Klight Sport Marketing

1389th Commissioners' Meeting (2018)

Case:

Klight Sport Marketing Co., Ltd. violated the Fair Trade Law by restricting distributors' resale prices for bicycle rack

Keyword(s):

Bicycle rack, presales service

Reference:

Fair Trade Commission Decision of June 20, 2018 (the 1389th Commissioners' meeting); Disposition Kung Ch'u Tzu No. 107047

Industry:

Wholesale of Sports Goods (4582)

Relevant Law(s):

Article 19 of the Fair Trade Law

Summary:

1. Klight Sport Marketing Co., Ltd. (hereinafter referred to as Klight Sport marketing) was an agent for a number of brands of bicycles and bicycle parts. Each year, the company requested its distributors to sign with it distribution agreements that included a stipulation prohibiting the distributors from selling the company's products at rates lower than 90% of the suggested prices. If any distributor violated the regulation, the company could terminate the distributorship. The practice was in violation of Article 19 of the Fair Trade Law.
2. Findings of the FTC after investigation:
   In 2015, Chong Yue Bicycle Shop started to sell Cerv矇lo bicycles and bicycle racks for which Klight Sport Marketing was the agent. In June 2017, Chong Yue Bicycle Shop sold the Cerv矇lo R5 bicycle racks at 70% of the suggested price to a group Facebook users. Afterwards, Klight Sport Marketing sent its employee on June 30, 2017 to give an oral notice that Chong Yue Bicycle Shop's distributorship was revoked and the company would not provide any further supply. Meanwhile, the FTC also visited and interviewed other distributors and found out they all sold Cerv矇lo products at no less than 90% of the suggested prices as Klight Sport Marketing requested.
3. Grounds for disposition:
   (1) It was specified in the"Cerv矇lo Distributor Cooperation Regulations" signed between Klight Sport marketing and its distributors, "1. The selling prices of or quotations for products of the season may not be lower than 90% of the suggested prices??Once violation of any of the aforementioned is confirmed, Klight Sport Marketing shall revoke the distributorship if the violation is deemed serious?匠light Sport Marketing has the right to terminate the cooperation relationship immediately?? At the same time, a Cerv矇lo product suggested price list was attached to the regulations. After Chong Yue Bicycle Shop sold the Cerv矇lo R5 bicycle racks at 70% of the suggested price to a group of Facebook users, its distributorship was immediately revoked by Klight Sport Marketing. There was no doubt that the company's resale price restriction stipulated in the aforesaid cooperation regulations and the penalty the company would actually impose could form considerable psychological pressure for its distributors as well as restrict the right of the distributors to determine their prices. The company's practice made the distributors unable to decide the prices of the products they carry in accordance with the market competition they faced and their cost structures. In consequence, intra-brand price competition between different distributors was weakened. Although Klight Sport Marketing stated that the resale price restriction was to assure each distributor could have a reasonable profit and would provide presales services such as explaining the structure and teaching customers to assemble bicycles correctly. Nonetheless, the company still imposed price restrictions on bicycle racks that were not products of the season. In other words, the statement was an excuse and unjustifiable. The practice was in violation of Article 19 of the Fair Trade Law.
   (2) After assessing the sales of Klight Sport Marketing, the duration of the unlawful conduct and the market share of the bicycle rack in question, the FTC cited the first section of paragraph 1 of Article 40 of the Fair Trade Law and imposed an administrative fine of NT$100,000 on Klight Sport Marketing.