CONTENTS
- 1. Unfair Trade | Types of Conduct
- - Refusal to Deal
- - Discriminatory Treatment
- - Exclusion of Competitors
- - Improper Inducement of Customers
- - Coercion of Transactions
- - Abuse of a Superior Bargaining Position
- - Transactions on Binding Conditions
- - Interference with Business Activities
- - Improper Support
- 2. Unfair Trade | Criminal Punishment and Administrative Sanctions
- - Criminal Punishment
- - Administrative Sanctions
- - Methods of Responding to Punishment for Unfair Trade Practices
- 3. Unfair Trade | Necessity of a Legal Response
- - Legal Risk Checklist for Unfair Trade Practices
1. Unfair Trade | Types of Conduct
Unfair trade refers to transactional conduct carried out through improper means that can hinder free and fair competition in the market.
The current 「Monopoly Regulation and Fair Trade Act」 prohibits unfair trade practices in order to maintain a free and fair order of competition among businesses and to promote consumer welfare.
The Monopoly Regulation and Fair Trade Act regulates eight types of unfair trade practices, and the detailed standards are set out in Article 36 of the 「Enforcement Decree of the Monopoly Regulation and Fair Trade Act」, a presidential decree.
General unfair trade includes types such as refusal to deal, discriminatory treatment, exclusion of competitors, improper inducement of customers, coercion of transactions, abuse of a superior bargaining position, transactions on binding conditions, interference with business activities, and improper support.
By contrast, special unfair trade mainly includes unfair trade related to the newspaper business and parallel imports, to which more specific and stricter regulations and public notices apply.
In addition, the unfair trade safe zone system is a system under which the Fair Trade Commission, in principle, does not commence a review of businesses below a certain size or companies with negligible market share.
However, even if a business falls within such a safe zone, the Fair Trade Commission may commence a review if an unfair trade practice occurs, so companies should be fully aware of the scope and applicability of this system.
To prevent the risk of violating the Monopoly Regulation and Fair Trade Act, a company should accurately understand the specific concept and assessment standards of each type of conduct and manage in advance the risk factors that may arise in practice.
Refusal to Deal
In particular, it also includes a joint refusal to deal, in which a business colludes with competitors to refuse a transaction with a particular business.
A refusal to deal without a justifiable reason can restrict market access and harm the business of the counterparty, so it is prohibited in principle.
▶Practical risk: when terminating an agency or franchise contract, refusing new entry, or discontinuing supply, the counterparty may assert harm
Discriminatory Treatment
This is conduct of discriminating against a counterparty in a transaction without a justifiable reason on the basis of price, transaction conditions, quantity, quality, whether the counterparty is an affiliate, or similar factors.
Transaction condition discrimination : discriminating in transaction conditions such as quantity, quality, and delivery date for the same goods
Preferential treatment of affiliates : dealing favorably with affiliates and unfavorably with competitors
Collective discrimination : discriminating against a particular company through an association or industry gathering
▶Practical risk: difficulty in proving the legitimacy of price and condition discrimination, and the risk of detection of transactions arranged for the convenience of affiliates
Exclusion of Competitors
This is conduct intended to improperly exclude competitors from the market, and it is treated as serious because of its very high degree of competition restriction.
Improper high-price purchasing : inducing the withdrawal of competitors through abnormally high-price purchasing
▶Practical risk: when operating discount policies or dumping sales, a review of whether the purpose is loss-making sales is required
Improper Inducement of Customers
This is conduct of improperly taking away a competitor's customers through the provision of excessive benefits or false information.
Inducement by deceptive scheme : promoting products by distorting their performance or transaction conditions beyond reality
Other interfering conduct : soliciting non-performance of a contract, and interference with transactions
▶Practical risk: inspection of promotional events, advertising materials, and sales staff training materials
Coercion of Transactions
This is conduct of improperly forcing a counterparty to purchase a particular product or service, or to deal with a particular business.
Sales by employees : forcing officers and employees to purchase or sell products
Other coercion : forcing a particular transaction by imposing disadvantageous conditions
▶Practical risk: review of distribution channel contracts, unit price agreements, and transaction statements is needed
Abuse of a Superior Bargaining Position
This is conduct of using one's superior bargaining position to impose improper obligations or disadvantages on a counterparty.
Coercion to provide benefits : rebates and the shifting of costs
Forced sales targets : setting excessive sales targets
Provision of disadvantages : changing transaction conditions without a justifiable reason
Interference with management : interference with the appointment and dismissal of officers and employees, the expansion of facilities, and similar matters
▶Practical risk: prior review of records of agency and subcontracting contracts and privately negotiated contracts
Transactions on Binding Conditions
This is conduct of dealing under conditions that improperly restrict the business activities of the counterparty.
Restriction of transaction territory : prohibition of dealing outside a particular territory
Restriction of counterparties : prohibition of dealing with parties other than particular counterparties
▶Practical risk: prior inspection of transaction restriction clauses within contracts
Interference with Business Activities
This is conduct of interfering with a competitor's business activities by improper means.
Inducement of personnel : scouting key personnel
Interference with the transfer of counterparties : interfering with a transfer to a competitor
Other interference : dissemination of false information, and interference with business
▶Practical risk: revision of recruitment conditions and trade secret management regulations
Improper Support
This is conduct of supporting a specially related person or an affiliate, thereby restricting competition or distorting the market order.
Improper support of assets and goods : transactions at a low price or a high price
Improper personnel support : dispatching personnel free of charge or at a low cost
Addition of a transaction stage : inserting a useless intermediate company
▶Practical risk: regular inspection of affiliate transaction materials and contracts with specially related persons
2. Unfair Trade | Criminal Punishment and Administrative Sanctions
In order to maintain a free and fair order of competition and to promote consumer welfare, the Monopoly Regulation and Fair Trade Act provides various legal sanctions against unfair trade practices, including criminal punishment, penalty surcharges, corrective orders, and administrative fines.
In particular, considering comprehensively the gravity of the violation, the degree of competition restriction, and the social impact, administrative dispositions and criminal punishment may be imposed concurrently, and a joint penalty provision that holds both the representative and the corporation liable may also apply.
Criminal Punishment
Articles 124 through 127 of the Monopoly Regulation and Fair Trade Act provide for the following criminal punishment for violations of the Act, including unfair trade practices.
▶Imprisonment for up to 3 years or a fine of up to 200 million won
▶Imprisonment for up to 2 years or a fine of up to 150 million won
▶Fine of up to 100 million won
▶Imprisonment for up to 2 years or a fine of up to 20 million won
For a violation by a corporation, a representative, an officer or employee, or an individual agent, a fine may be imposed concurrently on both the actor and the corporation.
However, exemption is possible if the corporation proves that it exercised considerable care and supervision.
Administrative Sanctions
▶Corrective order
▶Imposition of a penalty surcharge
▶Imposition of an administrative fine
Administrative fine of up to 100 million won : failure to perform filing or disclosure obligations, and false submission of materials
Administrative fine of up to 10 million won : failure to appear, obstruction of an investigation, and minor breaches of order
▶Publication order
Methods of Responding to Punishment for Unfair Trade Practices
When an unfair trade practice under the Monopoly Regulation and Fair Trade Act is detected, or when a company receives notice of an investigation from the Fair Trade Commission, it is most important for the company to establish a prompt and systematic response strategy to minimize the risk.
This is because a Fair Trade Commission investigation can lead to the imposition of a penalty surcharge, criminal punishment, or even public announcement, which can be directly connected to damage to the company's image and financial harm.
1. Promptly check whether there is an illegal act and the relevant facts
The company should conduct a complete examination of contracts, emails, transaction records, advertising materials, price materials, and similar items in order to accurately organize the points raised by the Fair Trade Commission and the actual facts.
Through this, the company also confirms whether voluntary correction is possible and whether the violation is continuing.
2. Review of voluntary reporting and corrective measures
3. Response in accordance with the Fair Trade Commission investigation response manual
The company should prepare a response manual for before and after an on-site investigation and provide prior training to the officers and employees subject to the investigation, in order to prevent a situation in which unfavorable evidence is secured through unnecessary statements or submission of materials.
4. Preparation of measures to correct the violation and to remedy harm
Accordingly, it is advisable for the company to prepare measures to remedy harm internally and to explain the related content to the Fair Trade Commission.
5. Preparation for the risk of public announcement of the violation
Therefore, depending on the gravity of the matter, it is advisable to prepare in advance an external communication strategy, press releases, investor briefing materials, and similar items in preparation for the public announcement of the violation.
Through this, damage to the company's image and additional transactional disadvantages can be minimized.
3. Unfair Trade | Necessity of a Legal Response
Under the Monopoly Regulation and Fair Trade Act, unfair trade practices are serious violations that undermine the order of competition and harm consumer welfare, and administrative dispositions and criminal punishment apply in parallel.
In particular, conduct such as collusion, refusal to deal, improper support, and coercion of transactions has a high likelihood of incurring both a penalty surcharge and a criminal complaint, and separate criminal punishment is also possible if corrective measures are not performed.
To prevent the risk of unfair trade practices, a company should establish a system for prior legal review, compliance training, inspection of transaction records, and management of the performance of corrective measures, and when a violation occurs, a strategy of prompt voluntary correction and consultation with the Fair Trade Commission to minimize the level of sanctions is needed.
Daeryun has a thorough understanding of unfair trade based on extensive experience and specialized knowledge, and it analyzes various legal risks closely to provide solutions tailored to each company.
In particular, based on an understanding of the Fair Trade Commission's review procedures and the relevant statutes, Daeryun provides assistance with the 🔗response to fair trade investigations throughout the entire process, from the early stage of the investigation to the sanction stage.
Legal Risk Checklist for Unfair Trade Practices
Please use the legal risk checklist for unfair trade practices to prevent unfair trade conduct by your company.
| Inspection Item | Key Points to Confirm |
|---|---|
| Whether there is a refusal to deal | Confirm cases of refusal to deal or discontinuation of a transaction without a justifiable reason |
| Discrimination in transaction conditions and price | Whether there is discrimination in unit prices and transaction conditions by affiliate or counterparty |
| Discount policies and dumping sales | Whether supply below cost or a loss-making sales strategy is operated |
| Rebates and excessive benefits | Whether there is money, prizes, or promotional support exceeding normal transaction practices |
| Tie-in sales and forced sales | Whether there is bundled sale of products or coerced sales by officers and employees |
| Interference with the management of agencies and franchisees | Whether there is restriction of management policies, personnel, or facility operation |
| Exclusive dealing conditions and territorial restrictions on counterparties | Whether there are conditions prohibiting transactions in a particular territory or with competitors |
| Personnel scouting and technology theft | Whether there is recruitment of a competitor's key personnel or improper acquisition of technical materials |
| Addition of a transaction stage involving specially related persons | Whether there is unnecessary insertion of specially related persons into a transaction stage or payment of excessive fees |
| Improper support of funds, assets, and personnel to affiliates | Whether there is abnormal support of funds, assets, or personnel to specially related persons |
See More
Watch related video content
for this case study.
Fair Trade Commission investigation preparation campaign with lawyers
