Fubon Multimedia Technology

1370th Commissioners' Meeting (2018)

Case:

Fubon Multimedia Technology was complained for violating the Fair Trade Law by using most-favored-customer clauses to restrict suppliers' business activities

Keyword(s):

Online shopping platform, most favored customer clause, price

Reference:

Fair Trade Commission Decision of February 7, 2018 (the 1370th Commissioners' Meeting)

Industry:

Wholesale of Sports Goods (4582)

Relevant Law(s):

Article 20 of the Fair Trade Law

Summary:

1. As a result of the increasing maturity of e-commerce in the country, online shopping and online store platforms have become important sales channels. To understand whether the "momo Shopping Network" of Fubon Multimedia Technology Co., Ltd. (hereinafter referred to as Fubon Multimedia Technology) was using most-favored-customer clauses to restrict suppliers from offering better prices or transaction terms to its competitors, the FTC initiated an investigation.
2. Findings of the FTC after investigation:
   The "momo Shopping Network" of Fubon Multimedia Technology was an online shopping platform selling all kinds of products. It accounted for around 27.15% of the domestic online shopping market. In the cooperation agreements signed between Fubon Multimedia Technology and its suppliers, both Paragraph 3 of Article 2 and Paragraph 1 of Article 3 carried most-favored-customer clauses which covered purchases prices and retail prices. The details are as follows:
   (1) Most-favored purchase price restriction: Fubon Multimedia Technology required suppliers to offer the company the same prices they gave other channels on the market. Under the restriction, what the so-called "minimum prices" really meant was the prices had to be "not any higher" than the prices offered to other channels on the market, instead of "lower" than the prices offered to other channels on the market. Therefore, it was impossible to consider the company intended to engage in market foreclosure by pushing up the costs of competitors. As a matter of fact, when its suppliers violated most-favored-customer clauses, Fubon Multimedia Technology never issued warning letters or held them responsible for breaches of contract. The FTC's investigation showed that the company never actually executed the clauses. In addition, other online shopping platforms had many suppliers to choose to cooperate with, not just the suppliers working with the "momo Shopping Network." Even if other online shopping platforms and the "momo Shopping Network" had the same sources of supply, the suppliers could provide dissimilar product combinations or special offers to avoid the result of being subject to the restrictions of most-favored-customer clauses. Meanwhile, according to Article 10 of the Cooperation Agreement of Fubon Multimedia Technology, the suppliers could notify the company in writing if they wished to terminate the agreement when it was still valid. In other words, other online shopping platforms could always try to persuade such suppliers to change sales channels after they canceled agreements with Fubon Multimedia Technology. Apparently, no market foreclosure ever happened.
   (2) Most-favored retail price restriction: Although some economic literature indeed pointed out that the most-favored retail price could lead to anti-competition effects, including alleviation of competition between retailers, creation of entry barriers in the retail sector, and reduction of incentives for other retailers to engage in price competition, In this case, however, because the competitors on the market (Yahoo!, PChome Online Inc., etc.) did not authorize the suppliers to determine retail prices. The most-favored purchase price restriction imposed by Yahoo! and PChome Online Inc. on the suppliers neutralized the competition alleviation effect from the most-favored retailed price restriction imposed by Fubon Multimedia Technology. Moreover, many new businesses had entered the online shopping market in recent years. Some of them (such as Shopee) even proclaimed that they offered the service of using their platforms for free or at low prices. Obviously, the most-favored retail price restriction agreed upon between Fubon Multimedia Technology and its suppliers did not really increase entry barriers or make it impossible for new businesses to enter the market by adopting low-price strategies. The concentration in the domestic online shopping market was medium level, but the strategic interactions between businesses did not reach the level of interdependence like that among oligopolistic businesses. Therefore, it was impossible to conclude that the most-favored retail price restriction imposed by Fubon Multimedia Technology could reduce the incentives for other retailers to engage in price competition.
   (3) According to existing evidences, the FTC found it difficult to conclude Fubon Multimedia Technology had violated Subparagraph 5 of Article 20 of the Fair Trade Law.