A company that secretly created a similar company and stole technology... Resentment notice for termination of contract with business partner

The court ruled that if a wholesale or retail sales company established a similar manufacturer without notifying the contracted production company, it would be justified even if the production company unilaterally terminated the contract. This is because it is judged that it is an act that greatly hinders business for a company in a cooperative relationship to engage in the same business.

Last January, the Suwon High Court dismissed the plaintiff's claim as in the first trial in a damages lawsuit filed by company A, a wholesale and retail sales company, against company B, a manufacturer of industrial adhesive-related products.

Company A signed a dealership contract with Company B in November 2021. Afterwards, Company B established a separate corporation to manage contract companies, including Company A, and then conducted an evaluation to determine whether to renew the contract for each company. During this process, Company B discovered circumstances in which Company A established a similar manufacturing company and stole the company's unique technology.

Accordingly, Company B notified Company A of termination of the contract in May of the following year due to the breakdown of trust relationship and stopped supplying the product.

Company A immediately protested. Company A filed a lawsuit for damages of approximately 630 million won, claiming that the contract was unilaterally rejected by Company B. Company A claimed that Company B terminated the contract citing unfair reasons and that this was a violation of the Fair Trade Act.

Company B requested that the claim be dismissed, saying, "Company A signed the contract without informing them that they were operating a similar company. Because a significant change occurred in the contract, the contract could no longer be continued."

The first trial ruled in favor of Company B. The first trial court said, “Circumstances that raised doubts about the plaintiff’s reliability were revealed when he established a similar manufacturer and sales agency, which served as a major reason why the contractual relationship could not be maintained.”

The appeals court also found that there was no problem with Company B’s contract termination process. The appellate court ruled that “the cause of the incident was the plaintiff and the termination of the contract appears to have been an act of business necessity.”

Attorney Choi Han-sik of Daeryun Law Firm, who represented Company B, explained, "Company A was managing its clients with the purpose of technology sales and conducting monopolistic sales for Company B. If Company B had not established a separate corporation to manage contract companies, we would not have known that Company A was running the same business."

He said, "Company B, which discovered several problems through evaluation, could immediately take no other action than to terminate the contract. Therefore, it is difficult to say that Company B's notification of suspension of transactions to Company A is likely to undermine fair and free competition or is unfair."

Reporter Hwang Jeong-won (jwhwang@mt.co.kr)

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A company that secretly created a similar company and stole technology... Notice of cancellation of contract with business partner (Shortcut)