By Henry Chang and Sonya Hsu (Baker McKenzie Taipei) The Fair Trade Law (amended on 23 November 2011) addresses antitrust issues of monopoly, business combination, cartel, multi-level distribution, other anti-competitive business activities, fines that can be imposed in respect of serious abuses of monopoly power and cartels (up to 10 percent of total annual sales in the preceding fiscal year) and the leniency policy.
The Fair Trade Law includes prohibitions regarding the conduct of monopolistic enterprises, cartel activity and unfair competition. It also regulates “business combination”. The term “business combination” is used in the Fair Trade Law to include the merging of businesses, acquiring of stock, transfer of business or assets, joint ventures and similar arrangements.
The Fair Trade Commission (Commission) is the primary governmental body responsible for implementing and enforcing the Fair Trade Law and its associated regulations. After the reform of the central administrative agencies organizations, effective from 6 February 2012, the Commission became an independent agency as it exercises its powers and functions independently without the supervision of other agencies and operates autonomously. The main areas of current enforcement focus of the Commission are business combination, cartel, the leniency policy and unfair competition conduct, including false advertisements.
The Fair Trade Law provides that a monopolistic enterprise cannot engage in any of the following acts:
- obstructing, directly or indirectly, by unfair method, the participation in competition by another enterprise;
- making improper decisions on, or improperly maintaining or making changes in, the prices of goods or compensation for services;
- requiring its trading counterpart to give it special benefits without proper or justifiable grounds; or
- other acts by abusing its market position.
The term “monopoly” as used in the Fair Trade Law means that in a specific market an enterprise either enjoys a position of no competition or has achieved an overwhelmingly superior status capable of thwarting and keeping out competition. Two or more enterprises shall be deemed monopolistic enterprises if they do not in fact engage in price competition with each other and they as a whole have the same status as the enterprise defined in the above paragraph. The term “specific market” as used in the Fair Trade Law means a geographic area or a coverage wherein enterprises compete in respect of particular goods or services.
The Fair Trade Law prohibits “cartel” activities. A “cartel” is referred to as “concerted action” in the Fair Trade Law, which is defined as: an enterprise which acts in concert with another enterprise or enterprises with which it is in competition, as a result of a contract, agreement or any other form of a meeting of intentions, in deciding on the prices of their goods or service, or in restricting the quantity, technology, products, equipment, trading counterparts, trade areas, etc., of their business, thereby restraining each other’s activity. However, a number of situations are exempt where the activity is beneficial to the economy as a whole, as well as to the public interest, and permission has been granted by the Commission. Price fixing and market sharing are likely to fall into concerted actions and are strictly prohibited.
4.2 Resale price maintenance
The Fair Trade Law provides that where an enterprise supplies goods to its trading counterpart for resale to a third party or for such third party to make further resale, the trading counterpart and the third party shall be allowed to decide their resale prices freely. Any agreement contrary to this provision shall be void. Therefore, it is unlawful for a supplier to attempt to set a fixed or minimum resale price, or to set a maximum resale price or minimum discount. However, the supplier may suggest a resale price or discount and still allow dealers to decide their resale prices freely. In recent decisions, the Commission opined that a supplier’s interference with the pricing schemes of the dealer constitutes a violation no matter whether the supplier triggers the termination right, penalty clause or the right to stop the supply.
4.3 Anti-competitive arrangements
The Fair Trade Law provides that no enterprise may perform any of the following acts if it is likely to lessen competition or to impede fair competition:
- causing another enterprise to discontinue supply, purchase or other business transactions with a particular enterprise for the purpose of injuring such particular enterprise;
- giving discriminatory treatment to another enterprise or enterprises without proper or justifiable cause;
- causing the trading counterpart(s) of its competitors to do business with it by coercion, inducement with interest, or other improper means;
- causing another enterprise to refrain from competing in price, or to take part in a business combination or a concerted action by coercion, inducement with interest, or other improper means;
- acquiring the secret of production and sales, information concerning trading counterparts or other technology-related secret of any other enterprise by coercion, inducement with interest, or other improper means; or
- trading with a trading counterpart, conditional upon the imposition of certain improper restrictions on the business activity of such counterpart.
The term “restrictions,” as mentioned in the previous paragraph (f), refers to the circumstances under which an enterprise engages in restrictive activity in regards to tie-ins, exclusive dealing, territory, customers, use or otherwise. The Fair Trade Law also prohibits an enterprise from doing any of the following acts with respect to the goods or services it supplies, which infringe upon the identification symbol of another enterprise:
- using in the same or similar manner, the personal name, business or corporate name, or trademark of another, or container, packaging, or appearance of another’s goods, or any other symbol that represents such person’s goods, commonly known to relevant enterprises or consumers, so as to cause confusion with such person’s goods; or selling, transporting, exporting, or importing goods bearing such representation;
- using in the same or similar manner, the personal name, business or corporate name, or service mark of another, or any other symbol that represents such person’s business or service, commonly known to relevant enterprises or consumers, so as to cause confusion with the facilities or activities of the business or service of such person; or
- using on the same or similar goods a mark that is identical or similar to a well-known foreign trademark that has not been registered in this country; or selling, transporting, exporting, or importing goods bearing such trademark.
Further, the Fair Trade Law prohibits enterprises from making or using any false or misleading representations or symbols on goods or in advertisements (or to make them publicly known in any other way) in respect of price, quantity, quality, content, method of manufacture, date of manufacture, valid period, method of use, purpose of use, place of origin, manufacturer, place of manufacture, processor, or place of processing. The Fair Trade Law specifically provides that an endorser, i.e., a blogger, should be subject to the law and will be jointly and severally liable with the principal for such false advertisement. The blogger is liable for up to ten times the value of the remuneration received from the principal if the blogger is not a celebrity, specialist or organization. In addition, Article 24 of the Fair Trade Law is a general “catch-all” provision which prohibits any enterprise from engaging in any deceptive or obviously unfair conduct that is able to affect trading order. This article is frequently applied to various violations of the Fair Trade Law if the Commission is unable to cite any other suitable article. Abuse of market power by a non-monopolistic enterprise is likely to be regarded a violation of Article 24 of the Fair Trade Law.
“Business combination” is defined in the Fair Trade Law to include:
- an enterprise merging with another enterprise;
- an enterprise holding or acquiring the shares or capital contributions of another enterprise to an extent of one-third or more of the total voting shares or total capital of such an enterprise;
- an enterprise accepting the transfer of or leasing from another enterprise the whole or the major part of the business or properties of the enterprise;
- an enterprise operating jointly with another enterprise on a regular basis or being entrusted by another enterprise to operate the latter’s business; and
- an enterprise directly or indirectly controlling the business operation or the appointment or discharge of personnel of another enterprise.
For each of the above business combination, if any of the following filing thresholds are met, a pre-notification is required to be filed with the Commission reporting the merger or such other activities:
- as a result of the business combination, the surviving enterprise will have a Taiwanese market share in excess of one-third; or
- prior to the business combination, one of the enterprises participating in the business combination holds 25 percent of the Taiwanese market share; or
- one of the enterprises participating in the business combination has revenue in Taiwan for the preceding fiscal year exceeding NTD10 billion (currently, USD1 is approximately NTD31.392), and the other enterprise has revenue in Taiwan for the preceding fiscal year exceeding NTD1 billion. Higher thresholds apply for financial institutions.
However, no notification is required in the following circumstances:
- one of the enterprises participating in the business combination already holds 50 percent or more of the total voting shares or total capital contributions of the other enterprise;
- a common parent holds 50 percent or more of the total voting shares or contributes 50 percent or more of the total capital of the enterprises to the proposed business combination;
- the enterprise is transferring the whole or a principal part of its business or properties, or the whole or part of its business capable of independent operation to an enterprise newly established by itself; or
- the enterprise is conducting a share buy-back pursuant to the Company Law or the Securities Exchange Law so as to cause the original shareholders to hold one-third or more of the total voting shares or total capital contributions of such enterprise.
6.1 Specific industry sectors
Certain specific industry sectors are regulated by the Commission’s internal administrative rulings. These include telecommunications, large distributors, financial institutions, textbook publishers, the sale activities of offshore resort memberships, motorcycles, pre-sale buildings, cross-ownership and joint provision of 4C (telecommunication, cable TV, computer network and e-commerce), electronic marketplace, cable television, gas and oil, logistics, and real estate brokerage.
If an enterprise violates any of the above provisions, the Commission can order the enterprise to cease or cure its violation or take other necessary corrective measures within a prescribed period. The Commission may also impose an administrative fine on the enterprise up to NTD25 million. If the enterprise does not follow such an order, it may be additionally fined up to NTD50 million. For certain specific violations, such as concerted action, abuse of market power by a monopolistic enterprise and infringement of identification symbol, the individuals responsible for the violation (such as the Chairman of the Board or the other directors) may also be punished by imprisonment, or detention and/or a criminal penalty. Pursuant to Paragraph 2, Article 41 of the Fair Trade Law, the Commission may impose an administrative fine of up to 10 percent of the total sales revenue of the violating enterprise in the previous fiscal year, without being subject to the limit of an administrative fine as set forth above, if the enterprise is deemed by the Commission to be in serious violation of Articles 10 (abuse of monopolistic position) and 14 (cartel conduct). The Commission has published an Implementing Rules on the Method of Setting Fines for Abusing Monopolistic Positions and Cartel Conduct (Implementing Rules) on 5 April 2012. The Implementing Rules provide that the Commission may treat a company’s act as amounting to a “serious” violation. First, the Implementing Rules explain that the Commission may treat a company’s act as amounting to a “serious” violation where:
- the company’s sales during the period in which it abused its market power or participated in cartel conduct exceeded NTD100 million (approximately USD3.18 million); or
- the company derived a benefit from the infringement which exceeded NTD25 million (approximately USD794,000).
Secondly, the Implementing Rules indicate that the Commission may also treat a company’s conduct as amounting to a serious violation in light of the following key factors:
- scope and degree of harm to competition in the market;
- duration of harm caused to competition in the market;
- market position and market structure;
- total sales income and benefit derived from the violation; and
type of cartel involved, e.g., horizontal price fixing of goods or services; total industry output; allocation of customers and allocation of territories. The Implementing Rules follow in the footsteps of the European Commission’s “Guidelines on the Method of Setting Fines Imposed Pursuant to Article 23(2)(a) of Regulation No 1/2003”. The Commission will first determine a basic amount to be imposed on the enterprise and may later adjust the basic amount upward or downward. The basic amount is set at 30 percent of the total sales revenue of the products affected by the violation. The Commission may take into account circumstances that result in an increase or decrease of the basic amount. Aggravating factors for increasing the fine include: (1) the role of the leader in, or instigator of, the violation; (2) any supervisory or retaliatory measures taken against other enterprises with a view to enforcing the practices constituting the violation; and (3) whether an enterprise continues or repeats the same or a similar violation within a five-year period. Mitigating factors for reducing the fine include: (1) where the enterprise concerned terminated the violation as soon as the Commission conducted its investigation; (2) where the enterprise concerned shows repentance and has effectively cooperated with the Commission in its investigation; (3) where the enterprise concerned has reached an agreement to provide a remedy to the victim; (4) where the violation of the enterprise concerned has been committed as a result of coercion; and (5) where the anti-competitive conduct of the enterprise concerned has been authorized or encouraged by public authorities or by legislation. The Implementing Rules specify that a 10 percent cap will apply to the global turnover of an enterprise in the fiscal year preceding the year in which the Commission imposes a fine. Further, an enterprise that violates any of the provisions of the Fair Trade Law so as to infringe upon the rights and interests of another may be liable for damages arising from the infringement.
The Fair Trade Law followed in the footsteps of major antitrust agencies around the world by introducing a leniency regime (which offers immunity or a reduced fine to companies that self-report involvement in a cartel). On 6 January 2012, the Regulations on Immunity and Reduction of Fines in Illegal Concerted Action Cases took effect, making it clear that the Commission will grant the following:
- full immunity from cartel fines for the first whistle-blower that reports the cartel before the agency is aware of it.
- reductions in cartel fines for up to four additional leniency applicants coming forward once the agency is aware of the cartel. The first will have its fine reduced by 30 percent to 50 percent; the second by 20 percent to 30 percent; the third by 10 percent to 20 percent and the fourth by up to 10 percent.
If the above (a) situation is not applicable to any enterprise, the enterprise which is the first to apply the reduction will be granted the full immunity. In each case, the parties must cooperate with the Commission in order to benefit from immunity/leniency. Companies that initiated a cartel will be ineligible.
The Fair Trade Law applies to anti-competitive conduct in Taiwan, and to such conduct outside of Taiwan which has the effect of eliminating or restricting competition in the Taiwanese market. [wpdm_package id=’4258′]