June 2022
Aaron Chen and Julian Lai
The Fair Trade Commission (hereinafter, the “FTC”) rendered the Gong-Chu-111026 Disposition of May 17, 2011, holding that 15 air conditioning operators in Taiwan, including Johnson Controls-Hitachi Air Conditioning Taiwan Co., Ltd. (hereinafter, “Hitachi Co.”), Panasonic Sales Taiwan Co., Ltd. (hereinafter, “Panasonic Co.”), Ho Tai development Co., Ltd. (hereinafter, “Ho Tai Co.”) and others, reached an agreement on jointly shortening the full-machine warranty period of home air conditioners over a meal on November 26, 2019. Since this was likely to affect the supply and demand function in the relevant market in violation of Article 15, Paragraph 1 of the Fair Trade Act (hereinafter, the “Act”), fines totaling NT$13.9 million were imposed on such 15 air conditioning operators.
The FTC found, as a result of its investigation, that the three major air conditioner brands – Hitachi, Co. (Hitachi), Panasonic Co. (Panasonic), and Ho Tai Co. (Daikin) – successively extended the full-machine warranty from the previous three years to seven years after March 2019, and other operators with smaller market shares followed suit, resulting in competition over warranty terms and conditions among air conditioning operators. However, 15 air conditioning operators discussed the shortening of the warranty period of home air conditioners and exchanged views over a meal with companies in the same industry on November 26, 2019 and ultimately reached the agreement that “the full-machine warranty would be shortened to three years from November 26, 2019 onwards” and affixed their signatures to a written document created to reflect the content of the agreement.
The FTC mentioned in the disposition that, due to the high homogeneity of home air conditioners and the high degree of substitutability, an operator that shortens the warranty period alone runs the risk of losing the market. Therefore, companies in the same industry can secure their joint interests by agreeing to shorten the warranty period together. Since warranty terms and conditions are an important consideration for consumers and the air conditioners involved in the case have a combined share of over 90% of the home air conditioner market, the shortening of the warranty is objectively risky enough to affect the supply and demand function of the home air conditioner market in Taiwan. Since the prohibition against concerted action by operators under Article 15 of the Fair Trade Act was violated, fines totaling NT$13.90 million were imposed on such 15 air conditioning operators.
Points to note in this case
According to the FTC’s disposition, the penalized parties jointly and directly executed a document that mutually constrains the activities of the enterprises, thus constituting concerted action. Although penalized parties contended that such agreement was not binding to them and that they subsequently did not in fact shorten the warranty period, since the agreement on concerted action is not preconditioned by its legal binding effect and has no bearing on whether the agreement was actually carried out, the FTC believes that it is difficult for the penalized parties to argue that the agreement does not constitute concerted action.