Anyone desiring to adopt resale price maintenance (“RPM”) when doing business in one jurisdiction should be mindful of the RPM regulations in that specific jurisdiction because the treatment of RPM varies from one jurisdiction to another.[1]  In today’s booming global business environment, it is not something uncommon to see that suppliers (e.g., manufacturers, dealers, etc.) of products or goods consider employing RPM, a long-standing but controversial trade/marketing practice, as one of their strategies to control, manage, maintain or influence the resale price at which their products or goods are sold (e.g., by purchasers, retailers, distributors, etc.).[2]  RPM is controversial since RPM may lead to anticompetitive outcomes[3] and/or harm consumers,[4] whereas RPM could be pro-competitive as it may enhance efficiency.[5]  RPM may harm competition and/or consumers because one may use RPM to (1) facilitate manufacturer cartels,[6] supplier cartels,[7] dealer cartels[8] or retailer cartels;[9] (2) “foreclose innovation in distribution” or “forestall price competition;”[10] and/or (3) prevent competitors from “access[ing] to effective distribution channels.”[11]  On the other hand, defenders of RPM argue that RPM could be pro-competitive and is justified by reason of that RPM may help (1) prevent free riding;[12] (2) encourage retailers to provide quality service to consumers;[13] (3) manage, stabilize, and/or increase the demand for manufacturer’s products;[14] (4) incentivize “dealers to carry a new product;”[15] and/or (5) “combat the vertical promotional externality.”[16]  Controversies surrounding RPM lead to that the laws and regulations of different jurisdictions may treat RPM dissimilarly.[17]  As a result, suppliers (e.g., manufacturers, dealers, etc.) desiring to adopt RPM when doing business in various jurisdictions should possess an understanding of the RPM regulations in those jurisdictions, including Taiwan.
 
This article addresses the regulation of RPM under the Fair Trade Act[18] (the “FTA”) in Taiwan.  After briefly introducing the FTA, this article outlines the prohibition of RPM, the consequences of violation, and the exceptions to the RPM prohibition under the FTA in Taiwan.  The subsequent session presents the position taken by the Fair Trade Commission in Taiwan (the “FTC,” which is the competent authority enforcing the FTA)[19] and the Taipei Administrative High Court on suggested prices and prohibited RPM schemes.  The last session concludes.
 
I.  RPM and the FTA
 
Under the laws and practice in Taiwan, RPM (also known as “restrictions on resale prices”) generally refers to the practice of vertical restraints in which an upstream enterprise imposes restrictions on the (resale) prices of the supplied products or goods that its downstream counterparty may charge.[20]  In Taiwan, the principal source of law governing RPM is the FTA.[21]  The FTA is a major legislation governing antitrust and unfair competition in Taiwan, including regulations “ensuring free and fair competition”[22] among enterprises in the “relevant market(s)”[23] in Taiwan.[24]  Any of the following individuals or organizations constitutes an “enterprise” under the FTA and is therefore subject to the FTA: (1) “a company;” (2) “a sole proprietorship or partnership;” (3) “any other person or organization engaging in transactions through the provision of goods or services,” (4) “[a] trade association organized by businesses,” or (5) “any other organization lawfully established to promote the interests of its members.”[25]  As a result, any enterprise desiring to adopt RPM while doing business in Taiwan should be aware of and must comply with the RPM regulations under the FTA.[26]
 
II.  Prohibition and Consequences
 
First and foremost, RPM is generally prohibited under the FTA and only allowed in exceptional circumstances.[27]  The RPM prohibition under the FTA applies to both “goods”[28] and “service.”[29]  This RPM prohibition also applies to maximum and minimum RPM.[30]  The FTA prohibits an enterprise from adopting RPM because an upstream enterprise adopting RPM interferes with the freedom and right of a downstream enterprise to determine the price of the supplied products or services, which may subsequently undermine price competition and have a negative impact on market competition.[31]  When an enterprise violates the RPM prohibition under the FTA, the FTC may order the violating enterprise to do any of the followings within the time prescribed in the FTC’s order: (1) cease its RPM practice therefrom; (2) rectify its conduct; or (3) take necessary corrective action.[32]  In addition, the FTC may impose an administrative penalty (“not less than one hundred thousand nor more than fifty million New Taiwan Dollars”) upon the violating enterprise.[33]  If the violating enterprise fails to follow the aforementioned FTC order within the prescribed time, the FTC may continue to order the cease of RPM practice, rectification or necessary correction by the violating enterprise, and also consecutively impose an administrative penalty (“not less than two hundred thousand nor more than one hundred million New Taiwan Dollars”) upon the violating enterprise until the violating enterprise complies as ordered.[34]
 
III.  RPM with Justifiable Reasons
 
Although the FTA prohibits RPM, the FTA does not impose a complete ban on RPM.[35]  An enterprise adopting RPM with “justifiable reasons” is not subject to the RPM prohibition under the FTA.[36]  An RPM scheme is justified and exceptionally allowed only when the RPM scheme in question is determined to be more pro-competitive than a free price determination scheme is.[37]  When it comes to the question of whether an accused enterprise adopts RPM with justifiable reasons, the Enforcement Rules of Fair Trade Act[38] requires the accused enterprise to be responsible for presenting evidence showing that it adopts RPM with justifiable reasons.[39]  In one of its recent decisions, the FTC opines that adopting RPM within a necessary period and a necessary scope as a mean for achieving the pro-competitive effect is a defense that the accused enterprise may raise.[40]  When raising the aforesaid defense, the accused enterprise bears the burden of proving that it adopts RPM with justifiable reasons.[41]  The FTC shall then assess the evidence presented by the accused enterprise to determine whether the accused enterprise adopts RPM that will bring pro-competitive effects.[42]  During its assessment, the FTC shall, as required by the Enforcement Rules of Fair Trade Act, take the following factors into account: (1) “[e]ncouragement of downstream enterprises to enhance efficiency or quality of pre-sale service;” (2) “[p]revention of free-riding effects;” (3) “[p]romotion of entries of new businesses or brands;” (4) “[s]timulation of competition between brands;” and (5) “[o]ther reasonable economic grounds concerning competition.”[43]  Only when the outcome of the FTC’s assessment determines that the RPM scheme in question is pro-competitive will the FTC find the accused enterprise adopts RPM with justifiable reasons and thus exempt the accused enterprise from the RPM prohibition under the FTA.[44]
 
IV.  Suggested Prices and Prohibited Schemes
 
Sometimes an enterprise wishing to employ RPM strategy may consider including stipulations on suggested prices in a contract with its counterparty, making a list of suggested price or a specific range of resale prices, “[m]andating the offering of specific discounts,” printing suggested prices on its products or attaching price tags to its products.[45]  Is an enterprise in violation of the FTA if carrying out any aforesaid conduct while doing business in Taiwan?  It depends. 
 
In the opinion of the FTC, suggested price should be nonbinding and serve as a recommendation only.[46]  According to the FTC, an enterprise will likely not be deemed to violate the FTA merely by printing suggested prices on its products or attaching price tags to its products, as long as that enterprise does not impose restrictions forcing its counterparty to sell products at the suggested prices or without discount.[47]  On the other hand, an enterprise is likely in violation of the FTA if that enterprise discontinues its product supply to its counterparty in order to punish the counterparty for not selling the supplied products at the suggested prices.[48] 
 
Recent decisions of the FTC and the Taipei High Administrative Court show that an evaluation of an RPM scheme requires a fact-based inquiry and a case-by-case analysis.[49]  The FTC and the Taipei High Administrative Court take the position that a prohibited RPM scheme exists as long as the accused enterprise imposes (coercive) pressure on the counterparty, who may feel being forced to abide by the suggested prices.[50]  A prohibited RPM scheme does not require that the accused enterprise did adopt measures substantially constraining the counterparty or that the constraining measure is indeed effective.[51] 
 
The FTC and the Taipei High Administrative Court have found that setting a penalty clause in a contract allowing an upstream enterprise to penalize[52] its contracting party (a downstream enterprise) for deviations from the suggested prices indicates that the upstream enterprise imposes (coercive) pressure on the downstream enterprise, regardless of whether the upstream enterprise did actually enforce that penalty clause against the downstream enterprise (e.g., asking the downstream enterprise to pay the penalty for breach of contract).[53]  The FTC and the Taipei High Administrative Court held that the silence of an upstream enterprise on the enforcement of the agreed penalty clause against the downstream enterprise does not mean that the agreed penalty clause is unenforceable or nonbinding.[54]  Neither does it imply that the downstream enterprise is not threatened by the unfavorable consequences resulted from a breach of contract for not abiding by the suggested prices.[55]  Accordingly, the fact that an upstream enterprise chooses not to enforce the agreed penalty clause against its downstream counterparty will not likely prevent the FTC or the Taipei High Administrative Court from finding that a prohibited RPM scheme exists.[56]
 
V.  Conclusion
 
When doing business in Taiwan, any person or organization who is an “enterprise”[57] under the FTA is subject to and thus must comply with the FTA.[58]  An enterprise desiring to adopt RPM when doing business in Taiwan should pay attention to the RPM regulation under the FTA.[59]  Under the laws and practice in Taiwan, an RPM scheme is generally prohibited and only allowed in limited circumstances.[60]  An enterprise violating the RPM prohibition in Taiwan will face administrative orders and penalties imposed by the FTC, both of which may be consecutively imposed by the FTC until the violating enterprise complies as ordered.[61]
 
 

This article, including the information contained herein, has been prepared only for educational and general information purposes to contribute to the understanding of the regulation of resale price maintenance under the Fair Trade Act in Taiwan.  It does not constitute and is not offered as individual legal advice, legal opinion or any other professional advice on any subject matters covered herein.  Please obtain specific legal advice before acting on any information covered herein.  While the author makes every attempt to ensure that the information contained herein is accurate, the author disclaims any liability for any omissions or errors that may be contained in this article.