Fair Trade Law Q&A - Other Restrictive Trade Practices

A1:

As specified in Article 20 of the Fair Trade Law, "No enterprise shall engage in any of the following acts that is likely to restrain competition: 1) causing another enterprise to discontinue supply, purchase or other business transactions with a particular enterprise for the purpose of injuring such particular enterprise? 2) treating another enterprise discriminatively without justification? 3) preventing competitors from participating or engaging in competition by inducement with low price, or other improper means? 4) causing another enterprise to refrain from competing in price, or to take part in a merger, concerted action, or vertical restriction by coercion, inducement with interest, or other improper means? 5) imposing improper restrictions on its trading counterparts' business activity as part of the requirements for trade engagement."

As set forth in Article 36 of the Fair Trade Law, "If any enterprise violating the provisions of Article 19 or Article 20 is ordered by the competent authority pursuant to paragraph 1 of Article 40 to cease therefrom, rectify its conduct, or take necessary corrective action within the time prescribed in the order, and after the lapse of such period, shall such enterprise fail to cease therefrom, rectify such conduct, or take necessary corrective action, or after its ceasing therefrom, shall such enterprise have the same or similar violation again, the actor shall be punished by imprisonment for not more than two years or detention, or by a fine of not more than fifty million New Taiwan Dollars, or by both." Meanwhile, it is also stipulated in Paragraph 1 of Article 40 of the Fair Trade Law that the competent authority may order any enterprise that violates Article 9, Article 15, Article 19 and Article 20 to cease therefrom, rectify its conduct or take necessary corrective action within the time prescribed in the order? In addition, it may assess upon such enterprise an administrative penalty of not less than one hundred thousand nor more than fifty million New Taiwan Dollars. Shall such enterprise fail to cease therefrom, rectify the conduct or take any necessary corrective action after the lapse of the prescribed period, the competent authority may continue to order such enterprise to cease therefrom, rectify the conduct or take any necessary corrective action within the time prescribed in the order, and each time may successively assess thereupon an administrative penalty of not less than two hundred thousand nor more than one hundred million New Taiwan Dollars until its ceasing therefrom, rectifying its conduct or taking the necessary corrective action.

Relevant article(s) of law: Fair Trade Law, Articles 20, 36 and 40

A2:

The term "boycotting" refers to the conduct of a business making or establishing agreements with other businesses not to do transactions with a certain enterprise in order to achieve the purpose of hurting such a certain enterprise or depriving such a certain enterprise of its capacity to participate in market activities in the future. Such conduct is subject to the regulation against practices "causing another enterprise to discontinue supply, purchase or other business transactions with a particular enterprise for the purpose of injuring such particular enterprise" prescribed in Subparagraph 1 of Article 20 of the Fair Trade Law. In general, each business may act according to it own profit considerations and decide to refuse transactions with any other enterprise. However, when a business is boycotted by other businesses and rendered unable to compete with other businesses, the intrinsic nature of competition is twisted. Therefore, boycotting is subject to the Fair Trade Law.

Relevant article(s) of law: Fair Trade Law, Article 20

A3:

Subparagraph 2 of Article 20 of the Fair Trade Law specifies that no enterprises may treat other businesses discriminatively without justifiable reasons. The discriminative practices prohibited do not include dissimilar unit prices of the same products sold to different trading counterparts. The spirit behind the prohibition regulation is that an enterprise with certain market power may not treat different trading counterparts discriminatively without justifiable reasons; otherwise, it is a competition restriction. Hence, not treating any other business discriminatively does not mean an enterprise has to sell it products to different trading counterparts at the same unit prices.

Relevant article(s) of law: Fair Trade Law, Article 20; Enforcement Rules of Fair Trade Law, Article 26

A4:

The term discriminatory treatment in Article 20(ii) of the Law refers to enterprises giving discriminatory treatments to other enterprises without legitimate reasons. Thus, if an enterprise has legitimate reasons for its discriminatory practices, this article is not applicable. Under Article 26 of the Enforcement Rules of Fair Trade Law, factors that should be taken into account when determining the presence of legitimate reasons are market supply and demand; cost differences; transaction amounts; credit risk; and other reasonable causes. When enterprises offer different fees to customers basing upon factors such as the customers' financial conditions, business operation and management, and industry characteristics and prospects, such extension of different terms and conditions of trading can generally be seen as falling under the scope of "legitimate reasons" in Article 26(1)(iv) of the Enforcement Rules to the Fair Trade Law, therefore the discriminatory treatment is not necessarily in violation of this Law. In actual cases, however, the applicability of the Law to specific acts should still be determined on a case-by-case basis.

Relevant article(s) of law: Fair Trade Law, Article 20

Article 20 of this Law provides that "no enterprise shall have any of the following acts which is likely to restrain competition." Among the acts listed is "treating another enterprise discriminatively without justification (Article 20(ii))."

According to Article 26 of the Enforcement Rules, the following factors shall be taken into consideration in determining whether justification exists as referred to in Article 20(ii), of this Law:

1. Supply and demand situation of the relevant market: For instance, where a manufacturer offers special discounts for seasonal or perishable products towards the end of a season or before the products being removed from the market place, in order to clear the inventory or to move products quickly.
2. Cost difference: For instance, where a manufacturer offers different discounts or terms of sale because of differences in costs, such as transport, packaging, and marketing costs.
3. Transaction amount: For instance, where a manufacturer offers discounts for purchases with large quantity or value.
4. Credit risk: For instance, where a manufacturer offers a better price or payment terms to long-time customers or customers with better credit ratings.

Other reasonable grounds: For instance, a manufacturer, due to public interest, offers lower prices to charitable institutions; or the manufacturer offers differential treatment to its trading counterpart based on their previous cooperation practices.

In determine whether the discrimination mentioned in the preceding paragraph is likely to restrain competition, the totality of such factors as the intent, purposes, and market position of the parties, the structure of the market to which they belong, the characteristics of the goods or services, and the impact that carrying out such restrictions would have on market competition shall be considered.

Relevant article(s) of law: Fair Trade Law, Article 20; Enforcement Rules of Fair Trade Law, Article 26

A6:

"Unjustifiable obstruction to prevent competitors from participating in competition" refers to the adoption of low prices or other improper means to prevent competitors from participating or engaging in competition. The purpose is to obstruct competitors from participating or engaging in competition by sabotaging or depriving competitors of the opportunity to seek transaction opportunities. Whether the means adopted by an enterprise is "improper" is to be evaluated in accordance with the motives, purposes and approaches behind such conduct.

Relevant article(s) of law: Fair Trade Law, Article 20

A7:

Article 20 of this Law provides that "no enterprise shall engage in any of the following acts that is likely to restrain competition." Among the acts listed is "preventing competitors from participating or engaging in competition by inducement with low price, or other improper means (Article 20(iii))."

The term "inducement with low price" as stated in Article 20(iii) of this Law refers to the offering of the prices below costs or obviously inappropriate so as to hinder competition or prevent competitors from participating in the market. In determining whether the low price inducement mentioned in the preceding paragraph is likely to restrain competition, the totality of such factors as the intent, purposes, and market position of the parties, the structure of the market to which they belong, the characteristics of the goods or services, and the impact that carrying out such restrictions would have on market competition shall be considered.

Relevant article(s) of law: Fair Trade Law, Article 20; Enforcement Rules of Fair Trade Law, Article 27

A8:

"Forcing other businesses to participate in competition restrictions" refers to situations in which an enterprise causes other businesses to refrain from price competition or to take part in a merger or concerted action by coercion or enticement. The purpose is to achieve common interests by restricting competition activities. The participants in a merger or concerted action ought to have the liberty to decide whether they want to restrict their business activities. If they are forced to do so, it is a serious impediment to fair competition. Such conduct is prohibited as specified in Article 20 of the Fair Trade Law.

Relevant article(s) of law: Fair Trade Law, Article 20

A9:

Restrictions onsales territories imposed to distributorsconstitute to "imposing improper restrictions on its trading counterparts' business activity as part of the requirements for trade engagement" set forth in Article 20(v) of the Fair Trade Law. However, not all the restrictions onterritories are illegal. Only whenthe related enterprises can't provide justification for such acts and such acts are likely to restrain competition. Then, there will be possibilities for such acts to be deemed illegal. The following factors shall be taken into consideration when determining whether such acts are proper: intent, purpose, the standing of the market, market structure, product characteristics and ,as well as impact on market.

Relevant article(s) of law: Fair Trade Law, Article 20

A10:

1. In determining what constitutes "tie-in sale", the following factors may be taken into consideration:
   1. There is a presence of at least two distinguishable products (or services):
      When analyzing any contract for tie-in sale, the first step is to determine the presence of two distinguishable products (or services). The following factors can be considered to determine whether the two products (or services) are distinguishable:
      1. The normal trade practices within relevant sectors;
      2. Whether there is remaining value in the products (or services) if the two are separated;
      3. Whether there is a cost saving if the two products (or services) are packaged and sold together;
      4. Whether the seller designates different prices for the two products (or services);
      5. Whether the seller had previously sold the two products (or services) separately;
      6. There should be explicit or implied requirement agreement that the buyer can not freely choose whether to purchase the product and the tie-in product simultaneously from the seller.
   2. There should be explicit or implied requirement agreement that the buyer cannot freely choose whether to purchase the product and the tie-in product simultaneously from the seller.
2. To determine whether a tie-in sale is in violation of this Law, the following factors should be considered:
   1. The seller should have a certain degree of market power in the tie-in products: In the determination of a tie-in sale, whether the seller has a certain market power in the market of the tie-in products is a major factor for consideration. If the seller does not possess sufficient market power, it will be difficult for him to promote the tie-in sale program. Should the seller be able to do so without possessing sufficient market power, his adverse influence on the market competition will also be minimal.
   2. Whether there is concern of obstructing the market of the tie-in products: When there is concern that the act of tie-in sale will obstruct fair competition in the market, such as where the market of product tie-in for sale will suffer a certain degree, volume, or ratio of exclusion effect, such act will be considered unlawful.
   3. Whether there is due cause: Acts to ensure the business reputation and product quality of the seller, or to protect the intellectual property rights of the product creator, may be considered as having due cause, and will be permitted.