CONTENTS
- 1. Unfair Trade Practices | Concept
- - Why Enterprises Must Not Engage in Unfair Trade Practices
- 2. Unfair Trade Practices | Detailed Explanation of Types
- - Refusal to Deal
- - Discrimination in Price and Transaction Terms
- - Exclusion of Competitors, Such as Improper High-Price Purchasing
- - Improper Inducement of Customers Through Improper Benefits and the Like
- - Coercion of Transactions, Such as Tie-In Sales
- - Abuse of Bargaining Position, Such as Compelled Purchasing and the Coercion of Benefit Provision
- - Binding-Condition Transactions, Such as Exclusive-Dealing Arrangements
- - Obstruction of Business Activities, Such as the Improper Use of Technology and the Improper Inducement and Hiring of Personnel
- 3. Unfair Trade Practices | Level of Punishment
- - Disadvantages Borne by Enterprises
- - Comparison of Unfair Trade Risk Characteristics by Industry
- 4. Unfair Trade Practices | Cases of Unfair Transactions That Frequently Occur in Enterprises
- - Corporate Strategies for Preventing and Responding to Unfair Trade Practices
- - Unfair Trade Practices Checklist for Businesses
1. Unfair Trade Practices | Concept
Under the Monopoly Regulation and Fair Trade Act, unfair trade practices refer to conduct likely to impede fair transactions.
Unfair trade practices are conduct in which the content of the transaction or the means of competition is not legitimate, or in which a transaction is not conducted by fair methods, thereby distorting market competition and posing a risk of harming the interests of consumers; they are therefore strictly regulated under the Monopoly Regulation and Fair Trade Act.
An enterprise found to have engaged in an unfair trade practice may receive a corrective order from the Korea Fair Trade Commission, and if it fails to comply with that corrective order, it may be subject to the imposition of a penalty surcharge and to criminal punishment.
In order to avoid such sanctions, it is necessary to understand unfair trade practices in advance and to adopt a preventive posture.
However, because the individual types of unfair trade practices enumerated in the Monopoly Regulation and Fair Trade Act are diverse, and because it can be difficult to legally assess whether conduct impedes fair trade and is unlawful, legal advice on unfair trade practices should be sought regularly.
We recommend obtaining the assistance of an attorney with extensive experience in cases involving the Monopoly Regulation and Fair Trade Act and a track record of handling cases corresponding to each type of conduct, in order to review matters comprehensively and seek advice.
Why Enterprises Must Not Engage in Unfair Trade Practices
1. Risk of Legal Sanctions
In particular, where the degree of the violation is serious or repeated, the representative director or the responsible officer may be subject to criminal punishment, so the risk to the enterprise is very significant.
2. Decline in Corporate Reputation and Trust
In the ESG (Environmental, Social, and Governance) era, ethical management is directly linked to corporate value, so adherence to a fair competition order becomes a matter of survival.
3. Loss of Market Standing
An assessment that an enterprise is unable to compete in a fair market also becomes an obstacle to its entry into global markets.
4. Deterioration of In-House Culture and Loss of Talent
The enterprise may also suffer even greater damage through whistleblowing or insider reports.
5. Severance of Transaction Relationships and Damages Litigation
Enterprises must recognize that maintaining a fair transaction order is, beyond a mere legal obligation, central to a sustainable growth strategy.
In particular, fair transactions are not a choice but a necessity for the following reasons.
▶Securing long-term customer trust
▶Transparent supply chain management
▶Compliance with standards for overseas exports and attracting investment
▶Establishing internal controls and an ethical management framework
2. Unfair Trade Practices | Detailed Explanation of Types
The types of unfair trade practices are as follows.
Discrimination in price and transaction terms
Exclusion of competitors, such as improper high-price purchasing
Improper inducement of customers through improper benefits and the like
Coercion of transactions, such as tie-in sales
Abuse of bargaining position, such as compelled purchasing and the coercion of benefit provision
Binding-condition transactions, such as exclusive-dealing arrangements
Obstruction of business activities, such as the improper use of technology and the improper inducement and hiring of personnel
Refusal to Deal
This is conduct in which, without justifiable grounds, a business operator refuses to supply goods to a particular business operator or discontinues a transaction.
It produces the effect of restricting competition or excluding a particular business operator from the market.
Example: Where wholesaler A, by not supplying goods to retailer B, which is in a competitive relationship with it, obstructs B's business
Discrimination in Price and Transaction Terms
This is conduct in which an enterprise unfairly applies different prices or transaction terms to identical or similar counterparties, thereby discriminating against them.
It impedes fair competition and distorts the market order.
Example: Where a manufacturer supplies products to a large distributor at 20% below the regular price while selling to small and medium-sized distributors only at the regular price, thereby weakening the competitiveness of small distributors
Exclusion of Competitors, Such as Improper High-Price Purchasing
This is conduct in which an enterprise purchases a competitor's raw materials at a high price to cut off supply, or distorts prices by purchasing at a high price, thereby placing the competitor's business operations in difficulty.
Example: Where enterprise A purchases, in bulk and at an unnecessarily high price, the raw materials mainly used by its competitor B, making it impossible for B to obtain those raw materials
Improper Inducement of Customers Through Improper Benefits and the Like
This is conduct in which an enterprise induces customers by providing benefits beyond legitimate transaction practices, thereby taking away a competitor's customers.
Example: Where a franchise headquarters pays a subsidy that returns a certain percentage of sales in cash to franchisees that handle only its own products, thereby cutting off transactions with competing brands
Coercion of Transactions, Such as Tie-In Sales
This is conduct in which an enterprise requires, as a condition of the transaction, the compulsory joint purchase of goods or services that are not needed.
Example: Where a printer manufacturer compels customers, when purchasing a printer, to also purchase its own expensive ink cartridges
Abuse of Bargaining Position, Such as Compelled Purchasing and the Coercion of Benefit Provision
This is conduct in which an enterprise uses its superior bargaining position to make improper demands of the counterparty or to impose unfair transaction terms, such as compelling the purchase of particular goods.
Example: Where a supplier to a large corporation compels a small or medium-sized parts company to provide holiday gifts for its employees or compels it to use only particular raw materials
Binding-Condition Transactions, Such as Exclusive-Dealing Arrangements
This is conduct in which, in transacting goods or services, an enterprise attaches particular conditions (such as not using a competitor's products) and thereby restricts the counterparty's freedom of transaction.
Example: Where company A, in supplying its products to a large supermarket, imposes a condition that the supermarket will not display competitors' products, thereby restricting the supermarket's freedom of choice
Obstruction of Business Activities, Such as the Improper Use of Technology and the Improper Inducement and Hiring of Personnel
This is conduct in which an enterprise improperly uses or leaks a competitor's technology, personnel, trade secrets, and the like, and thereby obstructs the competitor's business operations.
Example: Where a large corporation receives technical materials from a supplier and, on that basis, proceeds to in-house production, or scouts a competitor's key personnel with a high salary and thereby leaks core technology
3. Unfair Trade Practices | Level of Punishment
Engaging in an unfair trade practice results in sanctions, including criminal punishment and administrative sanctions.
The level of criminal punishment for unfair trade practices is as follows.
| Conduct | Level of punishment |
| Improper support practices | Imprisonment for not more than 3 years or a fine not exceeding KRW 200 million |
| Improper inducement of customers Coercion of transactions Abuse of bargaining position Obstruction of business activities | Imprisonment for not more than 2 years or a fine not exceeding KRW 150 million |
Engaging in an unfair trade practice may result not only in criminal punishment but also in corrective measures such as cessation of the conduct and publication of the fact of the corrective order.
In addition, a penalty surcharge of not more than 4% of the relevant turnover (or not more than KRW 1 billion where there is no relevant turnover or its calculation is difficult) may be imposed, so caution is required.
By way of exception, in the case of improper support practices, a penalty surcharge of not more than 10% of the relevant turnover, or not more than KRW 4 billion where there is no relevant turnover or its calculation is difficult, is imposed.
Disadvantages Borne by Enterprises
An enterprise that engages in an unfair trade practice may, in addition to criminal punishment, be subject to the following disadvantages.
Corrective order: compulsory measures such as cessation of the conduct, cancellation of the contract, and severance of the relationship
Decline in reputation: media exposure upon announcement by the Korea Fair Trade Commission and damage to external image
Restriction on public bidding: restriction on participation in government-commissioned projects for a certain period
Comparison of Unfair Trade Risk Characteristics by Industry
The risk profiles of unfair trade practices vary in different ways across industries.
It is important to understand the characteristics of each industry and to put in place legal and ethical measures tailored to them.
1. Retail and Distribution
Risk factors: unilateral reductions of supply prices imposed on suppliers, forced returns, shifting of promotional costs, and the like
Example: A large retailer compels a small or mid-sized food company to bear interest-free promotional costs
2. Franchising
Risk factors: excessive royalty charges, forced sharing of advertising costs, and improper designation of mandatory supplies
Example: A franchisor designates only its affiliate's products as mandatory items
3. Manufacturing
Risk factors: improper reductions of subcontract payments, forced shortening of delivery deadlines, and demands for technical data
Example: A large company delays payment of supply prices and, after demanding technical drawings, manufactures the items itself
4. Platform / IT
Risk factors: manipulation of search and exposure algorithms, arbitrary changes to transaction terms, and forced commissions
Example: A platform adjusts the search ranking of a tenant company's products so as to place its own products first
5. Construction and Subcontracting
Risk factors: unilateral cuts in construction costs, unfair contract termination, and squeezing of labor costs
Example: A prime contractor notifies a subcontractor of contract termination while failing to pay construction costs
6. Pharmaceutical and Bio Industry
Risk factors: provision of rebates to hospitals, requests to exclude competing products, and data monopolization
Example: A pharmaceutical company pays money to a physician in return for inducing prescriptions
4. Unfair Trade Practices | Cases of Unfair Transactions That Frequently Occur in Enterprises
We will examine cases of unfair transactions that frequently occur in enterprises.
Unilateral shifting of advertising and sales promotion costs
Forced sale of volume to franchisees
Coercion to display only particular brands in distribution channels
Insertion of excessive penalties into contracts for the purpose of preventing departure
Corporate Strategies for Preventing and Responding to Unfair Trade Practices
1. Establishing a System for Prior Risk Inspection
Establishing a system for comprehensive review of all contracts
2. Operating a Fair Trade Manual and Guidelines
Conducting tailored training for employees
3. Securing Transparency in Transaction Relationships
Refraining from unilaterally imposing terms
4. Regularly Checking Korea Fair Trade Commission Guidelines
Referring to industry-specific guidelines and administrative interpretations
Unfair Trade Practices Checklist for Businesses
Item | Reviewed |
|---|---|
Does the contract contain any clauses that may amount to refusal to deal, unfair support, or the like? | ✅ / ❌ |
Are the transaction terms free from differentiation among counterparties without a reasonable basis? | ✅ / ❌ |
Are there no compulsory conditions imposed on franchisees or agency dealers? | ✅ / ❌ |
Is training on the Monopoly Regulation and Fair Trade Act conducted at least once a year? | ✅ / ❌ |
Is there a system for immediately reporting risks to outside counsel or the legal team when they arise? | ✅ / ❌ |
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