By Hung Ou Yang and Chan-Chi Chang
A few months ago, Taiwanese Fair Trade Commission ("FTC") imposed sanctions upon several companies who run food delivery platform. The FTC focused on food delivery platform's restraints imposed on restaurants that prices listed on the platform must be the same as the actual in-store prices and that they must not reject "customer pick-up" orders. The FTC also pointed out that a food delivery platform with market power will likely cause anti-competitive effects if it restrains restaurants from participating in other platforms by exclusive dealing clauses. Here, an exclusive dealing clause generally refers to the restraint that distributor shall purchase from the supplier only and may not sell the goods supplied by other suppliers. According to the FTC, using exclusive dealing clauses in a business arrangement probably will give rise to the risks of violating the Taiwanese Fair Trade Act.
Under the Taiwanese Fair Trade Act, any exclusive trading arrangements, including but not limited to exclusive purchases, exclusive sales, exclusive agency, exclusive licensing, and exclusive distribution, may fall into the scope of regulations. FTC's past enforcements show that exclusive dealing clauses may trigger "Item 3 of Article 20", "Item 5 of Article 20", and "Article 15", of the Taiwanese Fair Trade Act. This article will examine FTC's enforcements with regard to exclusive dealing clauses signed with consumers to let the readers understand the best practices for a business arrangement in Taiwan.
Cable TV Exclusive Right Case (FTC Decision No. 106066, 106 Taipei High Administrative Court Litigation No. 1439 (2017) Judgment, and 109 Supreme Administrative Court Adjudication No. 593 (2020) Judgment)
The Respondent of this case, Company A, provides cable television system service. Since December 2015, it has signed "Cable TV Subscriber Agreement" with the management committees of seven condominium buildings, which includes an exclusive right clause stating that "During the effective period of this Agreement, in order to maintain the smoothness of the pipelines, Party A (the management committee) guarantees Party B (Company A) the exclusive right in this community and has the exclusive right to use the pipelines of this community. Party A shall not agree with other system operators to provide cable TV related services in Party A's community. Otherwise, it is deemed a breach of this Agreement, plus, Party B will have the right to revoke relevant fee discounts it provided to Party A's community in accordance with this Agreement, and claim all undue fees from Party A's community pursuant to normal fee standard as punitive damages." The FTC found that Company A has engaged in anti-competitive conduct preventing competitors from participating or engaging in competition by an improper means therefore fined Company A as well as ordered Company A to delete the exclusive right clause at issue from the agreements or take other necessary corrective actions within 2 months.
1. Whether An Enterprise Has Considerable Market Power
When an enterprise is a monopoly, the legislator wishes to prohibit its abuse of its monopolistic status in hindering other enterprises in competition. However, an enterprise without monopolistic status may still attempt to monopolize the market by preventing other enterprises from competition by other improper means such as exclusive clauses.
So, the question will be whether those enterprises without monopolistic status still fall within the scope Taiwanese FTC's regulations. Pursuant to the legislative purpose, Taiwanese antitrust laws expressly target at enterprises with "considerable market power" that engage in unfair low-price competition or other anti-competitive conducts, which do not constitute predatory pricing, but cause the effect of restraining competition in the market. Therefore, even if an enterprise is not a monopoly, it may still be regulated based on its market power. That being said, the key is whether an enterprise has considerable market power.
2. Whether An Enterprise Uses Exclusive Dealing Clauses with An Intention to Preventing Competition
The Respondent of this case, Company A, argued that it designed such an exclusive clause for the purpose of preventing other cable TV system service providers from installing cables into the same pipelines which may damage the cable or cause the connector to loosen. In addition, the agreement is only binding upon the contracting parties, Company A and the management committees, so tenants still have the freedom to choose other cable TV system service providers. However, the court did not accept such argument. The court found that Company A did not use the contract with the exclusive right clause when Company B competed with Company A in the same business zone, but Company A used the contract with the exclusive right clause at issue immediately after Company C started broadcasting in November 2015. Because of the proximity of time, the court concluded that Company A used the exclusive right clause to bind the management committees in response to Company C's competing activities. Therefore, the court held that Company A's intended to prevent other competitors from participating in competition by improper means.
3. Whether An Exclusive Dealing Clause Causes Anti-competitive Effects
To determine whether an exclusive dealing clause causes anti-competitive effects, multiple factors will be taken into consideration, including the parties' intentions, purposes, market power, market structure, nature of merchandise or service involved, and actual influence to the competition. It should be noted that the evaluation of anti-competitive effects does not require that the anti-competitive effects have actually occurred but a danger of occurrence of such effects would be sufficient.
Here, Company A used the exclusive right clause for seven communities, around 700 tenants in total, which only accounts for 1.01% of all the subscribers of Company A. Thus, Company A argued that such a small rate will not be enough to prevent new competitors from entering the market so the exclusive right clause did not cause anti-competitive effects. The court, again, refused to accept Company A's argument. The court pointed out that new entrants of the cable TV service market, their source of customers is nothing more than developing non-cable TV customers and winning old customers from existing cable TV service providers. Since the penetration rate of cable TV has been very high, each customer is precious to new competitor. When the exclusive right clause along with the punitive clauses will be binding upon all the tenants, the interests of tenants who intend to switch cable TV service providers will be impaired. Moreover, with such clauses, the tenants could not obtain benefits from the competition, such as lower fees, higher quality of signals, etc. Therefore, the court held that anti-competitive effects exist in this case.
Conclusion
The above analysis focuses on how an enterprise should assess its exclusive dealing clauses for doing business with Taiwanese consumers. In short, an enterprise with considerable market power should consult a lawyer when using exclusive dealing clauses with Taiwanese consumers. Factual background matters for determining whether an enterprise intended to use exclusive dealing clauses to prevent competition. Moreover, multiple factors will be taken into consideration to determine whether there is anti-competitive effect. Here, merely using exclusive dealing clauses with a small number of consumers does not mean there will be no anti-competitive effect. Most important of all, our firm definitely can assist you to avoid violating Taiwanese antitrust laws.
Brain Trust: Your Trust, Our Honor
AUTHOR: Hung Ou Yang
Managing Partner
Taipei
+886-2-2707-9976
[email protected]
AUTHOR: Chan-Chi Chang
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Taipei
+886-2-2707-9976
[email protected]
Copyright Brain Trust International Law Firm
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
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