Fair Trade Law Q&A - Resale Price MaintenanceFair Trade Law Q&A - Resale Price Maintenance
1. What are"restrictions on resale prices?" What are the corresponding regulations and penalties in the Fair Trade Law? A1:
"Restrictions on resale prices" belong to vertical restrictions imposed by enterprises on their downstream distributors by setting the resale prices for products they supply and demanding that distributors sell the products accordingly. For example, when manufacturer A demands that wholesaler B resell the products from A to retailers at prices set by A when A sells B the products or if A directly imposes a restriction on the retail prices of its products, it is a"restriction on resale prices."According to Article 19 of the Fair Trade Law,"An enterprise shall not impose restrictions on resale prices of the goods supplied to its trading counterpart for resale to a third party or to such third party for making further resale. However, those with justifiable reasons are not subject to this limitation. The provision of the preceding paragraph shall apply mutatis mutandis to services provided by an enterprise." In the meantime, it is also stipulated in Article 40 of the same act that the Fair Trade Commission may order any enterprise that violates Article 19 to cease or rectify its conduct or take necessary corrective measures within a given period as well as impose an administrative fine of between NT$100,000 and NT$50 million. If such an enterprise fails to comply, the Fair Trade Commission may continue to order the enterprise to cease or rectify its conduct or take any necessary corrective measures within a given period and also impose an administrative fine of between NT$200,000 and NT$100 million each time until the enterprise ceases or rectifies its conduct or takes necessary corrective measures.
Relevant article(s) of law: Fair Trade Law, Article 19
2. What negative effects do"restrictions on resale prices" imposed by suppliers have on market competition? A2:
When an upstream supplier imposes a resale price restriction, it virtually deprives the downstream businesses of their freedom and right to determine the prices of their products or services. Consequently, price competition in the distribution stage is restrained and the effects on market competition are negative, especially with products that are highly differentiated or monopolistic or oligopolistic in essence. For this reason, restrictions on resale prices are prohibited in most countries. Only restrictions on the resale prices of publications or daily commodities in certain markets where competition is particularly fierce may be exceptionally approved. However, legislation in most countries in recent years indicates that the ranges of such exceptional approvals in major countries have gradually become smaller.Relevant article(s) of law: Fair Trade Law, Article 19
3. What is the meaning of the"justifiable reasons" stated in the proviso set forth in Paragraph 1 of Article 19 of the Fair Trade Law? Who is responsible for providing the evidence? A3:
According to Article 25 of the Enforcement Rules of the Fair Trade Law,"The just cause stated in the proviso clause of Paragraph 1 of Article 19 of the Law shall be determined by the competent authority on the basis of the evidence presented by participating enterprises and taking into account the following factors: 1) Encouragement of downstream enterprises to enhance efficiency or quality of pre-sale service: 2) Prevention of free-riding effects; 3) Promotion of entries of new businesses or brands; 4) Stimulation of competition between brands; 5) Other reasonable economic grounds concerning competition." Therefore, enterprises are required to provide justifiable reasons for the resale price restrictions they impose to be evaluated by the competent authority. In other words, enterprises accused of imposing resale price restrictions are required to present evidence that such practices are justifiable and the competent authority will then assess such evidence to determine whether the practices in question comply with the proviso in Paragraph 1 of Article 19 of the Fair Trade Law.Relevant article(s) of law: Fair Trade Law, Article 19
4. Are businesses in violation of the Fair Trade Law when they include stipulations on suggested prices in distribution contracts, print prices on products or attach price tags to products? A4:
As set forth in Article 19 of the Fair Trade Law,"An enterprise shall not impose restrictions on resale prices of the goods supplied to its trading counterpart for resale to a third party or to such third party for making further resale. However, those with justifiable reasons are not subject to this limitation. The provision of the preceding paragraph shall apply mutatis mutandis to services provided by an enterprise." These provisions are intended to regulate"restrictions" imposed by businesses on the resale prices of their trading counterparts. Therefore, if an upstream supplier has not actually imposed restrictions to force its downstream distributors to sell its products at certain prices or not to give discounts, it will be jumping to conclusions to say that such a supplier has violated Article 19 of the Fair Trade Law simply on the grounds that the supplier has stipulated suggested prices in distribution contracts, printed prices on the products, or attached price tags to the products.Relevant article(s) of law: Fair Trade Law, Article 19
5. Manufacturers sometimes provide suggested prices for products sold to wholesalers and retailers. If a wholesaler or retailer sells such a product at a price significantly lower than the suggested rate and consequently affects the market price of the product, is it in violation of the Fair Trade Law when the manufacturer discontinues supply to such a wholesaler or retailer? A5:
As stated in Article 19 of the Fair Trade Law,"An enterprise shall not impose restrictions on resale prices of the goods supplied to its trading counterpart for resale to a third party or to such third party for making further resale." This means that an enterprise may not discontinue supply to punish its downstream wholesalers or retailers for failing to sell products supplied by the enterprise at suggested prices agreed upon. Otherwise, it may be considered in violation of Article 19 of the Fair Trade Law.Relevant article(s) of law: Fair Trade Law, Article 19