Dante Coffee and Foods Co., Ltd.

Case:

Key Words:

franchise contract, important trading information, information

Reference:

Supreme Administrative Court 2011 Judgment Pan-Tzu No. 1456

Industry:

Nonalcoholic Beverage Service Activities via Shops (5621)

Relevant Laws:

Article 24 of the Fair Trade Law

Summary:

1. Dante Coffee and Foods Co., Ltd. (hereinafter referred to as Dante Co.) had failed to disclose in writing to its trading counterparts 10 days before its establishing the franchise relationship with trading counterparts the important trading information regarding the "franchise royalties to be collected before franchise contract is officiated signed and during the contract period as well as the items, amounts, calculation, collection approaches, and reimbursement conditions of other expenses," "evaluation of potential franchisees' applications for intellectual property right licensing or the corresponding timeframe, content of the intellectual property right, and valid period," and the "statistics on the numbers of franchisees in the country and the county/city in concern and those terminating their franchise contracts in the previous fiscal year." It had been obviously unfair conduct able to affect the trading order of the chain store franchise market in violation of Article 24 of the Fair Trade Law (FTL) and therefore the Fair Trade Commission (hereinafter referred to as the FTC) of the Executive Yuan had sanctioned Dante Co. via Disposition Kung Ch'u Tzu No. 098080. Dante Co. found the sanction unacceptable and filed a petition but it was overruled. In subsequence, the company filed an administrative litigation with the Taipei High Administrative Court. The Taipei High Admnistrative Court then decided that "the original sanction and petition decision are revoked and the defendant shall be responsible for the litigation expenses." The FTC found the decision unacceptable and appealed to the Supreme Administrative Court.
2. The key points of the verdict made by the Taipei High Administrative Court (hereinafter referred to as the original court) which revoked the petition decision and the original sanction are as follows:
   The basis of the FTC's argument that the "obviously unfair" conduct as stipulated in Article 24 of the FTL of Dante Co. to have failed to disclose the aforesaid information was "a franchiser taking advantage of the information asymmetry of its trading counterparts during the transaction." The so-called "obviously unfair" as set forth in the said article refers to use of obviously unfair approaches to engage in market competition or business transactions and not just taking advantage of the trading counterpart's "information asymmetry. Otherwise, any conduct of a trading party with better access to related information can be regarded "taking advantage of information asymmetry" when transacting with its trading counterparts. The failure of Dante Co. to fully disclose necessary information did not have much impact on the risk assessment of the trading parties intending to enter the coffee shop chain franchise market in 2007. As a result, it was difficult to conclude that Dante Co. actually took advantage of information asymmetry to transact with its counterparts. Moreover, the information Dante failed to disclose was not significant enough to have an effect on the judgment of a reasonable person when he or she assessed the risk in the franchise market to decide whether to join the franchise. The original sanction was merely based on the single factor of the market share of Dante Co. when the decision regarding the impact of the conduct on market trading order was made. Apparently, whether the seriousness of the conduct in this case was "enough to affect trading order" was uncertain because other related matters had not been taken into consideration. Hence, the judgment was not sound and the original sanction was therefore inappropriate.
3. The Supreme Administrative Court reviewed the decision made by the original court and decided that the original court has applied inappropriate laws on the above facts and ruled for the FTC. The outline of the reasons given are as follows:
   The original court decided that Dante Co. had failed to fully disclose to the informer the aforesaid important trading information 10 days before establishing the franchise relationship with its trading counterparts. Since franchising is neither an individual event nor a non-recurring act, the potential existed that Dante Co. could engage in the same or similar conduct and create a large number of victims. It is therefore inappropriate to consider the conduct of Dante Co. as an individual and non-recurring act to which Article 24 of the FTL does not apply. In any sense, causing actual damage should not be a prerequisite. As long as the conduct is already objectively unfair, it is unlawful. Neither is it necessary to find out whether the informer was able to assess the costs beforehand or if the information was publicly accessible and the informer was to do the research. The appealer's decision, by applying the first section of Article 41 of the same law, to order Dante Co. to immediately cease the unlawful act starting on the day of receiving the disposition and to impose on the company an administrative fine of NT$500,000 for its exploitation of the informer's information asymmetry or other trading disadvantages and lack of transparency in the transaction which was considered an act of obviously unfair conduct seriously detrimental to business ethics and market competition and able to affect the trading order of the chain store franchise market in violation of Article 24 of the FTL shall be considered legally appropriate and therefore shall be sustained.

Appendix:
Dante Coffee and Foods Co., Ltd.'s Uniform Invoice Number: 84478864

Summarized by: Lai,Chia-Ching ; Supervised by: Lee, Wen-Show