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Unfair Trade Practices

Overview

What are “unfair trade practices”?

Unfair trade practices refer to trading conducted unfairly or unjustly, which may limit free competition in the market.


In a situation where an individual company disturbs orderly competition in a given market structure, prohibition of unfair trade practices corresponds to a measure to improve trade practices in order to rectify such situation.


Under Article 23 (1) of the Monopoly Regulation and Fair Trade Act and attached Table I of Article 36 (1) of the Enforcement Decree of the same Act, general unfair trade practices are classified into the following nine major categories.

Categories of general unfair trade practices: ① Refusal to deal; ② Discriminatory treatment; ③ Exclusion of a competitor; ④ Unfair solicitation of customers; ⑤ Coercion of transaction; ⑥ Abuse of superior bargaining position; ⑦ Imposing binding conditional trade; ⑧ Obstruction of business activities; and ⑨ Unfair support


  • Any unfair labeling or advertising that deceives or misleads consumers is governed by the Act on Fair Labeling and Advertising.
  • Typical acts which frequently disadvantage transacting parties by taking advantage of one’s bargaining position are separately regulated by the Fair Transactions in Subcontracting Act, the Fair Transactions in Franchise Business Act, the Act on Fair Transactions in Large Retail Business, and Fair Agency Transaction Act

Categories of particular unfair trade practices have been determined by the following public notifications:


  • Notification of the Categories of and Standards for Unfair Trade Practices concerning the Newspaper Industry
  • Public notice on unfair practices for parallel importation

The Safety Zone

Overview

If the size or market share of a business is meager, it is deemed to have a minor impact on competition in the market and, in principle, the KFTC will not commence a review.

Subject
  • Types of Practices

    Safety zone applies to unfair trade practices that are mainly examined for their anti-competitive effects: refusal to deal, discriminatory treatment, exclusion of competitors, and binding conditional trade.


    * Excluded practices: unfair solicitation of customers, coercion of transaction, abuse of superior bargaining position,   obstruction of business activities, etc.


  • Business Entities

    Safety zone applies to business entities with a market share of less than 10% or (where it is impossible or extremely difficult to calculate the market share) annual sales of less than 2 billion won.

Note

Even though a conduct is done by a company which is in the Safety Zone, the KFTC may challenge the conduct under the Monopoly Regulation and Fair Trade Act.

Types of Unfair Trade Practices

General Unfair Trade Practices

General unfair trade practices are classified into nine categories: ① Refusal to deal; ② Discriminatory treatment; ③ Exclusion of a competitor; ④ Unfair solicitation of customers; ⑤ Coercion of transaction; ⑥ Abuse of superior bargaining position; ⑦ Imposing binding conditional trade; ⑧ Obstruction of business activities; and ⑨ Unfair support


① Refusal to Deal

Unfairly refusing or denying supply of a product to a purchaser

  • (Purpose of Regulation) The purpose of regulating refusal to deal is to ensure such a conduct dose not significantly hinder the business activities of other business entity, and consequently reduce competition and efficiency in the market.
  • (Type of Conduct) Refusal to deal includes considerably restricting the number or content of traded goods or services; or presenting highly disadvantageous trading conditions to a specific business entity.
  • (Example) While a liquor manufacturer was supplying its beer to supermarkets, etc., it refused to supply its beer to certain supermarkets on the ground that they did not purchase its whiskies.

② Discriminatory Treatment

Discriminately setting trading conditions and substance such as price according to transaction partner or trading area

  • (Purpose of Regulation) The purpose of regulating discriminatory treatment is to ensure such a conduct does not hinder competition in the market and consequently reduce market efficiency.
  • (Type of Conduct) Discriminatory treatment includes price discrimination that directly affects the price or price-related conditions and discrimination of trading conditions, such as the payment conditions for the bill and method of executing the contract.
  • (Example) A salt maker, in doing transactions with two sales agencies A and B, discriminated against B which is an existing sales agency by raising the cash payment ratio for B up to 100 percent and decreasing the salt supply ratio to B while allowing 50 percent of the cash payment ratio for A without just cause.

③ Exclusion of a Competitor

Eliminating a competitor from the market to establish a monopolistic position through unfair dumping or improper expensive purchase

  • (Purpose of Regulation) The purpose of regulating exclusion of a competitor is to ensure such a conduct does not hinder competition and ultimately compromise consumer welfare.
  • (Type of Conduct) Exclusion of a competitor includes unfair dumping and improper expensive purchase.
  • (Example) A toothpaste manufacturer supplied 3.3 million tubes of toothpaste after winning a tender at the price of 1 KRW per tube in order to exclude its competitors from the market.

④ Unfair Solicitation of Customers

Soliciting the customers of the competitor using means such as providing unfair benefits, fraudulent schemes and obstruction of trade

  • (Purpose of Regulation) The purpose of regulating unfair solicitation of customers is to ensure such unfair means of competition do not hinder proper competition, and prevent consumers from selecting good quality, low-priced goods or services.
  • (Type of Conduct) Unfair solicitation of the customers of the competitor includes drawing customers by providing unfair benefits, drawing customers with fraudulent schemes, and other forms of unfair drawing of customers.
  • (Example) In supplying medicines that pharmaceutical companies manufactured and supplied to domestic hospitals, such pharmaceutical companies gave money to general hospitals, etc. in exchange for choosing their medicines (“landing fees”) and prescribing their products (“rebates”), as well as for entertainment expenses, and other purposes, in order to increase sales by increasing introduction and prescription of their medicines.

⑤ Coercion of Transaction

Forcing the transaction partner or employee to secure customers using its market position

  • (Purpose of Regulation) The purpose of regulating coercion of transaction is to prevent a business entity from enhancing its market dominance through unreasonable means and restrict the consumers’ right to choose.
  • (Type of Conduct) Means of coercion of transaction include tie-in sales, sales to employees, direct and indirect forcing by causing a disadvantage, such as unfair terms, to the transaction partner.
  • (Example) A wedding hall owner rented its wedding hall to customers on condition that they use the restaurant in the wedding hall or that they rent wedding accessories and supplies, including a wedding dress and wedding clothing from the wedding hall.

⑥ Abuse of Superior Bargaining Position

Exploiting the financially weak with an inferior position by abusing its superior bargaining position

  • (Purpose of Regulation) The purpose of regulating abuse of superior bargaining position is to ensure such a conduct does not hinder the foundation of self-development of the transaction partner and violate that of fair trade.
  • (Type of Conduct) Abuse of superior bargaining position includes forcing purchase, forcing provision of benefit, imposing sales target, causing disadvantages, and interfering with the business activities.
  • (Example) A manufacturer of famous brand electronic products supplied an excess quantity of products to a sales agency without an order from it, irrespective of the sales agency’s level of inventory or intention to order.

⑦ Imposing Binding Conditional Trade

Restricting freedom of a transaction partner in selecting the client by not allowing the partner to do business with the competitor of the business entity in question or restricting the trading area

  • (Purpose of Regulation) The purpose of regulating binding conditional trade is to ensure such a conduct does not obstruct market competition and consequently reduce consumer welfare by restricting the client’s freedom of choice.
  • (Type of Conduct) Binding conditional trade includes exclusive dealings and restriction of trading area or transaction partners.
  • (Example) A company banned its bottled water sales agencies from selling its competitors’ products and when they disregarded the ban, it imposed restrictions on the agencies, such as imposing penalties or terminating the contract.

⑧ Obstruction of Business Activities

Unfairly disrupting business activities of other business entity

  • (Purpose of Regulation) The purpose of regulating obstruction of business activities is to ensure such an unfair means of competition does not hinder competition on price, quality and service.
  • (Type of Conduct) Obstruction of business activities includes unfair use of technology, unfair inducement and hiring of workforce, interfering with changing transaction partners, and other forms of obstruction of business operations.
  • (Example) In supplying medicines that pharmaceutical companies manufactured and supplied to domestic hospitals, such pharmaceutical companies gave money to general hospitals, etc. in exchange for choosing their medicines (“landing fees”) and prescribing their products (“rebates”), as well as for entertainment expenses, and other purposes, in order to increase sales by increasing introduction and prescription of their medicines.

⑨ Unfair support

Assisting a related party or other companies by unfairly providing advanced payments, loans, manpower, immovable assets, securities, goods, services, intangible property rights, etc. or by transacting under substantially favorable conditions

  • (Purpose of Regulation) The purpose of regulating unfair support is to secure free and fair competition by ensuring that a company can thrive not by taking advantage of its relations with a business group, but by enhancing its competitiveness.
  • (Type of Conduct) Unfair support includes unfairly providing funds, asset products, human resources, and adding an additional step to the transaction.
  • (Example) ) A financial service provider unfairly assisted its affiliate by indirectly buying an ATM through the affiliate even though it could directly buy the ATM from an ATM manufacturer.

Particular Unfair Trade Practices

Particular unfair trade practices are classified into two categories: ① Unfair trade practices concerning the newspaper industry; and ② Unfair trade practices in regards to parallel importation.


① Unfair Trade Practices Concerning the Newspaper Industry
   (Notification of the Categories of and Standards for Unfair Trade Practices concerning the Newspaper Industry)

Background on regulating the newspaper industry


It is necessary to establish order in the newspaper market by preventing any unfair solicitation of transactions, including excessive provision of free newspapers, and giveaways.


Main points


  • Restricting provision of free newspapers and giveaways: Unfairly soliciting customers of competitors to transact with it. (Article 3 of the Notification)
  • Unfair Solicitation of Customers: Delivering newspapers for seven days or more to a person who has expressed the intention to cancel the subscription for the newspaper after the subscription contract had expired (Article 4 of the Notification)
  • Coercion of Transaction: Coercing employees, after hiring them at a significantly low or no salary in comparison with the market price, to sell advertised products on condition that a portion of the price of receiving orders for the advertisement will be given to them as their remuneration (Article 7 of the Notification)
  • Exclusive dealing: Unfairly prohibiting a newspaper distributor from selling other publishers’ newspapers without a prior contract or consent (Article 8 of the Notification)

② Unfair Trade Practices in regards to Parallel Importation
   (Announcement of the Types of Unfair Trade Practices in Regards to Parallel Importation)

Background on regulating the parallel importation


Parallel Importation promotes competition by allowing a third party to import genuine goods without the consent of the exclusive importer. The purpose of regulations on parallel importation is to prevent unfair trade practices by specifying the representative types of actions unreasonably obstructing parallel importation.


Main points


  • Obstructing the Purchase of Genuine Goods via Overseas Distribution Channels: Act of an exclusive importer unreasonably obstructing parallel importer from purchasing genuine goods (Article 5 of the Announcement)
  • Limitations on the Handling of Parallel Imports in regards to Vendors: Act of an exclusive importer engaging in activities that prevent vendors from handling parallel imports—such as trading with vendors on conditions of unreasonable non-dealing with parallel imports (Article 6 of the Announcement)
  • Discriminatory Treatment of Vendors Handling Parallel Imports: Act of an exclusive importer engaging in activities that unreasonably discriminate in trade terms or conditions—such as trading at significantly disadvantageous prices with vendors among whom handle parallel imports (Article 7 of the Announcement)
  • Supply Refusal and Discontinuation in regards to Vendors Handling Parallel Imports: Act of an exclusive importer refusing to deal with or discontinuing the supply of goods to vendors only on the basis of their handling parallel imports (Article 8 of the Announcement)
  • Limiting the Sale of Exclusive Import Goods in regards to Retailers Parallel Imports: Act of an exclusive importer inducing its vendor (wholesaler) to unreasonably prevent a retailer handling parallel imports from selling exclusive import goods (Article 9 of the Announcement)

Sanctions against Offenses

Administrative sanctions (corrective measures and penalty surcharges)

Issuing an order to stop engaging in the relevant unfair trade practices, delete the pertinent provisions from the contract, publish the fact it has ordered to take corrective measures, or other measures necessary to correct such violation.


A penalty surcharge not exceeding 2% of sales may be imposed, but a penalty surcharge not exceeding 500 million KRW may be imposed if no relevant sales have been made or it is impracticable to compute sales.


However, with regard to unfair support, a penalty surcharge not exceeding 5% of sales may be imposed, but a penalty surcharge not exceeding 2 billion KRW may be imposed if no relevant sales have been made or it is impracticable to compute sales.

Penal Provisions

An offender accused by the KFTC is punishable by imprisonment for not more than 2 years or a fine not exceeding 150 million KRW.


An offender who breaches an order to take corrective measures is punishable by imprisonment for not more than 2 years or by a fine not exceeding 150 million KRW, irrespective of whether the offender is a legal entity or individual.