i Prioritisation and resource allocation of enforcement authorities
The Taiwan Fair Trade Commission (TFTC) is in charge of the enforcement of the Fair Trade Act of Taiwan, Republic of China (TFTA). The TFTA is the major competition legislation in Taiwan. It was promulgated on 4 February 1991 and became effective on 4 February 1992. On 22 January 2015, the Legislative Yuan approved the amendments to the TFTA.2 The amendments, which took effect on 6 February 2015, are tantamount to the most sweeping reform of the TFTA since it came into effect. The amendments cover a wide range of legal provisions under the TFTA, such as merger control, cartel enforcement, restrictive competition and unfair competition, which will have significant impact on companies' business operations as well as their compliance guidelines.
The TFTA can be divided into two parts:
- restrictive business practices, which cover monopolies and the abuse of dominance, combination (merger control), concerted actions (cartel), fixing of resale prices and other restrictive business practices (such as boycotts, discriminatory treatment, solicitation of trading counterparts by improper means, tying and other restrictions imposed on trading counterparts' business activities without due cause); and
- unfair trade practices, which cover counterfeiting, false advertisements, damage to business reputation, illegal multilevel sales, and other deceptive or obviously unfair conduct capable of affecting trading.
The TFTC has various functions, from policymaking and market surveys to law enforcement. The TFTA empowers the TFTC to:
- draft and formulate fair trade policies and regulations;
- review fair trade matters;
- conduct studies on particular markets or business activities and economic conditions;
- investigate and determine whether an enterprise3 has violated the TFTA; and
- handle any other matters related to fair trade practices.
The TFTC may, on its own initiative or upon complaint, investigate cases that involve unfair competition. In the investigation, the TFTC may:
- ask the parties and any third party to give a statement;
- ask relevant agencies, organisations, enterprises or individuals to submit books and records, documents, and any other necessary materials or exhibits; and
- search or inspect the office, place of business or other locations of the relevant organisations or enterprises.
Any person who, without reasonable grounds, refuses an investigation or withholds evidence may face an administrative fine of NT$50,000 to NT$500,000. If the person remains uncooperative despite receiving another notice, the TFTC may continue to issue notices of investigation, and may impose additional fines of NT$100,000 to NT$1 million until such person cooperates with the TFTC.
As of 6 February 2012, the TFTC is no longer under the supervision of the Executive Yuan4 and is now an independent government body. The TFTC may, if it is satisfied that one or more enterprises have violated the TFTA, impose administrative sanctions against enterprises. In addition, the new TFTA recognises the TFTC as an independent agency with expertise and credibility to make decisions at the level of the executive system. Hence, enterprises punished by the TFTC may seek a remedy by filing a lawsuit against the TFTC with the administrative court directly without having to appeal against the TFTC's decision with the Executive Yuan first. Civil and criminal liabilities for violation of the TFTA should be determined by the courts. Except for business libel, enterprises will face criminal liabilities only if they fail to cease the violation pursuant to the TFTC's order.
ii Enforcement agenda
The TFTC's goals are to promote free and fair competition and strong economic growth. It sets its priority objectives every four years. The TFTC's priority objectives for the period from 2017 to 2020 are as follows:
- to continue the aggressive enforcement of cartel regulations and to improve the effectiveness of the operation of antitrust funds;
- to actively participate in the international community of competition law, expanding international and cross-border cooperation and building a foundation for mutual assistance on global cases;
- to promote the concept of fair and efficient competition; and
- to establish industry-specific guidelines to facilitate enforcement and compliance.
Cartels are regulated by the provisions governing concerted actions under the TFTA. A concerted action is the conduct of any enterprise, by means of contract, agreement or any other form of mutual understanding,5 with any other competing enterprise, to jointly determine the price of goods or services, or to limit the terms of quantity, technology, products, facilities, trading counterparts or trading territory with respect to such goods and services, etc., and thereby to restrict each other's business activities. A concerted action is limited to a horizontal concerted action at the same production or marketing stage, or both, which would affect the market function of production, trade in goods, or supply and demand of services.6
ii Significant cases
Record-breaking fine on power producers (2013) 7
The TFTC rendered a decision on 13 March 2013 penalising nine independent power producers (IPPs) that are members of the Association of IPPs. The TFTC found that, from August 2008 to October 2012, at Association meetings, these IPPs agreed en bloc to refuse to amend power purchase agreements with the Taiwan Power Company, and not to adjust the sale price of electricity even when there was a decline in electricity production costs.
The TFTC found that the IPPs' joint refusal could disrupt the functioning of the market, since each participating IPP could boost its profits by maintaining the current sale price when its electricity production costs decreased. Eventually, refusal to adjust the price would lead to a price hike for the public. The TFTC therefore found the joint refusal to be a material violation of the concerted action regulation. To penalise the nine IPPs for the concerted action, the TFTC invoked the newly amended punishment provision under the TFTA – the fine formula – in which the maximum fine imposed on a violating enterprise can be up to 10 per cent of its turnover during the previous fiscal year. By applying the fine formula, the total fine imposed in this case was NT$6.32 billion, which is the highest amount imposed in a single cartel case in the TFTC's enforcement history.
The IPPs filed an administrative appeal against the TFTC's decision with the Executive Yuan. Although the issue regarding whether the TFTC calculated the fines recklessly is still being disputed in the administrative appeal procedure,8 the substance of the case (i.e., whether the action of the IPPs amounted to a concerted action) was further contested in the administrative litigation process after the Executive Yuan made a decision upholding the TFTC's second-time decision in September 2013. On 5 November 2014, the Taipei High Administrative Court (High Court) revoked the TFTC's decision mainly because as no market exists in the subject case, the IPPs cannot be deemed as competitors with the capability of competing with each other in quantity or price. The High Court viewed that the subject case should be simply a contractual dispute, rather than a competition law matter.
The TFTC appealed to the Supreme Administrative Court. In July 2015, the Supreme Administrative Court revoked the High Court's judgment and remanded the case to the High Court on the basis that several issues, such as whether a relevant market exists, whether the IPPs reached a meeting of minds and whether the IPPs' conduct affected the market function, require further clarification. The TFTC filed an appeal against the judgment of the Taipei High Administrative Court. Then, in September 2018, the Supreme Court revoked and remanded the case again to the Taipei High Administrative Court. To date, there is no final decision on this case.
This is the first case in which the fine formula has been adopted by the TFTC. As such, it is anticipated that the interpretation of whether a case should be considered as a material violation and how the 10 per cent turnover fine calculation formula should be calculated will be clarified in the subsequent administrative decision and court judgments. Furthermore, the TFTC has shown how heavy-handed it can be when the public's interests are at stake; as such, enterprises that receive a high degree of public attention should exercise caution when interacting with their competitors.
On 19 October 2011, the TFTC found that Wei-chuan, Uni-President and Kuang-chuan, three leading dairy product suppliers, had violated the prohibition against concerted action under the TFTA by increasing the prices of milk products at the same time and by the same amount, which affected competition in the domestic milk product market. Consequently, the TFTC imposed a fine of NT$12 million on Wei-chuan, NT$10 million on Uni-President and NT$8 million on Kuang-chuan.
According to the TFTC's investigation, because of the increased cost of raw milk, milk product suppliers felt pressure to raise milk product prices. Nonetheless, the price hikes imposed by Wei-chuan, Uni-President and Kuang-chuan did not reflect their respective costs of purchasing raw milk. For example, the prices of all Wei-chuan's, Uni-President's and Kuang-chuan's one-litre and two-litre milk products were raised by NT$6, regardless of their original prices. This situation ran counter to commercial practice, because Wei-chuan, Uni-President and Kuang-chuan should have had different pricing structures. Consequently, the TFTC concluded that this price adjustment by Wei-chuan, Uni-President and Kuang-chuan was reached through a conspiracy among them. Since Wei-chuan, Uni-President and Kuang-chuan jointly hold more than an 80 per cent share in the Taiwanese milk market, this conspiracy jeopardised consumers' interests.
The raw milk cost escalation led to another parallel-pricing case. Immediately after its milk decision, the TFTC concluded in a decision dated 2 November that four leading convenience stores, 7-Eleven, Family Mart, Hi-Life and OK, raised the prices of their freshly brewed coffee (with milk added) in the same week by the same increment. Without any justification for the simultaneous price adjustment, such conduct constitutes illegal concerted action, which is prohibited by Article 14 of the TFTA; thus, the TFTC imposed a fine of NT$16 million on 7-Eleven, NT$2.5 million on Family Mart, NT$1 million on Hi-Life and NT$500,000 on OK.
The TFTC indicated in the decision that the convenience store coffee market is highly concentrated where the combined market share of the four convenience stores exceeds 80 per cent. Therefore, any collusion among them would prejudice consumer interest and market competition. According to the TFTC's investigation, these four stores offer 48 products that are variations of brewed coffee with added milk. Nevertheless, the prices for all these products were simultaneously raised by NT$5, regardless of being different in size, flavour and ingredients. Meanwhile, although the four convenience stores claimed that the price increase reflected the rise in raw milk cost, the TFTC viewed their price adjustment differently. Applying the same logic that it did in the milk decision, the TFTC explained that, since each convenience store has its own operational costs and management policy, increasing price by the same amount, at the same time and for the same product was impossible unless the convenience stores had colluded.
In both decisions, the TFTC pointed out that a concerted action can be proved not only by direct evidence such as a contract or agreement, but also by circumstantial evidence or empirical rules. In these cases, the three suppliers and four convenience stores' uniform price increases without reasonable calculations as a justification could be considered as circumstantial evidence of their conspiracies.
After losing their appeal before the Executive Yuan, the dairy suppliers subsequently brought a lawsuit to contest the TFTC's decision. The Taipei High Administrative Court sided with the TFTC. According to the Court's judgment, since the determining factors of a price are myriad and should vary among suppliers, it is inconceivable that the price increase by the dairy suppliers would eventually be uniform, unless evidence suggests otherwise. The dairy suppliers lost their case because they failed to provide convincing evidence. On 12 June 2014, the Supreme Administrative Court rendered a judgment in favour of the TFTC's decision on grounds that are almost the same as the view expressed by the High Court.
In addition, the four convenience stores in the coffee case filed a lawsuit against the TFTC's decision after its unsuccessful appeal with the Executive Yuan. On 19 December 2012, the Taipei High Administrative Court ruled that the increase in the coffee price by each convenience store was merely to reflect the cost increase. Since it is common market practice to raise the coffee price by NT$5 each time, there was no evidence to support the TFTC's allegation that the convenience stores coordinated with each other to determine the price increase. Instead, the price increase by NT$5 may have been merely a price leader or price follower or parallel pricing conduct, which is not illegal from an academic perspective. It was also doubtful whether the relevant market should be narrowly defined as a 'convenience store coffee market', which is an oligopolistic market. Without a clear market definition, the TFTC was unable to confirm whether the alleged price increase, if due to an illegal conspiracy, could have any effect on the relevant market. Based on these reasons, the TFTC's decision was revoked.
The TFTC appealed against the Taipei High Administrative Court's judgment. The Supreme Administrative Court found that certain legal issues needed to be clarified further, and remanded the case to the Taipei High Administrative Court on 14 May 2013. On 5 December 2013, the Taipei High Administrative Court issued a remanded judgment that was in favour of the convenience stores and revoked the TFTC decision regarding the alleged illegal concerted action. The TFTC then appealed against the High Court's second judgment. In its decision, dated 18 April 2014, the Supreme Administrative Court dismissed the TFTC's appeal. As the Supreme Administrative Court's ruling is final, the TFTC's decision was revoked and the case is now over.
iii Trends, developments and strategies
In the past, the TFTC often had difficulty securing direct evidence to prove the existence of a cartel. To improve the TFTC's enforcement effectiveness, the new TFTA permits the TFTC to presume the existence of an agreement on the basis of circumstantial evidence, such as market conditions, characteristics of the products or services involved, and profit and cost considerations, etc. By way of this amendment, the new law substantially shifts the burden of proof regarding the existence of an agreement among competitors from the TFTC to the enterprises that are investigated or penalised. Thus, in the future, for an enterprise under investigation, it is advisable to present evidence in a timely manner to prove that its business decision was made independently and reasonably to rule out any possibility of being viewed as participating in a price-fixing scheme due to parallel activities in the market.
The 2011 amended TFTA introduced the leniency programme for cartel participants (Article 35) and imposed a higher fine for cartel violations (Article 40). Under the authorisation of the amended TFTA, the TFTC promulgated the regulations for the leniency programme in early 2012, which specify, inter alia, the requirements for leniency, the maximum number of cartel participants eligible for leniency, the fine reduction percentage, the required evidence and confidentiality treatment. The adoption of the leniency programme is expected to affect the enforcement of cartel regulations in Taiwan significantly.11
Pursuant to the TFTA, the consequences of violating the cartel prohibitions under the leniency programme are as follows:
- For any violation of the prohibitions against concerted action, the TFTC may order the violating entity to cease and rectify its conduct or take necessary corrective action within the time prescribed in the order. In addition, it may impose upon such violating entity an administrative penalty of between NT$100,000 and NT$50 million, which can be doubled if the violating entity fails to cease and rectify the conduct or take any necessary corrective action after the lapse of the prescribed period.
- If the violation is deemed serious, the TFTC has the discretion to impose a fine of up to 10 per cent of the violating enterprise's revenue of the previous fiscal year.
- An enterprise violating the cartel prohibitions under the TFTA can be exempted from or be entitled to a reduction of the above fine if it meets one of the following requirements and the TFTC agrees in advance that the enterprise qualifies for the exemption or reduction:
- prior to the TFTC knowing about the unlawful cartel activities or commencing its ex officio investigation, the enterprise voluntarily reports in writing or orally to the TFTC the details of its unlawful cartel activities, provides key evidence and assists with the TFTC's subsequent investigation;
- during the TFTC's investigation, the enterprise provides specific evidence that helps prove unlawful cartel activities and assists with the TFTC's subsequent investigation; or
- only a maximum of five companies can be eligible for a fine exemption or reduction in a single case: that is, the first applicant can qualify for a fine exemption, while the fine for the second to the fifth applicants can be reduced by 30 to 50 per cent, 20 to 30 per cent, 10 to 20 per cent, and 10 per cent or less respectively.
An enterprise that has coerced other enterprises to join or not to exit the cartel cannot be eligible for a fine exemption or reduction.
The first application of the leniency programme: ODD12 (2012)
In September 2012, the TFTC found that four optical disk drive (ODD) manufacturers – Toshiba-Samsung Storage Technology Korea Corporation (TSSTK), Hitachi-LG Data Storage Korea Inc (HLDSK), Philips & Lite-On Digital Solutions Corporation (PLDS) and Sony Optiarc Inc (SOI)) – had conspired during the bidding process held by Hewlett-Packard Company (HP) and Dell Inc (Dell), and hence violated the cartel regulations under the TFTA. This case marks the first time that the TFTC dealt with a cartel through the leniency programme introduced into the TFTA at the end of 2011.
According to the TFTC, from September 2006 to September 2009 these four ODD manufacturers, during or before the bidding procedure held by HP and Dell, exchanged their bidding prices and expected bid ranking through e-mails, telephone calls and meetings. In addition, in several bidding cases they agreed on the final price and ranking in advance while exchanging other sensitive information such as capacity and amount of production among themselves. A market survey indicated that the four ODD manufacturers jointly occupied at least 75 per cent of the ODD market. Meanwhile, HP's and Dell's notebooks and desktops made up around 10 per cent of the Taiwanese relevant market. As 90 per cent or more of the disk drives used in HP's and Dell's notebooks and desktops were purchased through bidding processes, the four ODD manufacturers' bid rigging had certainly affected the supply and demand in the domestic ODD market. Therefore, the TFTC fined TSSTK, HLDSK, PLDS and SOI NT$25 million, NT$16 million, NT$8 million and NT$5 million, respectively.
The TFTC indicated that it started to investigate the case because some parties involved in the cartel pleaded guilty and settled the case with the US Department of Justice in November of the previous year. After the commencement of the TFTC's investigation, one manufacturer applied to the TFTC for leniency and provided all relevant evidence to the TFTC in accordance with the new leniency programme under the TFTA. Having fully cooperated with the TFTC, the leniency applicant was awarded a full exemption from the fine. The identity of the applicant is being kept confidential by the TFTC.
This case is notable because it represents the first time the TFTC concluded a case successfully with the help of a leniency applicant after the leniency programme came into effect. The case is also significant because it involved a global cartel, and the public record suggests that the TFTC sought assistance from competition authorities in the United States and the EU to conduct the investigation.
The highest fine imposed on foreign enterprises for a cartel infringement: Capacitor13 (2015)
On 9 December 2015, the TFTC imposed fines on seven aluminium capacitor companies (Nippon Chemi-Con Corporation (NCC), Hongkong Chemi-Con Limited (NCC HK), Taiwan Chemi-Con Corporation (NCC TW), Rubycon Corporation (Rubycon), Elna Co, Ltd (Elna), Sanyo Electric (Hong Kong) Ltd (Sanyo HK) and Nichicon (Hong Kong) Ltd (Nichicon HK)) and three tantalum capacitor companies (Nec Tokin Corporation (Nec Tokin), Vishay Polytech Co, Ltd (Vishay Polytec), and Matsuo Electric Co, Ltd (Matsuo)) for participating in meetings or bilateral communications to exchange sensitive business information such as prices, quantity, capacity and terms of trade to reach agreements, which conduct was sufficient to affect the market function of capacitors in Taiwan.
The practices violated the cartel regulations under the TFTA. The TFTC therefore imposed administrative fines of NT$1.87 billion on NCC, NT$82.9 million on NCC HK, NT$293.8 million on NCC TW, NT$1.25 billion on Rubycon, NT$76.6 million on Elna, NT$842 million on Sanyo HK, NT$111.3 million on Nichicon HK, NT$1.22 billion on Nec Tokin, NT$31.2 million on Vishay Polytec and NT$24.3 million on Matsuo. The total amount of the fines was NT$5.79 billion. The TFTC indicated that the Japanese capacitor companies had convened several multilateral meetings and engaged in bilateral communications since the 1980s, and had exchanged sensitive business information to reach agreements. Products involved in this case include aluminium capacitors and tantalum capacitors. Seven aluminium capacitor companies (NCC, NCC HK, NCC TW, Rubycon, Elna, Sanyo HK and Nichicon HK) have been involved in this case, each to a different extent and duration. Starting from at least 2005 to January 2014 at the latest, the companies convened market study meetings, cost-up meetings and Hong Kong sales manager meetings in Japan and other countries, or conspired bilaterally via emails, telephones or gatherings to exchange sensitive business information. The three tantalum capacitor companies (Nec Tokin, Vishay Polytec and Matsuo) also exchanged sensitive business information in the market study meeting and conspired bilaterally via emails, telephones or gatherings to reach agreements.
The TFTC pointed out that aluminium capacitors are mainly used in larger electronic products, for example PCs, household appliances, home video games consoles and power supplies. Tantalum capacitors are mainly used in thin and small electronic products, such as notebooks, mobile phones and handheld games consoles. Domestic electronics companies largely rely on the companies involved in this case for the supply of capacitors. Even though there are a few aluminium capacitor companies in Taiwan, their scale is far smaller than that of the Japanese capacitor companies. On the other hand, there are no domestic tantalum capacitor companies; all tantalum capacitors are fully imported. The total revenue for the companies involved in this case from their aluminium capacitors and tantalum capacitors was around NT$50 billion and NT$16 billion, respectively, during the term of their concerted action. NCC, Rubycon and Nichicon are the top three aluminium capacitor companies in the world. The tantalum capacitor companies involved in this case also have considerable global market shares. Hence, such conduct of the companies had a direct, substantial impact on the domestic markets with reasonably foreseeable effects.
The TFTC sees the Capacitor case as a successful outcome of its efforts in international enforcement cooperation with other competition authorities throughout the years. The TFTC had worked with competition authorities of the US, the EU and Singapore in its investigation of the subject case from the beginning. In addition to coordinating a synchronised investigation action on 28 March 2014, the TFTC also exchanged enforcement experiences with those agencies through telephone conferences and emails. The TFTC's decision is the first among these competition agencies, and will be of great concern internationally as the case is still under investigation in the EU, the US, Japan, Korea, Singapore and China.
Meanwhile, the TFTC invoked the '10 per cent rule' (i.e., for a serious concerted action, the fine can be up to 10 per cent of the violating enterprise's revenue in the last fiscal year;. see below for details) when determining the fines imposed on the capacitor manufacturers. This is the first case that the TFTC applied this fine formula to foreign enterprises and the one with the highest fines that the TFTC has imposed on foreign enterprises. It is noteworthy that the fines imposed by the TFTC can be up to 10 per cent of an enterprise's 'global revenues' instead of 10 per cent of the revenues generated in Taiwan only.
Facilitating practices theory
The TFTC's 2004 sanction on CPC and FPC, the two oligopolists in the petrol industry, for fixing gasoline prices is the first time that the TFTC decided a concerted action case involving facilitating practices, and is highly indicative of the TFTC's future approach to such cases.14 Since then, enterprises may not use advance announcements to test their competitors' attitude before making joint price rises. The decision sets a new precedent for the treatment of concerted actions, and may protect consumers' interests by discouraging the widespread commercial practice of coordinated price rises. In its 2009 judgment, the Supreme Administrative Court upheld the TFTC's finding that the price adjustments via prior information exchanges amounted to an unlawful coordinated action via a 'form of mutual understanding' prohibited under Articles 7 and 14 of the TFTA.
To assist Taiwanese enterprises establish internal compliance rules to curb their risk of violating antitrust laws of other countries, in December 2011 the TFTC published its Guidelines on Setting up Internal Antitrust Compliance Programme (Guidelines) and Antitrust Compliance-Dos and Don'ts (Principles of Conduct).
According to the Guidelines, an enterprise should stipulate an antitrust compliance programme appropriate for its business strategies and corporate culture. The programme should cover at least the following measures to ensure compliance:
- developing a corporate culture where legal compliance is essential;
- stipulating policies and procedures that everyone should observe;
- providing education or training programmes;
- establishing audit, review and report mechanisms;
- creating proper rewards and punishments; and
- designating a means for contact or a consultant.
To allow each enterprise to grasp what is and is not permissible, the TFTC published the Principles of Conduct, including types of violation under the TFTA and antitrust laws of other jurisdictions. The Principles of Conduct lists dos and don'ts for concerted action (cartel), restrictions on resale price, monopoly and abuse of market power.
The Guidelines and Principles of Conduct are administrative directives with no binding legal effect; however, the TFTC encourages Taiwanese enterprises to take their own initiative and draft their own compliance programmes so as to lower their risk of violating the relevant laws. In addition, besides referring to the Guidelines and Principles of Conduct, each enterprise, while drafting such programmes, should take into consideration its corporate culture and industry characteristics.15
Fine calculation formula
According to the TFTA, if the TFTC considers a concerted action to be serious, it may impose a fine of up to 10 per cent of the violating enterprise's revenue of the previous fiscal year. The TFTC has published rules on the calculation of fines through the fine formula.16 Pursuant to the fine formula, a 'serious' concerted action is one that materially affects the competition status of the relevant market where the total amount of turnover of the relevant products or services during the period the cartel is active exceeds NT$100 million; or the total amount of gains derived from the cartel exceeds the maximum fine under the TFTA (i.e., NT$50 million).
In addition, the fine imposed on a serious cartel should be reached based on the 'basic amount' and 'adjusting factors', according to the fine formula. The basic amount refers to 30 per cent of the total amount of turnover of the relevant products or services during the period the cartel is active. Adjusting factors include aggravating factors such as being punished for violating cartel or monopoly regulations within the previous five years, and mitigating factors such as full cooperation during the TFTC's investigation. As shown in the Capacitor case (see Section III.iii), the TFTC seems to hold the view that the 10 per cent cap should be based on the violating party's 'global' revenues instead of Taiwanese sales only.
III ANTITRUST: RESTRICTIVE AGREEMENTS AND DOMINANCE
The TFTA defines a monopoly as a situation in which an enterprise faces no competition or has such a superior market power that it is able to exclude competition in a relevant market.17 Two or more enterprises as a whole will be deemed to have the status of a monopolistic enterprise if they do not in fact engage in price competition.
An enterprise meeting one of the following requirements may be deemed as a monopolistic enterprise, provided, however, that an enterprise will not be deemed a monopolistic enterprise if its market share does not reach 10 per cent or its total sales in the preceding fiscal year are less than NT$1 billion:18 the market share of the enterprise in a relevant market reaches 50 per cent; the combined market share of two enterprises in a relevant market reaches two-thirds; and the combined market share of three enterprises in a relevant market reaches 75 per cent.
An enterprise not qualified under the above criteria or falling under the exception may still be deemed a monopolistic enterprise if the establishment of such enterprise or any of the goods or services supplied by such enterprise to a relevant market are subject to legal or technological restraints, or there exists any other circumstance under which the supply and demand of the market are affected and the ability of others to compete is impeded (Article 8 of the TFTA).
While the possession of monopoly power is not illegal per se, a monopolist is prohibited from abusing its dominant position in any of the following methods:
- using unfair means to exclude, directly or indirectly, other enterprises from entering the market or otherwise participating in competition;
- improperly determining, maintaining or changing the prices of goods or services;
- requiring a counterpart to the transaction to provide preferential treatment without proper cause; and
- engaging in any other abusing acts of its dominant market position (Article 9 of the TFTA).
ii Significant cases
Sanction for abuse of dominance in CD-R Patent Pool 19 (2001–2011)
Local CD-R manufacturers filed complaints with the TFTC in June 1999 against Koninklijke Philips Electronics NV (Philips), Sony Corporation (Sony) and Taiyo Yuden Co, Ltd (Taiyo Yuden) for an unlawful concerted action, abuse of their dominant power and tying of their technologies in joint licensing CD-R manufacturing technologies. In a decision dated 20 January 2001, the TFTC found that Philips, Sony and Taiyo Yuden had committed an unlawful concerted action and abuse of monopoly power, and fined them NT$8 million, NT$4 million and NT$2 million respectively. The three companies appealed to the Executive Yuan. In November 2001, the Executive Yuan overturned the TFTC's decision and remanded the case to the TFTC. The TFTC made another decision on 25 April 2002, fining the three companies NT$8 million, NT$4 million and NT$2 million respectively for an unlawful concerted action and abuse of monopoly power. The Executive Yuan upheld the TFTC's 2002 decision. The tree companies appealed to the Taipei High Administrative Court. In 2003, the Taipei High Administrative Court overturned the TFTC's decision and ordered the TFTC to make a proper disposition upon further investigation. The TFTC appealed to the Supreme Administrative Court, but the appeal was dismissed by the Supreme Administrative Court in 2007. The TFTC applied for a retrial, but the application was dismissed by the Supreme Administrative Court in 2009.
The Taipei High Administrative Court overturned the TFTC's 2002 decision, and the Supreme Administrative Court dismissed the TFTC's appeal because the courts found that:
- the three companies were not competitors, as their technologies were not substitutable in making CD-Rs, and hence their joint licensing did not constitute a concerted action; and
- the three companies are monopolistic enterprises in the CD-R technology market and they abused monopoly power, but the fines imposed by the TFTC were improper because the three companies should not have been penalised for abuse of market power before 3 February 1999 as they were not the monopolistic enterprises defined under the TFTA at that time, and the amounts of the fines did not reflect the interest (i.e., the ratio of the royalties) received by the three companies.
In its decision dated 28 October 2009, the TFTC ruled that the three companies are monopolistic enterprises in the CD-R technology market, and that they abused monopoly power by improperly maintaining the formula to calculate the licence fees even when the market had drastically changed, refusing to provide important trade information on the licensed patent technologies and prohibiting their trading counterparts from contesting the validity of the patent – all of which are abuses of market power. Considering the Taipei High Administrative Court's accusation of its previous improper assessment of the fines, the TFTC reduced the fines imposed on Philips, Sony, and Taiyo Yuden to NT$3.5 million, NT$1 million and NT$500,000 respectively. It stated that, while the Taipei High Administrative Court overturned the TFTC's 2002 decision, the Taipei High Administrative Court and the Supreme Administrative Court upheld the TFTC's findings that the three companies as a whole had the same status as a monopolistic enterprise by virtue of their joint licensing, and that they abused monopoly power. It further pointed out that from 1999 to 2001, when the CD-R market grew significantly and there was a substantial shift in market demand and supply, the three companies refused the licensees' request to change the formula for the calculation of royalties. When the three companies negotiated the licence agreements with the licensees, they did not make full disclosure regarding the content, scope and term of validity of the subject patent, and they also prohibited other enterprises from raising objections on the patent's validity. The above-mentioned conduct violated the prohibitions on abuse of market power provisions under the TFTA.20
Largest-ever fine on Qualcomm (2017) 21
At its commissioners' meeting on 11 October 2017, the TFTC ruled that Qualcomm Incorporated (Qualcomm) has a monopolistic market position in the baseband chip markets of code-division multiple access, wideband code division multiple access, long-term evolution and other cellular communication standards, but that:
- it refuses to grant licences to competing chip companies;
- it requests that companies enter into restrictive clauses;
- it refuses to grant licences to enterprises that do not enter into licence agreements;
- it enters into exclusive rebate clauses with specific enterprises; and
- the conduct involved in its overall licensing model caused harm to competition in the baseband chip markets, which directly or indirectly prevents other enterprises from competing through unfair means that are in violation of Article 9.1 of the TFTA.
Therefore, a fine of NT$23.4 billion was imposed on Qualcomm. This is the largest fine ever imposed in the TFTC's enforcement history.
The TFTC's decision has sparked intense debate among the local industries and governmental agencies. In particular, Taiwan's Ministry of Economic Affairs expressed its concern that the TFTC has punished a company that has always been a valuable partner for the Taiwanese communications and semiconductor industry, and believed that the TFTC should have considered Taiwan's broader economic policy goals before handing down the heavy fine on the chipmaker. More rarely, out of a total of seven commissioners, three issued dissenting opinions criticising the decision, implying that the TFTC's internal view on the subject matter is split.
Qualcomm filed an appeal against the TFTC's decision with the Intellectual Property Court. On 9 August 2018, the TFTC and Qualcomm reached a litigation settlement whereby Qualcomm agreed to abide by and implement specific commitments relating to licensing cellular standard essential patents to the Taiwanese handset manufacturers, and thus lifted the TFTC's antitrust concern on Qualcomm's SEP licensing practices. In addition, Qualcomm agreed not to contest the fine instalment amounts already paid, totalling NT$2.73 billion, and committed to undertake commercial initiatives for investments in and collaborations with Taiwan over a five-year period.
The TFTC said that after comprehensive consideration, it reached the settlement with Qualcomm based on public welfare.This is the first time the TFTC has settled in litigation proceedings. As part of the settlement, Qualcomm need not pay the remainder of the fine that was initially imposed. The TFTC expects that this case would not only effectively form a sound competition environment for the cellular communication industry but also bring a positive impact on the semiconductor, cellular communication and 5G technology development in Taiwan.
The settlement, however, has been criticised by many scholars, who are concerned that if the fine can be substituted by investment, the settlement conveys the message to the public that companies can engage in antitrust behaviour in Taiwan. In addition, the licensing commitments made by Qualcomm are very ambiguous, which may not solve the licensing problems. Finally, while most countries around the world are preventing companies from engaging in antitrust behaviour and have imposed significant fines on Qualcomm, Taiwan is on the opposite track.
With respect to the criticism, the TFTC responded that as the competent authority in charge of matters pertaining to antitrust law, it shall consider not only market competition but also economic situation that is affected. The TFTC entered into the settlement because the harm and impact to companies and industries in Taiwan due to the lengthy administrative litigation procedure may be hard to recover from, and because the commitment made by Qualcomm can achieve the purpose of imposing the significant fine and benefit companies and industries in Taiwan.
iii Trends, developments and strategies
On 5 February 1999, the requirement that monopolistic enterprises be announced by the TFTC was taken out of the TFTA. Since then, an enterprise will be deemed a monopolistic enterprise if it falls within the definition of monopolistic enterprises under Article 8 of the TFTA. Given the rapid pace of change in market and business models, competition law has been characterised by a high level of uncertainty, making the collection of evidence of violation a challenging task.
On 2 May 2002, the TFTC established a software market monopoly taskforce to investigate the perceived monopolistic dominance of Microsoft Taiwan Corporation (Microsoft) in the software market, unreasonable software pricing and inappropriate bundling of Microsoft Office software. On 3 October 2002, Microsoft requested an administrative settlement with the TFTC. At its commissioners' meeting on 31 October 2002, the TFTC agreed in principle to Microsoft's request for administrative settlement, and began the negotiation process. On 26 February 2003, Microsoft submitted a settlement offer to the TFTC on behalf of itself and the relevant affiliates. At its commissioners' meeting on 27 February 2003, the TFTC decided that the settlement offer was in the public interest and agreed to sign an administrative settlement agreement with Microsoft.
The signing of this administrative settlement agreement was followed by a fall in software retail prices, improved after-sales service and a general enhancement of consumer welfare. The agreement also created opportunities for companies in the information and communications technology sector to utilise source code made available by Microsoft in new product development, and a licensing environment based on fair competition. It has been proven that the use of administrative settlement helps reduce wastage of administrative resources and avoid time-consuming lawsuits, encourages compliance with the TFTA by enterprises, and implements competition law and competition policy.
Regulation on oligopolists
In TFTC's 2004 decision to penalise CPC and FPC for price fixing, a commissioner pointed out that as the two companies did not in fact engage in price competition, they as a whole may be deemed to have the status of a monopolistic enterprise and their concurrent increases in prices may constitute an abuse of monopoly power. However, monopoly power is exercised on a lasting or structural basis while a simple coordination of competitive conduct of competitors under a project may be analysed under the provisions on the prohibition of cartels. If the TFTC could not find a 'normal market price' based on economic analysis to prove any improper price change by the oligopolists, it could not prove whether they had abused monopoly power. Given the difficulty in proving an improper price change, the TFTC decided that the fixing of petrol prices by CPC and FPC was a concerted action involving facilitating practices.
Increase of maximum fine
Under the TFTA and according to the fine formula, the maximum fine for monopolistic enterprises' abuse of market power has increased from NT$50 million to 10 per cent of the violating enterprise's revenues in the previous fiscal year. However, since the fine formula came into effect, it has not been applied to a monopoly case.
According to the amendment bill to the TFTA, the chief revisions to the monopoly provisions are as follows:
- raising the threshold for not being a monopolistic enterprise: if the total sales in the preceding fiscal year of an enterprise are less than NT$2 billion, such enterprise shall not be deemed a monopolistic enterprise. The raised threshold is in keeping with economic growth in recent years; and
- revising the definition where two enterprises may be deemed as the monopolistic enterprise as a whole: two or more enterprises will be deemed one monopolistic enterprise if they do not in fact engage in competition with each other, and thus they as a whole have the same status as a monopolistic enterprise. In addition, since competition activities cover not only competition in price but also in other categories, the amended provision changed the wording from 'price competition' to 'competition'.
Furthermore, in November 2018, the TFTC published the draft amendments to Articles 39, 41 and 47-1 of the TFTA. Among the amendments, the TFTC proposes a provision regarding 'suspension of statute of limitations' for anticompetitive matters, such as abuse of dominance and cartels. To be specific, the five-year statute of limitations period for the TFTC to penalise the violating party of an anticompetitive matter will be suspended upon the launch of investigation by the TFTC. According to the TFTC, the aforesaid amendment aims to tackle the situation whereby the TFTC often runs short on time to close a complicated case involving multiple foreign companies and voluminous evidence within the current five-year period. The draft amendments are still subject to review by the Executive Yuan and then need to pass the three rounds of reading by the Legislative Yuan. Thus, whether and when the amendment will come into effect is currently unknown at this time.
IV SECTORAL COMPETITION: MARKET INVESTIGATIONS AND REGULATED INDUSTRIES
i Significant cases
Blu-ray patent pool 22 (2011)
On 31 March 2011, the TFTC conditionally permitted a proposed combination for the joint operation of One-Blue by Hitachi, Panasonic, Philips, Samsung, Sony and Cyberlink.23 One-Blue will act as a licensing agent for the patent pool to license essential blue-ray disk (BD) patents for the manufacturing of backwards-compatible BD products. Upon the consummation of the combination, the participating parties will respectively acquire a one-sixth shareholding and then jointly operate One-Blue.
The relevant market of One-Blue is defined as 'the domestic product market, technology market, and innovation market which are related to BD'. The basis for such broad definition is that the participating parties not only hold technologies for the manufacture of BD products but are also engaged in the manufacture of BD products.
Regarding competition analysis, the TFTC held that the proposed combination would not give rise to competition restraints due to the following arrangements in the applicable pool agreements:
- only essential patents will be included in the patent pool and the essentiality of the patents will be determined by independent patent experts, according to the pool agreements;
- the patent pool will be open to all patent holders, and thus it is not a closed pool, and all licensors of the patent pool are required to conduct individual licensing activities for any licensee requesting individual licences on a reasonable and non-discriminatory basis;
- licensors are prohibited from disclosing their confidential information so as to ensure that the confidential information will not be exchanged between licensors, resulting in a conspiracy among pool members;
- licensors cannot have access to licensees' information provided for the application of per-batch licence before each shipment of product;
- the scope for the grant-back provision is limited to essential patents, and the royalties paid under the applicable pool agreement will qualify for the royalty rate for the grant back of essential patents; and
- licensors are not prohibited from using competing technologies or developing competition standard or products.
The TFTC further explained that regarding BD technology, Taiwanese enterprises are in a position to adopt technologies that have been developed by others. If this combination were prohibited, Taiwanese BD products manufacturers would have to negotiate for licences with patent holders individually, and the transaction cost of individual negotiations and the accumulated royalties are expected to be higher than those involved in being granted licences through One-Blue. Therefore, licensing the essential BD patents through a patent pool is expected to make it easier for Taiwanese manufacturers to obtain licences for essential patents, lower the transaction cost and avoid the risk of infringement and litigation, which will promote competition among Taiwanese manufacturers, with consumers being the ultimate beneficiary.
On the other hand, since the participating parties are also engaged in the manufacturing and sales of BD products, the patent pool will increase the opportunity for third parties to use the licensors' essential patents, which may stimulate competition in the downstream market. The licensors will not acquire sensitive information such as cost data, and will refrain from exchanging sensitive information among themselves, and thus upstream and downstream vertical competition will not be negatively affected.
In January 2013, the TFTC cleared another similar case with five conditions in which LG Electronics, Philips, Pioneer Corporation and Sony will jointly operate a DVD patent pool named One-Red.24 As the rationale adopted by the TFTC to analyse both One-Blue and One-Red cases is similar, it seems the TFTC may have set up reliable case precedents for patent holders intending to establish patent pools to follow and observe.
Merger of cable system operators25 (2010)
In a decision dated 29 October 2010, the TFTC conditionally permitted the proposed combination of Dafu Media Co Ltd (Dafu), Cheng Ting, Kbro and 12 cable system operators (SOs) controlled by Cheng Ting and Kbro. The case is noteworthy because the TFTC imposed a record-breaking 13 conditions for its clearance. Previously, the TFTC granted clearance in December 2009 for the combination between Taiwan Mobile Co Ltd (TWM) and Kbro with 10 conditions, although the transaction was not successfully concluded owing to other regulatory issues.
Kbro is a Taiwanese company that Carlyle has invested in, and Kbro itself has invested in 12 SOs. It provides general advertising services. The transaction involves Dafu's acquisition of Kbro and the 12 SOs. While the parties are in different markets and there are no overlapping products, or upstream or downstream relations, the major shareholders of Dafu are the chair, vice chair and directors of TWM and Dafu's affiliates. Since TWM is the second-largest mobile telephone and fixed-line telecoms service provider and has invested in four cable system operators, there will be a horizontal or vertical combination effect if Dafu and TWM jointly manage Dafu's business. After considering the relevant market structure and competition, opinions from relevant industries, trends in technology development and the maintenance of market competition after the combination, the TFTC concluded that the overall economic benefit due to this transaction would outweigh the disadvantages of stifled competition. Consequently, it permitted the subject transaction subject to the following four conditions:
- preventing Dafu and its affiliates (collectively Dafu Group) from further combination with other SOs to abuse Dafu Group's market power;
- preventing Dafu Group from further vertical combination with channel providers to abuse its market power;
- ensuring digitalisation of cable television and developments of digital convergence; and
- demanding information from Dafu Group to check its compliance with the conditions imposed by the TFTC.26
ii Trends, developments and strategies
As society advances rapidly, there is a need to promulgate or amend rules that can serve as guidelines in regulating industries in which business models change often so as to protect the overall economy. To such end, the TFTC from time to time stipulates new guidelines for handling cases related to certain industries.
Guidelines for airlines
After Taiwan High-Speed Rail started to provide domestic transportation services, the TFTC revoked its Guidelines for Handling Civil Air Transportation Enterprises' Merger Filings and Guidelines on Unendorsed Ticket Transfers between Airline Companies, and issued the Guidelines for Handling Merger and Concerted Action Cases of Domestic Civil Air Transportation Enterprises (2008 Guidelines) in 2008. The 2008 Guidelines are intended to enable the TFTC to effectively handle domestic civil air carriers' merger filings and applications for concerted actions in order to maintain the orderly conduct of trade, uphold consumers' interests and assure fair market competition, following the major changes in the competitive environment in Taiwan's domestic air transportation market. In 2015, the TFTC modified the Guidelines again, taking into account the facts that the market competition status has varied since the last amendment and the TFTA has undergone several revisions in recent years. The 2015 Guidelines mention the following points:
- market definition: the definition of markets will in principle be based on the 'city pair' as the smallest market unit. The following factors may also be considered depending on the circumstances of each case: the time and distance for transportation and the frequency of service of other air routes originating from areas close to the point of departure; the time and distance for transportation, and the frequency of service of air, rail, road and water transportation modes; and other factors relevant to the definition of domestic air transportation market; and
- market share: besides considering such information as the service volume, sales quantity, service value and sales value of an enterprise compared with the totals for the related markets, the market share of a domestic air carrier may also be calculated on the basis of market demand (cargo volume, the number of passengers carried by, or the turnover of, a specific domestic civil air carrier, expressed as a proportion of the total number of passengers carried by, or the total turnover of, all civil carriers in the relevant market) or market supply (cargo capacity, the number of seats made available by a specific domestic civil air carrier, expressed as a proportion of the total number of seats made available by all civil carriers in the relevant market).
Guidelines for 4C enterprises and financial industry
The TFTC has established the following guidelines for handling competition in different market sectors:
- TFTC Disposal Directions on Cable Television and Related Industry;
- TFTC Disposal Directions on Telecommunication Industry;
- TFTC Disposal Directions on the Business Practices Cross-Ownership and Joint Provision among 4C Enterprises (telecommunications, cable TV, computer network, and e-commerce);
- TFTC Disposal Directions on Electronic Marketplace; and
- TFTC Disposal Directions on the Business Practices of Financial Industry.
According to the TFTC's priority objectives for 2017 to 2020, the industries that affect overall economic growth and people's daily lives or welfare will be the priority targets for the investigation. These industries include real property, liquefied petroleum gas, TFT-LCD, DRAM, LCD and retail. The TFTC aims to enhance its regulatory power over those industries, starting with conducting research into their market structures. Through an in-depth analysis of the markets, the TFTC expects to learn more about the background as well as the general business models of each market to swiftly detect any unlawful conduct that could stifle competition. Meanwhile, on par with the international trend, the TFTC indicates that it will dedicate more resources to research or even investigate the monopoly issues in the digital platform sectors if any potential violation is found. In any event, the TFTC may conduct study reports on monopolisation by tech giants in the near future.
V MERGER REVIEW
Under the TFTA, a defined combination meeting certain thresholds as prescribed by the TFTA would require a prior notification to the TFTC. The term 'combination' is broadly defined in the TFTA to include combinations conducted offshore (i.e., an extraterritorial combination or a foreign-to-foreign transaction).
Types of notifiable combination
According to Article 10 of the TFTA, a 'combination' is defined to include:
- a merger;
- a holding or acquisition of at least one-third of the voting shares of or interest in another enterprise;
- a transfer or lease of all or a substantial part of an enterprise's business or assets;
- an arrangement with another enterprise for a joint operation on a regular, ongoing basis, or the management of another enterprise's business based on a contract of entrustment; or
- direct or indirect control over the operation or personnel of another enterprise.
According to Article 11 of the TFTA, if any or all of the parties to a combination meet any of the following thresholds, a notification must be filed with the TFTC prior to the closing of the proposed transaction:
- as a result of the combination, any of the enterprises will acquire at least one-third of the market share;
- any of the enterprises participating in the combination holds a market share of at least a quarter before the combination; or
- the preceding fiscal year's turnover of an enterprise participating in the combination exceeded the amount set forth by the TFTC (i.e., for a combination between non-financial enterprises, one of the enterprises generated an annual turnover of at least NT$10 billion, while the other enterprise generated an annual turnover of at least NT$1 billion).27
In December 2016, the Thresholds and Calculation of Sales Amounts which Enterprises in Mergers shall File with the TFTC was also amended, adding an additional turnover threshold regarding the combined worldwide sales of parties. Thus, by this amendment, the aforesaid turnover filing threshold for a combination between non-financial enterprises includes:
- the aggregate global turnover of all the enterprises to a combination in the preceding fiscal year exceeded NT$40 billion, and each of at least two of the enterprises had a turnover in Taiwan of at least NT$2 billion in the preceding fiscal year; or
- one of the enterprises generated a turnover in Taiwan of at least NT$15 billion in the preceding fiscal year, while the other enterprise generated a turnover in Taiwan of at least NT$2 billion in the preceding fiscal year.
The TFTC Disposal Directions (Guidelines) on Extraterritorial Mergers are stipulated for the purpose of handing merger filings related to foreign mergers. In spite of these Guidelines, the filing requirements (thresholds, time frames, documents, etc.) for foreign mergers are the same as those for domestic transactions, although the TFTC will take the local effect into account when determining whether it will exercise jurisdiction.
In December 2016, the TFTC amended the Extraterritorial Mergers Guidelines. In the past, if none of the enterprises in an extraterritorial combination had any production or service facilities, distributors, agents or other substantive sales channels within the territory of Taiwan, the TFTC would not have exercised its jurisdiction over the case. After the amendment, the aforesaid circumstance became one of the factors that the TFTC will consider when determining whether to exercise its jurisdiction.
Furthermore, before the amendment, a merger of two or more foreign enterprises outside the territory of Taiwan would have been deemed an extraterritorial merger only if there was a direct, substantial and reasonably foreseeable effect on the domestic market. According to the newly amended Extraterritorial Mergers Guidelines, the local effect element is only one of the factors that the TFTC will consider in determining whether to exercise its jurisdiction. In general, the above amendments may give the TFTC more discretion in determining whether to exercise its jurisdiction over an extraterritorial merger.
ii Significant cases
Combination between chip makers28 (2012)
At its 1 August 2012 commissioners' meeting, the TFTC unconditionally cleared the proposed combination between MediaTek Inc (MediaTek) and Mstar Semiconductor Inc (Mstar).
The proposed combination entails the acquisition of at least 40 per cent and up to 48 per cent of the shares in Mstar by MediaTek through a public tender offer. Following the consummation of the tender offer, a post-closing merger will be further pursued in which MediaTek will be the existing company and Mstar will be the dissolved company.
According to the TFTC, MediaTek and Mstar overlap in the mobile chip market and TV/display control chips market, and thus the transaction should be defined as a horizontal combination. However, for the reasons listed below, the TFTC concluded that the proposed combination would not generate any anticompetitive effect on the Taiwanese relevant product markets:
- as most of the participating parties' relevant products are exported for sale globally, the participating parties face intense competition from their worldwide competitors. Therefore, after the combination, even if any attempt is made to raise product prices arbitrarily, it would be constrained by market forces;
- the proposed combination is unlikely to result in any concerted action among the participating parties and their competitors. Furthermore, no material entry barrier to the relevant markets exists; hence, Taiwanese and other multinational enterprises interested in the industry can enter the market any time, making the market even more competitive; and
- because there are already numerous enterprises in the relevant markets, when choosing business partners, the participating parties' upstream and downstream counterparties have a wide pool to choose from. In fact, the participating parties' transacting counterparties have considerable bargaining power. Consequently, the merged entity would not be able to abuse its market power after the combination.
The TFTC also indicated that the proposed combination did not have the potential of undermining competition and would instead fortify the Taiwanese TV/display control chip makers' ability to compete with global enterprises.
Given the above, the TFTC found that the overall economic benefit from this transaction would outweigh the disadvantages of stifled competition. Consequently, it cleared the subject transaction under Paragraph 1, Article 12 of the TFTA.29
iii Trends, developments and strategies
In September 2012, the TFTC updated the Directions (Guidelines) on Handling Merger Filings (Merger Guidelines) to include its official standards for remedies. According to the Merger Guidelines, the remedies the TFTC can impose as conditions are:
a measures affecting the structural aspect: the TFTC can order parties to take measures to dispose of the shares or assets in their holding, transfer part of their operations or remove personnel from certain positions; and
- measures affecting the behavioural aspect: the TFTC can order parties to continue to supply critical facilities or essential elements to businesses outside the merger, order the parties to license such businesses to use their intellectual property rights, and prohibit the parties from engaging in exclusive dealing, discriminatory treatment and tie-in sales.
Despite the foregoing, the TFTC still reserves the right to impose other types of remedy on a case-by-case basis. The Merger Guidelines also outline that the TFTC may seek parties' opinions on the possible remedy before it makes its final decision.
International cooperation for merger reviews
No official documentation indicates that the TFTC has, to date, ever cooperated with foreign authorities while conducting the review of a combination notification. However, the TFTC has entered into certain cooperation agreements or memorandum with the following countries for the application of competition regulations: Hungary, Canada, Australia, New Zealand, France and Mongolia. Meanwhile, while reviewing a cross-border transaction, it is not uncommon for the TFTC to order the filing parties to report the current status in other jurisdictions where a combination notification has also been made. Given the above, even without formal coordination, the TFTC still more or less consults agencies in other jurisdictions to make its decision on a merger filing.
According to the TFTA, the main revisions to the merger control rules are as follows:
- When assessing whether a transaction constitutes a combination and whether any filing threshold is met, the new law prescribes that in addition to the turnovers and shareholding of a party's parent or subsidiary, those of affiliate companies (including sister companies under common control) should also be taken into consideration.
- Apart from holding shares through corporate entities, it is not uncommon for an enterprise's business operations or the appointment of personnel to be under the control of certain individuals. It is also common for an enterprise to hold shares in another enterprise through natural persons or non-corporate entities. As the transactions of the above-mentioned shareholding structures may have the same effect as a combination under the TFTA, the new law stipulates that those natural persons or non-corporate entities that have a controlling share in a company should also be subject to the merger control rules, even though they are not corporate entities.
- The review period for a merger filing case has been revised from 30 days with a possible extension of an additional 30 days to a possible extension of an additional 60 days, as the original period may not be sufficient for the agency to thoroughly analyse a case that may have potential anticompetitive effects. Further, in May 2017, the above-mentioned review period has been revised from 30 days with a possible extension of an additional 60 days to 30 business days with a possible extension of an additional 60 business days. This amendment is to avoid a situation where the review period for major merger filing cases is unduly shortened due to successive national holidays. The amendment also precludes an acquirer in a hostile takeover from improperly fixing the review period by manipulating the filing schedule.
- It is noteworthy that the new TFTA follows the old law in implementing a dual filing threshold system. The TFTC's proposal of removing the market share filing thresholds did not pass the Legislative Yuan's final review.
Although the TFTC perceives itself as the guardian of market competition that enforces the TFTA to ensure fair trade in Taiwan's markets and protect the public interest, it has been criticised for devoting most of its resources and efforts on unfair conduct, and neglecting anticompetitive conduct. While the TFTC dedicates most of its administrative resources to misleading advertising and illegal activities by multi-level marketing enterprises,30 the public expects the TFTC to also crack down on anticompetitive activities, such as abuse of market power or the formation of cartels, which have caused greater harm to the overall economy. Understanding that some changes are necessary to create a better competitive environment in Taiwan, in early 2015, the Legislative Yuan passed the amendments to the TFTA after three rounds of reading by considering opinions from the government, businesses and academia. Now that the new TFTA has come into effect, the TFTC is equipped with new investigative tools. For instance, the TFTC may keep anything that may serve as evidence, to such an extent and for such a period as may be necessary, for the examination, inspection, verification or any other purposes in connection with the preservation of evidence.31 Moreover, the TFTC is allowed to abort an investigation to save administrative costs if the business ceases its illegal conduct and undertakes corrective measures. All in all, the amendments are to strengthen the TFTC's powers in investigations, impose severer penalties and streamline the administrative process. As all these changes have resulted in an overhaul of the TFTA, we expect to have a new competition law environment in Taiwan.
1 Stephen Wu is a partner and Rebecca Hsiao and Wei-Han Wu are associate partners at Lee and Li, Attorneys-at-Law.
2 For those case precedents cited in this chapter, all provisions referred to are based on its original chapter numbers under the version of the TFTA at the time of the TFTC's decision or ruling.
3 The term 'enterprise' means any company, sole proprietor, partnership, trade association, or any individual or association that sells products or services. All enterprises are subject to the TFTA.
4 The government is mainly divided into five branches: the Legislative Yuan (the parliament), the Executive Yuan (the Cabinet), the Judicial Yuan, the Examination Yuan and the Control Yuan.
5 Any other form of mutual understanding means a meeting of minds other than a contract or agreement, regardless of whether it is legally binding, which would in effect lead to joint actions. A resolution of an association's general meeting of members or board meeting of directors or supervisors to restrict the activities of its member enterprises will also be deemed a horizontal concerted action.
6 If any enterprise is found to have violated the cartel regulations under the TFTA, the TFTC may order it to discontinue the illegal conduct, or set a time limit for it to rectify the conduct or take any necessary corrective measure. The TFTC may further impose an administrative fine of between NT$100,000 and NT$50 million. If the perpetrating enterprise fails to discontinue or rectify its conduct or take any necessary measure as ordered, the TFTC may reissue its order and set another time limit, and may impose another administrative fine of between NT$200,000 and NT$100 million, until the enterprise has discontinued or rectified its illegal conduct or has taken such necessary corrective measure. Moreover, the latest amended TFTA provides that, in the case that the violation is deemed serious, the TFTC has the discretion to impose a fine of up to 10 per cent of the relevant enterprise's turnover in the previous fiscal year. If the perpetrating enterprise disobeys the TFTC's order and fails to cease or rectify such conduct, or take necessary corrective action within the given period, or engages in the same or similar violation after the TFTC order, the enterprise will face a criminal fine of up to NT$100 million, and the persons in charge will face a prison term of up to three years, a criminal fine of up to NT$100 million, or both.
7 TFTC decision letter dated 15 March 2013, Ref No. 102035.
8 In September 2013, the Executive Yuan ruled that the TFTC had calculated the fine recklessly. In particular, the fine formula came into effect in April 2012, and chronologically, the alleged concerted action straddled the new and old laws. Consequently, the Executive Yuan requested that the TFTC re-evaluate whether the old punishment provision, which capped the fine at NT$25 million for a first-time offence, should be considered when imposing fines on each IPP.
9 TFTC decision letter dated 25 October 2011, Ref No. 100204.
10 TFTC decision letter dated 9 November 2011, Ref No. 100220.
11 Stephen Wu, Yvonne Hsieh and Wei-Han Wu, 'Leniency programme in Taiwan: The impact of a 'whistle-blower' system in Eastern culture', Competition & Antitrust Review (2013).
12 TFTC decision announced on 24 September 2012. The full content of the decision letter has not been published due to the protection of the leniency applicant.
13 TFTC decision announced on 9 December 2015. The full content of the decision letter will not be published due to the protection of the leniency applicant.
14 TFTC decision letter dated 21 October 2004, Ref No. 093102.
15 Stephen Wu, Yvonne Hsieh, and Wei-Han Wu, 'Today and Tomorrow', The 2012 Guide to Competition and Antitrust (2012).
16 This fine formula can also be applied to serious violations of the monopoly regulations.
17 In defining the relevant market, both the relevant products or services and the geographical markets will be taken into consideration.
18 The monopoly threshold may be amended in the wake of the new TFTA.
19 TFTC decision letter dated 20 January 2011, Ref No. 100012.
20 In 2011, the TFTC reissued its decision, as per the order of the Supreme Administrative Court, but still ruled that the parties had abused their market power. Despite the subsequent appeal and administrative lawsuits, the TFTC's 2011 decision was eventually upheld and confirmed by the Supreme Administrative Court in July 2013.
21 TFTC decision letter dated 20 October 2017, Ref No. 106094.
22 TFTC decision letter dated 31 March 2011, Ref No. 100002.
23 Although combination should be deemed helpful to lower transaction costs for Taiwanese enterprises when applying for licences, to prevent the participating parties from stifling competition through the patent pool the TFTC attaches six necessary conditions to eliminate any disadvantages from possible competition restraints, and to ensure the overall economic benefit, as follows: (1) the participating parties should not engage in any concerted action by entering into any agreement restricting the quantities or prices of BD products or by exchanging important transaction information; (2) the participating parties and One-Blue should not restrict licensees' scope of technology use, trading counterparts and product prices; (3) the participating parties and One-Blue should not forbid licensees from challenging the essentiality and validity of the licensed patents; (4) the participating parties and One-Blue should not forbid licensees from researching and developing, manufacturing, using and selling competing products or adopting competing technologies during the licence term or after expiration of the licence; (5) the participating parties and One-Blue should not refuse to provide licensees with the content, scope and term of the licensed patents; and (6) the participating parties are required to provide executed copies of the pool agreements for the TFTC's review.
24 TFTC decision letter dated 24 January 2013, Ref No. 102002.
25 TFTC's decision letter dated 29 October 2012, Ref No.099004.
26 The TFTC gave clearance on the combination on the following 13 conditions:
(1) Dafu Group cannot directly or indirectly acquire or own any shares in a Taiwan SO or its affiliates (other than those SOs in this proposed transaction); (2) no director, supervisor or manager of Dafu Group can simultaneously serve as a director, supervisor or manager in a Taiwan SO or its affiliates (other than those SOs in this proposed transaction); (3) Dafu Group cannot sell any shares in a company of the group to TWM group companies (including but not limited to TFN Media Co, Ltd and the SOs controlled by it, collectively TWM Group), or directly or indirectly acquire or own any shares in a TWM Group company; (4) no director, supervisor or manager of Dafu Group can simultaneously serve as a director, supervisor or manager in TWM Group, and vice versa; (5) Dafu Group cannot collocate headends, share trademarks or customer service, or jointly conduct any other business operation with other SOs not within Dafu Group; (6) Dafu Group cannot increase the number of analogue channels being produced or distributed by companies in its group; (7) Dafu Group cannot, jointly with other SOs or their affiliates, collectively procure programmes from channel providers, set the purchase price for the procurement, boycott channel providers or conduct any concerted actions as defined under the TFTA through any kind of agreements; (8) Dafu Group cannot jointly with other programme distributors sell programmes produced or distributed by Dafu Group or conduct any concerted actions as defined under the TFTA; (9) Dafu Group cannot, without reasonable grounds, refuse to license, or impose different licence fee schedules on or place conditions other than licence fees on other SOs, direct-to-home (DTH) operators, multimedia content transmission service operators, or other competing wired or wireless content transmission service providers for broadcast of channels produced or distributed by Dafu Group; nor can Dafu Group discriminate against them; (10) Dafu Group cannot, without reasonable grounds, grant licences at difference prices or on different transaction terms to other SOs, DTH operators, multimedia content transmission service operators, or other competing wired or wireless content transmission service providers for broadcast of channels produced or distributed by Dafu Group; (11) Dafu Group must actively (a) implement digitalisation of cable television and two-way network construction, (b) fulfil the Digital Convergence Plan announced by the Executive Yuan to popularise the digital cable television services, (c) obtain a licence from channel providers to broadcast through internet protocol television (IPTV) and reasonably relicense such rights to IPTV operators to ensure the fair competition among different platforms and (d) assist with the development of HD contents and channels, as well as the cultural creative industry; (12) Dafu must submit the following information to the TFTC for five years starting from the date of the combination: (a) names of the channels and copies of the distribution and agent agreements for the channels being produced or distributed by Dafu Group, (b) information related to pricing, licensing fees, discounts and licensees of such channels and (c) a report on how the combination benefits the general public and the overall economy; and (13) Dafu must submit from time to time within the five-year period any change of the chair of the board, directors, supervisors, managers or articles of incorporation of each Dafu Group company to the TFTC for its records.
27 The TFTA stipulates that the TFTC is authorised to designate different turnover thresholds applicable to different industries.
28 TFTC decision announced on 1 August 2012.
29 The proposed combination of MediaTek and Mstar is also subject to the merger review processes of the authorities in several jurisdictions, including China's Ministry of Commerce (Mofcom). The deal was eventually cleared by Mofcom with a substantial remedy package in August 2013, one year after the TFTC's clearance.
30 According to data published on the TFTC's website, among the decisions made by the TFTC in 2014, 95 cases concerned unfair conduct (including misleading advertising), while 27 cases concerned anticompetitive conduct (including abuse of market power, illegal combination and illegal concerted action).
31 Despite the 'administrative seizure right' granted by the new law, the proposed introduction of 'the right to search and seize with the assistance of the judicial authority' (i.e., the right to conduct a dawn raid) that the TFTC has long lobbied for has not passed the Legislative Yuan's final review due to the concerns related to the administrative agency's excessive power.