Case:

Supreme Administrative Court's decision ruling that Hi-Life International Co., Ltd. used its dominant market position to improperly collect surcharge from the suppliers and thus violated the Fair Trade Law

Key Words:

Surcharge, Dominant market position

Reference:

The Supreme Administrative Court's Judgment 94-Pan-Tzu-543 2006

Industry:

Retail Sale of Food Products and Groceries (4620)

Relevant Laws:

Article 24 of the Fair Trade Law

Summary:

1. Ever Bright Hitech Corp. (hereinafter referred to as the complainant) filed a complaint to the appellant, the Fair Trade Commission, on November 28, 2000 against the appellee, Hi-Life International Co., Ltd., claiming that the appellee ha d used its dominant market position to coercively collect surcharges from its suppliers. In addition, the appellee also signed a trading agreement and a supply and marketing contract with the complainant. However, the aforementioned agreement and contract did not state clearly the standards for remov ing goods from the shelves and also there were repetitions of surcharge collection. It is alleged that the appellee thus violated the Fair Trade Law. After the investigation, the appellant found that the appellee would collect "sponsor fee for the celebration of every hundred stores" from its suppliers for every hundred newly-opened store. I n addition to th e sponsor fee, the suppliers were also requested to pay the surcharge of "the apportioned expense of new store's promotion ". S uch conduct was alleged to be obviously unfair and sufficient to affect the market's trading order and hence violated Article 24 of the Fair Trade Law. The appellant thus made a disposition on the appellee according to the anterior paragraph of Article 41 of the Fair Trade Law. The appellee objects to the disposition, and after filing an [administrative] appeal that was also dismissed later, consequently filed this litigation.
2. Reviewing the arguments and evidences , the first instance court rendered a judgment, which may be summarized as follows: the complainant's degree of dependence on the appellee is insignificant. Furthermore, according to the appellee's operating scale and its market share, the complainant still has the ability to change its sales channel. Therefore, it is doubtful if the appellee indeed has dominant position in the trading with the complainant. Moreover, when judging the legality of surcharges, an in-depth assessment of whether the distribution business improperly transfer s too much of its risk to the suppliers must be conducted , in addition to checking the alleged purpose and function of such surcharges. According to the opinion of the original disposition and the plea of the appellant, the issue of improper surcharges seemed to be focused on the repeated collection of sponsor fee for the celebration of every hundred stores and the apportioned expense of new store's promotion, rather than the direct relation between its individual surcharge with the sales of promotional goods. Nevertheless, the appellee had never collected any sponsor fee for the celebration of hundred stores from the complainant, a fact that was not disputed by both parties . But the original disposition indicated in its opinion that there was a repetition of surcharge collection . It was obvious that the original disposition was of serious defects. To sum up, [the first instance was of the opinion that] the original disposition did not comply with the law and the [administrative] appeal decision did not make any correction either. Therefore, there was a ground for the appellee to claim for the revocation of the said decision. The appellee's claim wa s therefore granted [by the first instance] ; the decision of the original disposition was revoked.
3. The opinions of the first instance judgment are not totally groundless. However, whether the appellee has coerced, through unilaterally made standard contract of annual supply, its suppliers to pay surcharges of "sponsor fee for the celebration of every hundred stores" and "the apportioned expense of new store's promotion " is really an issue involving the overall relationship between the appellee and its suppliers. In fact, many medium and small enterprises, with relatively weaker economic power, have no choice but to pay surcharges to the distributors when such payments are apparently to their disadvantage . From the viewpoint of the suppliers, an additional sales point will only increase the total sales by the sales of the sales point. But the appellee created an excuse to collect extra surcharge for every hundred store opened. A further investigation should be conducted to evaluate whether the appellee has used its dominant position in the trading to undermine resource allocation efficiency that arises from the competition and the sound trading environment for competition conduct and hence has violated the provision of Article 24 of the Fair Trade Law. The first instance judgment could not reach the conclusion that the appellee indeed had dominant position in the trading with the complainant based on the following considerations: the purchase of the appellee was not great in volume, the complainant's degree of dependence on the appellee was insignificant, and the complainant had ability to change its sales channel, . Such reasoning was over-simplification. Furthermore, the applicability of Article 24 of the Fair Trade Law is not pre-conditioned on actual damages caused by the conduct; it is applicable as long as the conduct constitutes an obviously unfair conduct by objective standards . The appellee actually did not collect any sponsor fee for the celebration of every hundred stores from the complainant in their trading because there was no celebration of every hundred stores during the period of their trading. However, the trading agreement between the appellee and the complainant stipulated that the appellee could collect surcharge "sponsor fee for the celebration of every hundred stores" from the complainant when a new store reached hundreds . In addition to this surcharge, at the same time, the appellee could repeatedly collect the surcharge of "the apportioned expense of new store's promotion". From an objective viewpoint, such conduct is obviously unfair and sufficient to affect the market's trading order. The first instance judgment ruled that there was a serious defect in the original disposition because its opinion indicated the repetition of surcharge collection even though the appellee actually did not collect any sponsor fee for the celebration of every hundred stores from the complainant. The first instance judgment therefore revoked the decisions of the original disposition and the administrative appeal. It is difficult to conclude that these revocations are legally justifiable. The appeal argues that the first instance judgment was erroneous and we agree with it . Therefore, the first instance judgment should be remanded and the first instance court shall render a new judgment with detailed investigation and trial.

Summarized by Lai, Chia-Ching;
Supervised by Lee, Wen-Hsiu

Appendix:

Hi-Life International Co., Ltd.'s Uniform Invoice Number: 23285582