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Cartels

i Definition

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, 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.

ii Significant casesRecord-breaking fine on power producers (2013)

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, 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.

Sanction on dairy products suppliers and convenience stores for price fixing (2011)

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 strategiesCircumstantial evidence

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.

Leniency programme

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.

Pursuant to the TFTA, the consequences of violating the cartel prohibitions under the leniency programme are as follows:

  1. 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.
  2. 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.
  3. 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: ODD (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: Capacitor (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. 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.

iv OutlookCompliance programme

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:

  1. developing a corporate culture where legal compliance is essential;
  2. stipulating policies and procedures that everyone should observe;
  3. providing education or training programmes;
  4. establishing audit, review and report mechanisms;
  5. creating proper rewards and punishments; and
  6. 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.

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. 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.