Bokelai Digital

1326th Commissioners' Meeting (2017)

Case:

The FTC initiated an ex officio investigation into Bokelai Digital's use of "most favored customer clauses" to restrict the business activities of its suppliers

Keyword(s):

Most favored customer clause, electronic commerce, dominating market status

Reference:

Fair Trade Commission Decision of April 7, 2017 (the 1326th Commissioners' Meeting)

Industry:

Other Information Service Activities (6390)

Relevant Law(s):

Article 20(v) of the Fair Trade Law

Summary:

1. In recent years, the competition authorities in the United States and other countries have begun to pay attention to competition problems derived from "most favored customer clauses" established between electronic commerce operators and their suppliers and initiated antitrust investigations on electronic commerce operators adopting "most favored customer clauses." In order to understand whether Bokelai Digital Science and Technology Co., Ltd. (hereinafter referred to as Bokelai Digital) applied "most favored customer clauses" to restrict it suppliers from offering better prices or transaction conditions to its competitors, the FTC initiated an ex officio investigation.
2. Suppliers intending to sell products on the shopping website of Bokelai Digital had to sign with the company the "product supply contract," "product transaction agreement," "product order transfer agreement," "warehoused product transaction agreement," and "marketing activity cooperation agreement" which included stipulations regarding matters associated with purchase prices of products to be marketed on the Bokelai shopping website, payments, product supply and returns, sales incentives and supply discounts. The FTC's intention was to find out whether the contents of the agreements included clauses requesting suppliers to give Bokelai Digital the "most favored customer treatment," such as purchase prices could not be any higher than those offered to horizontal competitors, as a transaction condition which could restricted market competition.
3. The FTC investigation of the abovementioned agreements signed between suppliers and Bokelai Digital revealed that the terms of transaction with regard to purchase prices, payment terms, product supply and returns, sales incentives and purchase price discounts slightly varied from supplier to supplier. Some suppliers even removed the provisions concerning sales incentives or requested Bokelai Digital to pay for transportation of returned products, indicating Bokelai Digital did not have enough power in the online shopping market to decide the contents of agreements on its own. Meanwhile, the agreements did not request suppliers to give Bokelai Digital the "most favored customer treatment" as a transaction condition. In other words, Bokelai Digital did not impose any "most favored customer clauses" to restrict the business activities of suppliers and this was confirmed by suppliers cooperating with the company.
4. The Bokelai shopping website sold a large number of different types of products. The condition was not the same as that of "single product or service" price-comparing websites overseas, such as auto insurance, hotel room reservation or plane ticket purchase sites where "most favored customer clauses" would be adopted. Moreover, the Bokelai shopping website did not enjoy any dominating status in the domestic online shopping market. Suppliers had the liberty to choose any shopping site for cooperation and each shopping website would offer better transaction terms to attract suppliers to form enough competition pressure. At the same time, none of the suppliers interviewed expressed Bokelai Digital had used contracts or other measures to demand them to give the company the "most favored customer treatment" as a transaction condition. Therefore, there was no concrete evidence to conclude Bokelai had engaged in any anti-competition practice to restrict the business activities of its trading counterparts.
5. In conclusion, the FTC decided Bokelai Digital had not demanded suppliers to give it the "most favored customer treatment" as a transaction condition. In other words, the company had not engaged in any anti-competition conduct to restrict the business activities of its trading counterparts. Therefore Bokelai Digital did not violate the Fair Trade Law.