Prohibition of Business | Analysis of a Supreme Court Judgment Holding That a Convenience Store and an Ice Cream Discount Store Are ‘Similar Business Types’

The plaintiff who filed the lawsuit for prohibition of business was A, who was operating a convenience store in a commercial building in the area.

The commercial building had been sold in lots with business-type restrictions, so that only a specific unit could operate a convenience store.

However, the conflict began when B, who had moved into the same commercial building, started operating a 24-hour unmanned ice cream store.

A filed the lawsuit, asserting that B was operating a similar store in a unit other than the designated one.

However, B countered that an ice cream store is not similar to convenience store operations, and that even if there were similar aspects, the commercial building's rules could not be interpreted as restricting business types similar to a convenience store.

Before examining the lawsuit related to prohibition of business, we will first review the precedents cited in this case.

With respect to the lawsuit for prohibition of business, the court of first instance first rendered a judgment partially in favor of the plaintiff.

Comprehensively considering the various circumstances, the ice cream discount store and the convenience store fell within the ‘same business type,’ and therefore B's operation of an ice cream discount store in the same commercial building as A should be regarded as a violation of the business-type restriction agreement.

The court of first instance then explained that B's ice cream discount store sold not only ice cream but also various food items such as snacks, beverages, bread, jelly, and chocolate, and that these were all products that are sold in convenience stores and, moreover, products that account for a substantial portion of a convenience store's overall sales revenue.

It added that the stores were also similar in operating 24 hours, and that the sizes of the stores were comparable as well.

However, the court of second instance reached a different determination.

It found that a convenience store sells a variety of goods, including not only food and beverages but also alcoholic drinks and various daily necessities, whereas B's ice cream discount store sold only a limited range of goods, such as ice cream, snacks, and beverages.

The court of second instance stated that, considering that one of the core characteristics of a convenience store is the sale of a comprehensive range of goods, it was difficult to regard the two stores as the same business type.

It also pointed out that, although A claimed to have suffered a significant blow to sales because of B's ice cream discount store, there was no evidence to support this.

With respect to the lawsuit for prohibition of business, the Supreme Court's determination was different yet again.

It reversed the judgment of the appellate court and remanded the case to the lower court.

The reasons the Supreme Court again sided with A are as follows.

First, looking at the sales volume of a convenience store, excluding cigarettes, which account for about 40% of sales, the remainder consisted of sales of simple processed food items such as snacks, ice cream, and beverages, as well as other daily necessities.

The Supreme Court found that snacks, ice cream, and the like constitute the main sales items of a convenience store.

B's ice cream discount store was likewise operated by displaying simple processed food items, which are the main sales items of a convenience store, on shelves and other fixtures within the store and having customers pay through an unmanned checkout, and the Supreme Court stated that this was highly likely to lead ordinary customers to perceive that store as a kind of convenience store.

In particular, the Supreme Court explained that, because the stores located in that commercial building share the residents of the nearby apartment complex as their main customer base, it could be presumed, under the empirical rule derived from experience, that A's business profits would have been infringed as a result of the discount store operated by B.

Although the court of second instance pointed out that there was no clear basis for a decline in sales, the Supreme Court held that the fact of a decline in profits could not be denied merely on grounds such as the failure to submit specific materials.

However, since the court of second instance had concluded that, because the ice cream discount store and the convenience store did not fall within the same business type, the infringement of A's business profits was not recognized, the Supreme Court pointed out that the lower court had erred by misunderstanding the legal principles concerning the interpretation of business-type restriction agreements and the claim for prohibition of business.

Most commercial buildings establish and operate rules restricting the operation of the same business type from the lot-sale stage.

The purpose is to guarantee business operators' exclusive business rights and to prevent excessive competition that may arise from operating stores of the same business type, as well as the harm resulting from it.

However, as relatively new types of businesses that did not previously exist have emerged, such as the ice cream discount store in the case above, conflicts surrounding the ‘same business type’ have also become more frequent.

With the Supreme Court judging an ‘ice cream discount store’ and a ‘convenience store’ to be similar business types, it is anticipated that the operation of discount stores doing business in the same commercial building as a convenience store may also be restrained.

At Daeryun Law Firm LLP, attorneys experienced in related disputes collaborate to assist clients.

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