil products). According to the written statement from Alterna International Haircare and interviews with hair salons selling the products, the latter purchased outright from the former.
   (2) Alterna International Haircare stipulated in the sales authorization agreement for different products to restrict the hair salons from engaging in price competition. Otherwise, the company had the right to terminate the authorization and suspend product supply. According to the statement given by Alterna International Haircare at the FTC and the results of a survey and interviews conducted by the FTC, if the salespeople of Alternal International Haircare discovered any hair salon selling the company's argan oil products at prices lower than the suggested prices established by the company or the on sale prices lower than 90% of the suggested prices, they would request, remind or persuade the hair salon to make adjustments. Meanwhile, the FTC's investigation also revealed that many hair salons sold the argan oil products at prices suggested by Alternal International Haircare. This meant the company was able to use the aforementioned stipulation and practices to impose restrictions on the resale prices of products supplied to its trading counterpart for resale to third parties. Alterna International Haircare contested that as a matter of fact hair salon operators normally would cooperate after they were requested and persuaded by its salespeople and no authorization had actually been terminated. However, the threat of sales authorization termination and supply suspension as specified in the agreement had already formed psychological pressure for the hair salon operators. In other words, the intervention resulted from the company's practice had substantially restricted the freedom of the hair salon operators to decide their resale prices.
   (3) Alterna International Haircare used maintenance of price consistency and prevention of vicious competition as the excuse for the resale price restriction imposed on the hair salons but could not explain the connection between the the resale price restriction and promotion of competition. In addition, as the business scale, operating mode and management cost of the hair salons were all different, the resale price restriction would only suppress the freedom of the hair salon operators to determine their prices and weaken intra-brand competition. This meant Alterna International Haircare was unable to provide any concrete evidences to prove the resale price restriction could promote intra-brand competition and justify its conduct as legitimate as prescribed Article 25 of the Enforcement Rules of Fair Trade Law, so that the condition could comply with the proviso of Article 19 (1) of the Fair Trade Law.
3. Grounds for disposition:
   Alterna International Haircare stipulated in the sales authorization agreement for different products to restrict the resale prices of hair salons for the company's argan oil products. Its salespeople would also persuade and request the hair salons to maintain product prices; otherwise the company would resort to the punitive measures of terminating sales authorization and suspending supply as stipulated in the agreement. The conduct apparently restricted retailers' freedom to decide their own prices and the outcome would weaken intra-brand price competition between different businesses while the conduct could not be justified as for promotion of market competition. Hence, the practice was in violation of Article 19(1) of the Fair Trade Law. After assessing the duration of the unlawful act having lasted since 2012, the number of contracted hair salons, the motive and purpose behind the unlawful act, the violation being the first, and the company's cooperativeness throughout the investigation, the FTC ordered Alterna International Hair to immediately cease the unlawful act while imposing on it an administrative fine of NT$150,000.

Alterna International Haircare Co. Ltd.'s Uniform Invoice Number: 25114563