Chun Shin Limited

1385th Commissioners' Meeting (2018)

Case:

Chun Shin Limited violated the Fair Trade Law by restricting distributors' resale prices

Keyword(s):

Roof rack, shopping platform

Reference:

Fair Trade Commission Decision of May 23, 2018 (the 1385th Commissioners' Meeting); Disposition Kung Ch'u Tzu No. 107030

Industry:

Manufacture of Parts for Motor Vehicles (3030)

Relevant Law(s):

Article 19 of the Fair Trade Law

Summary:

1. The FTC received complaints from private citizens about Chung Shin Company Limited (hereinafter referred to as Chun Shin Limited) posting an announcement on the Thule roof rack page on Facebook declaring that the company had imposed restrictions on the resale prices of its distributors and that the company would cut supply for one month on distributors who were found engaging in price competition on online shopping platforms where the company would conduct irregular price inspections. Chun Shin Limited also claimed in the announcement that all of its distributors were requested to cooperate. The practice was considered an violation of the Fair Trade Law.
2. Findings of the FTC after investigation:
   (1) Chun Shin Limited was an agent for six brands of products. To purchase the products of two of the six brands, camping cars and camping trailers, customers had to place orders with the company directly and no distributors were involved. As for the products of the four other brands (including roof racks, backpacks, soap, etc.), the distributors purchased them from the company outright. The contents of agreements signed with the distributors were not entirely the same, but all of the agreements included resale price restriction clauses or even the corresponding penalty provisions.
   (2) The FTC's investigation revealed that the distributors for roof racks, backpacks and soap (products of the four other brands) had signed distribution agreements with Chun Shin Limited and every agreement included clauses to restrict resale prices and the corresponding penalty provisions. The clauses clearly restricted the freedom of distributors to decide their resale prices. Chun Shin Limited contested that the resale price restriction in the distribution agreements was stipulated to reduce disputes with distributors as well as improve distributors' customer services, and that the agreements did not contain penalty provisions and the company had never really imposed the resale price restriction. However, maintaining resale prices could lead to collusion between distributors whereas Chun Shin Limited could not produce any evidences to support the resale price restriction could achieve the objectives of improving customer services and promoting competition. In other words, the argument of Chun Shin Limited could not be considered justifiable.
3. Grounds for disposition:
   (1) Chun Shin Limited also claimed that the resale price restriction had been stipulated in the agreements for distributing roof racks and roof boxes because of traffic safety consideration. Nevertheless, the company did not present any concrete data and evidences to explain the actual services its distributors had to provide for traffic safety consideration and the costs of such services. Meanwhile, the FTC discovered that some of its distributors did not provide installation services at all. According to the Directorate General of Highways and Vehicle Safety Certification Center of the Ministry of Transportation and Communications, there was no law requiring installation businesses to apply for inspections and change of registration. Neither was there any regulation requiring that the installation at issue had to be conducted in professional factories. Therefore, consumers could do the installation themselves. In other words, the traffic safety consideration claimed by Chun Shin Limited was groundless. The company also contested that the resale price restriction was to prevent malicious competition from affecting service quality and assure no improper installation would reduce product life spans. As a result, the cost of warranty went up. However, the FTC's investigation showed some distributors would charge for installation, but some would not in order to attract consumers to make purchases. Hence, there was also no evidence to prove the resale price restriction imposed by Chun Shin Limited had anything to do with improving distributors' awareness of the public safety of the products. Under such circumstances, there was nothing to justify the resale price restriction imposed by Chun Shin Limited.
   (2) The resale price restriction imposed by Chun Shin Limited deprived its distributors of their freedom to decide prices. These businesses were unable to determine their product prices according to the market competition they faced and their management strategies. The result would weaken intra-brand price competition between different distributors while there was no way market competition could be promoted. The practice was in violation of Paragraph 1 of Article 19 of the Fair Trade Law. Therefore, citing the first section of Paragraph 1 of Article 40 of the same Law, the FTC ordered Chun Shin Limited to immediately cease the unlawful act and imposed on it an administrative fine of NT$100,000 at the same time.