CONTENTS
- 1. Act on Fair Labeling and Advertising | Scope and Principal Obligations
- - Scope of Application
- - Principal Obligations of Business Operators
- 2. Act on Fair Labeling and Advertising | Types of Violations
- - Types of Advertising That Frequently Raise Issues in Practice
- - Temporary Suspension Order
- 3. Act on Fair Labeling and Advertising | Sanctions for Violations
- - Corrective Measures by the Korea Fair Trade Commission
- - Penalty Surcharge
- - Criminal Punishment and Joint Penalty Provision
- - Civil Liability for Damages
- 4. Act on Fair Labeling and Advertising | Points Frequently Overlooked in Practice
- - Representing Efficacy or Effects Without Substantiating Materials
- - Displaying Important Conditions in Small Print
- - Omitting Disclosure of Undisclosed Paid Advertising or Sponsorship
- - Preparing a Response After a Korea Fair Trade Commission Investigation Has Begun
- 5. Act on Fair Labeling and Advertising | Daeryun's Preventive and Responsive Support System
1. Act on Fair Labeling and Advertising | Scope and Principal Obligations
The Act on Fair Labeling and Advertising (the "Act on Fair Labeling and Advertising") was enacted to prevent unfair labeling and advertising that may deceive or mislead consumers and to establish a fair trade order.
Under the Act, "labeling" refers to the letters and figures placed on a product's container or packaging, on signage at a place of business, and the like, while "advertising" refers to informing consumers through various media such as newspapers, broadcasting, the internet, and social media.
Business operators who advertise in the course of selling products, providing services, or conducting online marketing fall within the scope of this Act.
Scope of Application
The Act reaches business operators in industries that rely on labeling and advertising to sell products or services, such as food, cosmetics, and pharmaceuticals; finance and insurance; real estate and sales of housing units; e-commerce and platforms; and manufacturing and distribution.
It applies regardless of size, from sole proprietors to large enterprises, and conduct by a business operators' association that unfairly restricts the advertising of its member operators is also subject to regulation.
Principal Obligations of Business Operators
The Act on Fair Labeling and Advertising imposes the following obligations on business operators.
First, the obligation to refrain from unfair labeling and advertising.
A business operator must not engage in labeling or advertising that is false or exaggerated, deceptive, unfairly comparative, or slanderous.
Second, the obligation to disclose material information.
Material information designated by the Korea Fair Trade Commission must appear in labeling and advertising.
Third, the obligation of substantiation.
Factual claims made in labeling and advertising must be capable of substantiation at any time, and when the Korea Fair Trade Commission requests supporting materials, the operator must submit them within 15 days.
Failure to comply may lead to an order to suspend the advertising.
2. Act on Fair Labeling and Advertising | Types of Violations
The Act on Fair Labeling and Advertising expressly prohibits the following four types of unfair labeling and advertising.
Type | Description |
False or Exaggerated Labeling and Advertising | Conduct that contradicts the facts or inflates them excessively, thereby misleading consumers |
Deceptive Labeling and Advertising | Conduct that conceals or hides material facts, thereby causing consumers to make an erroneous judgment |
Unfairly Comparative Labeling and Advertising | Conduct that compares a product with a competitor's without objective grounds, thereby misleading consumers |
Slanderous Labeling and Advertising | Conduct that disparages a competing business operator or its products without objective grounds |
Types of Advertising That Frequently Raise Issues in Practice
Violations of the Act on Fair Labeling and Advertising arise frequently, not only in large-scale advertising campaigns but also in routine marketing activities.
- Advertising that exaggerates efficacy or effects or distorts clinical results
- Advertising that uses superlative expressions without objective grounds
- Price advertising that inflates discount rates or regular prices
- Advertising that omits important conditions or restrictions or buries them in small print
- Undisclosed paid advertising that conceals the fact that the content is a review or sponsored-tester advertisement
Temporary Suspension Order
When unfair labeling or advertising is clearly suspected and consumers or competing business operators face a risk of irreparable harm, the Korea Fair Trade Commission may order the business operator to suspend the labeling or advertising in question immediately.
A party that objects to a temporary suspension order must file an objection with the Korea Fair Trade Commission within 7 days of receiving the order.
3. Act on Fair Labeling and Advertising | Sanctions for Violations
A violation of the Act on Fair Labeling and Advertising may give rise to the following administrative sanctions and punishment.
Corrective Measures by the Korea Fair Trade Commission
When unfair labeling or advertising is confirmed, the Korea Fair Trade Commission may order the following corrective measures.
∙ Public announcement of the fact that a corrective order has been received
∙ Corrective advertising
∙ Any other measure necessary to correct the violation
Public announcement of a corrective order and corrective advertising can directly harm brand credibility, so the disposition itself may cause substantial business losses.
Penalty Surcharge
A business operator that has engaged in unfair labeling or advertising faces a penalty surcharge of up to 2% of the relevant sales revenue.
Where there is no sales revenue or it is difficult to calculate, a penalty surcharge of up to 500 million won applies.
In setting the penalty surcharge, the Commission weighs factors such as the content and degree of the violation, its duration and frequency, the scale of the profit obtained, and the operator's efforts to prevent or compensate for consumer harm.
Criminal Punishment and Joint Penalty Provision
A person who engages in unfair labeling or advertising, or who fails to comply with a corrective order, is subject to imprisonment for up to 2 years or a fine of up to 150 million won.
When a representative, agent, or employee of a corporation commits the violation, the same fine may be imposed on the corporation as well as the individual actor.
Civil Liability for Damages
A consumer or competing business operator that has suffered harm from unfair labeling or advertising may claim damages from the business operator.
The business operator cannot escape liability by arguing the absence of intent or negligence, and even when the amount of damages is difficult to calculate, the court may recognize a reasonable amount based on the results of the pleadings. The resulting liability risk is considerable.
4. Act on Fair Labeling and Advertising | Points Frequently Overlooked in Practice
Violations of the Act on Fair Labeling and Advertising often stem from a belief that certain expressions are "customary in marketing."
The situations below commonly raise issues in actual practice.
Representing Efficacy or Effects Without Substantiating Materials
Expressions such as "verified by clinical results" and "recommended by experts" may be treated as false or exaggerated advertising when no supporting materials back them up.
When the Korea Fair Trade Commission requests substantiating materials, the operator should review the matter with a professional without delay.
Displaying Important Conditions in Small Print
When material information that affects a consumer's purchasing decision, such as discount conditions, exclusions, and validity periods, is separated from the main text or shown only in small print, the conduct may constitute deceptive labeling and advertising.
Omitting Disclosure of Undisclosed Paid Advertising or Sponsorship
Failing to clearly disclose that content is influencer or sponsored-tester advertising constitutes deceptive advertising.
The same holds when the content is presented in a way that makes it impossible to recognize as advertising or is disguised as a comment or review.
Preparing a Response After a Korea Fair Trade Commission Investigation Has Begun
Once a Korea Fair Trade Commission investigation has begun, temporary suspension orders, corrective measures, and penalty surcharges follow quickly.
Heading off the risk through advance review before advertising is executed is the most effective response.
5. Act on Fair Labeling and Advertising | Daeryun's Preventive and Responsive Support System
Matters under the Act on Fair Labeling and Advertising may start with administrative sanctions by the Korea Fair Trade Commission and then expand into criminal punishment and civil claims for damages.
Because public announcement of a corrective order and corrective advertising directly harm brand image, managing legal risk from the advertising execution stage onward is important.
Preventive Measures
∙ Review of whether substantiating materials are in place and whether expressions are lawful
∙ Advice on whether material information disclosure requirements apply and on the method of disclosure
∙ Advice on building an advertising compliance system, including standards for disclosing undisclosed paid advertising and sponsorship
Responsive Measures
∙ Filing objections to and contesting temporary suspension orders
∙ Responding to corrective measures and penalty surcharge dispositions through administrative adjudication and administrative litigation
∙ Responding to criminal investigations relating to unfair labeling and advertising
∙ Responding to claims for damages by consumers and competing business operators
Once a Korea Fair Trade Commission investigation has begun, the available options narrow quickly.
The most useful time to act is during advance review before advertising is executed, or in the period immediately after notice that an investigation has commenced.
Daeryun LLC has several attorneys with experience handling matters relating to the Act on Fair Labeling and Advertising and fair trade.
If you require legal counsel regarding the Act on Fair Labeling and Advertising, you may assess your matter through a 🔗fair trade attorney consultation.
