Taipei High Administrative Court finds King's Channel CATV Co., Ltd. in violation of the Fair Trade Law

Taiwan

Case:

Taipei High Administrative Court finds King's Channel CATV Co., Ltd. in violation of the Fair Trade Law

Key Words:

communications of intents, concerted price hike, cable television

Reference:

Taipei High Administrative Court Judgment (89) Su Tzu No. 258

Industry:

Television Broadcasting (8620)

Relevant Law:

Article 14 of the Fair Trade Law

Summary:

1. The plaintiff, King's Channel CATV Co., Ltd., and Long-Der Cable Television Corp. (Long-Der Cable) came to a meeting of minds that from January 1999 the two parties would refrain from engaging in price competition with each other, and proceeded to raise their cable TV subscription fees by identical amounts. The defendant (the Fair Trade Commission), acting on a complaint, investigated and concluded that the plaintiff and Long-Der Cable had, by executing a concerted price hike for their cable TV programming, violated the fore part of Article 14 of the Fair Trade Law. In accordance with the fore part of Article 41 of the same Law, the defendant on 25 June 1999 issued Disposition (88) Kung Ch'u Tzu No. 071, whereby it: (1) ordered the plaintiff and Long-Der Cable to cease (from the day following delivery of the Disposition) the aforementioned concerted price hike for subscriptions to their cable TV programming; and (2) levied a fine of NT$5 million against the plaintiff. The plaintiff filed an administrative appeal with the defendant, which dismissed the appeal. The plaintiff then filed a re-appeal with the Cabinet, which dismissed the re-appeal. The plaintiff then filed an administrative suit with the Taipei High Administrative Court.

2. The fore part of Article 14 of the Fair Trade Law states: "Enterprises shall not act in concert." The term "concerted action" is defined in Article 7 of the same Law as "acts where competing enterprises, by means of contract, agreement or other form of consent, jointly decide the price of goods or services, or limit quantity, technology, goods, facilities, trading counterparts, or trading territory with respect to such goods and services, thereby restraining each other's activities." Article 41 of the same Law further states: "With respect to an enterprise that violates the provisions of this Law, the Fair Trade Commission may order the enterprise to cease or rectify its conduct or adopt necessary corrective measures within a certain time limit; in addition, the Fair Trade Commission may impose a fine of not less than fifty thousand and not more than twenty-five million New Taiwan Dollars." And Article 5 of the Fair Trade Law Enforcement Rules states: "Concerted action under Article 7 of the Law is limited to horizontal concerted action among enterprises at the same level of production and/or marketing where there would be an impact on the market functions of production, trade in goods, or supply and demand of services. 'Other form of consent' in Article 7 refers to a meeting of minds other than by contract or agreement that would lead to de facto joint action irrespective of whether any legally binding effect exists."

In this case, despite the fact that the overall condition of the domestic economy is not favorable to large price hikes, the plaintiff and Long-Der Cable did not consider the risk of losing customers or the option of competing for subscribers on the basis of price; instead, they carried out a concerted price hike, with each company raising home subscriber fees to NT$600 per month, NT$1,800 per quarter, NT$3,300 per half year, and NT$6,500 per year. For collective subscribers in large buildings, subscription fees were raised to either NT$400 or NT$500 per month per subscriber. Considering the fixed price level after the price hikes, the fact that the price hikes occurred at about the same time, the changes in the degree of market competition following the price hikes, and the changes in the overall condition of the domestic economy, it seems clear that there was no economic basis to justify these uniform price hikes. The exchange of sensitive market information between the two parties to form communications of intents not to engage in price competition had objectively led to the uniform price hikes for cable subscription fees. This constituted a concerted action as defined in Article 7 of the Fair Trade Law, and violates the fore part of Article 14 of the same Law.

3. The court also took into consideration the fact that the plaintiff and Long-Der Cable operate in an oligopoly market, where one cannot discount the possibility that what appears at first glance to be a concerted action is actually a parallel action. The main difference between an illegal concerted action and a simple parallel action among enterprises lies in the fact that with a concerted action, the enterprises involved attempt to communicate or exchange sensitive information on competition with one another to from mutual consent on future competition and to avoid "cut-throat competition." With a parallel action, by contrast, the aforementioned meeting of minds does not take place; rather, the parties merely engage in conscious imitation of, or competition with, each other. Past experience shows, and theory holds, that parallel behavior involves prices being lowered at the same time in order to ensure competitiveness and market share, but does not involve uniform price hikes. Therefore, enterprises' holding each other in check is a typical characteristic in oligopoly markets.

In this case, the plaintiff set its subscription fee in 1998 at NT$600 per month, which was the maximum price allowed by the Government Information Office, but the plaintiff and the other respondent [to the Fair Trade Commission's original investigation] competed with each other in other ways, including other types of subscription fee-related competition as well as gift promotions, but these types of competition disappeared at the same time in January 1999. In addition, the plaintiff and the other respondent had a meeting of minds involving a persuasion to refrain from price competition. After investigation, it further revealed that the persuasion was the basis upon which the plaintiff and the other respondent raised their subscription fees. Given this evidence, it is difficult to regard the aforementioned behavior of the plaintiff as simply parallel behavior by different enterprises.

When the Fair Trade Commission reviewed statements filed by the other respondent and the plaintiff, the Fair Trade Commission found that both parties acknowledged without hesitation that they had exchanged market information and formed a meeting of minds to refrain from price competition. It was further admitted by both parties that the said meeting of minds to refrain from price competition was communicated to the top management at each company and became one of the bases of a decision to raise subscription fees in January 1999. Based on the content of the statements provided by the plaintiff and the other respondent, as well as objective facts regarding changing market conditions (e.g. changes in subscription fees, intensity of market competition, and the like), the Fair Trade Commission determined that the respondents under its investigation had exchanged sensitive market information, which led to a meeting of minds to refrain from price competition. The result was a uniform price hike for the subscription fees of cable TV.

The charges that a concerted action had taken place were clearly based on more than mere conjecture or rumors. The plaintiff clearly exchanged market information and had a meeting of minds to refrain from price competition, the result of which was a fixed price for subscriptions to cable TV. This behavior constitutes a violation of the fore part of Article 14 of the Fair Trade Law, which prohibits enterprises from acting in concert.

The Fair Trade Law does not place a blanket prohibition upon all forms of concerted action. If the plaintiff believed it met the requirements for one of the exemptions listed in Article 14, it could have submitted to the defendant an application for concerted action, but it failed to do so, and so relinquished its recourse to these provision as justification for their past actions. Considering all of the above facts, the defendant, acting in accordance with the law, ordered the plaintiff to: (1) cease (on the day following delivery of the Disposition) the aforementioned concerted subscription fee hike for cable TV programming; and (2) pay a fine of NT$5 million. This Disposition was not inconsistent with the law.

Appendix: King's Channel CATV Co., Ltd.'s Uniform Invoice Number: 84950932

Summarized by Lai, Chia-Ching;

Supervised by Wang, Rong-Ging