Antitrust: restrictive agreements and dominancei Definition
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. 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: 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).
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.Largest-ever fine on Qualcomm (2017)
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.Administrative settlement
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.iv Outlook
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.