Wu Hang Communications Co., Ltd.

1334th Commissioners' Meeting (2017)

Case:

Wu Hang Communications violated the Fair Trade Law during recruiting franchisees to sell the "WOW" cell phones

Keyword(s):

Franchise, important information

Reference:

Fair Trade Commission Decision on May 31, 2017 (the 1334th Commissioners' Meeting); Disposition Kung Ch'u Tzu No. 106038

Industry:

Retail Sale of Telecommunications Equipment in specialized Stores (4832)

Relevant Law(s):

Article 25 of the Fair Trade Law

Summary:

1. The FTC received from a private citizen (hereinafter referred to as the informer) a complaint accusing Wu Hang Communications Co., Ltd. (hereinafter referred to as Wu Hang Communications) of violating the Fair Trade Law by not revealing its intention to open another franchised store in the area where the informer was operating, not disclosing the total number of its franchisees, and demanding each franchisee to sell at least 60 phones each month or a fine of NT$500 for each cell phone short would be imposed.
2. Findings of the FTC after investigation:
   (1) Wu Hang Communications admitted that in addition to the franchise contract for parties interested in joining the franchise to sign, it did not provide any franchise brochure, franchise agreement draft or any written information, and the rights and obligations of both parties were as defined in the contract. An inspection of the contract showed Wu Hang Communications did not fully disclose in writing important franchise information, including the company's management plan and the number of franchised stores it intended to set up in the same operating area, the number of franchisees in all counties and cities, their addresses and the ratios of contract cancellation and contract termination in the previous year, and the minimum quantity of products to be sold or other restrictions during the contract period. As a result, the FTC concluded the conduct was obviously unfair.
   (2) Wu Hang Communications began to recruit franchisees to sell the "WOW" cell phones in Sep. 2013 and currently had nine franchised stores. Apparently, the company repeatedly took advantage of its information superiority to recruit and signed contracts with unspecific trading counterparts and such counterparts were unable to make correct transaction decisions because of the information asymmetry that put them in a disadvantageous position. The practice not only was unfair to the trading counterparts but also caused the company's competitors to lose the opportunity to find business partners. The effect on the trading order on the marketplace was no doubt apparent and would continue to influence other potential trading counterparts and bring more harm to the trading order if the conduct was not stopped.
3. Grounds for disposition:
   (1)When recruiting franchisees to sell the "WOW" cell phones, Wu Hang Communications did not fully disclose to uts trading counterparts in writing before the contract was signed important franchise information, including the company's management plan or the number of franchised stores it intended to set up in the same operating area, the number of franchisees in all counties and cities and their addresses, the ratios of contract cancellation and contract termination in the previous year, and the minimum quantity of products to be sold or other restrictions during the contract period. It was obviously unfair conduct able to affect trading order in violation of Article 25 of the Fair Trade Law.
   (2) After assessing the duration of the unlawful act of Wu Hang Communications (since September 2013), the total number of franchisees, the scale of business in 2015, the violation being the first, and its cooperativeness throughout the investigation, the FTC cited the first section of Article 42 of the Fair Trade Law to impose an administrative fine of NT$150,000 on the company and at the same time ordered it to cease the aforesaid unlawful act.