Decision of Administrative or Quasi-judicial Agencies
Chapter 1 Ban on the Abuse of Market-Dominant Position
1. Abuse of market-dominating position by A Breweries(Ltd.)
(FTC Resolution No. 93-106)
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I. Overview of the Facts
The enterprise under scrutiny is in the business of the manufacture and sale of beer, and was designated as a market-monopolistic enterprise in beer products in 1993, pursuant to the provision in Article 4 and in accordance with Article 2 (7) of the Fair Trade Act. The enterprise has a market share of approximately 70%(as of the end of 1992) in the domestic beer market, and a competitive relationship with Chosun Breweries(Ltd.), but has a de facto monopoly in the Inchon area by controlling 90% of the Inchon market, which is pertinent to this case.
On May 10, 1993, the enterprise became aware of the fact that the Inchon branch office of its competitor Chosun Breweries(Ltd.) supplied its new product `Hite Beer' on May 8, 1993 to some wholesalers of both enterprises' products in Inchon. Upon discovering this, the enterprise stopped the supply of its products to those wholesalers of both enterprises in Inchon to which its competitor had supplied Hite Beer. The enterprise demanded the return of the already received supplies of Hite Beer from the wholesalers that transacted with both enterprises, and had them returned by promising to resupply its products if documents proving the return of its competitor's products were submitted.
However, after the Inchon branch office of the enterprise's competitor, Chosun Breweries(Ltd.), released information to the media on the issue and the resulting request by the media to confirm the facts followed, the enterprise resumed the supply of its products to wholesalers of both enterprises one day after stopping its supply to these outlets.
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II. Summary of the ruling
The FTC deems that the enterprise is in an economic position to exercise a market monopoly to wholesalers of both enterprises, in light of the fact that it was designated as a market monopolistic enterprise in the domestic beer market, its 70% market share and the fact that its products account for 90% of the products sold through wholesalers of both enterprises.
When Chosun Breweries' new products were shipped to wholesalers of both enterprises in Inchon City, the enterprise made it difficult for Chosun Breweries(Ltd.) to sell its new products through wholesalers of both enterprises by unilaterally stopping the supply of its products to the wholesalers who had already received shipments of its competitor's product, as well as demanding return of Chosun Breweries�� new products that the outlets had already received. Such an action by the enterprise is not only an unfair interference with the wholesalers' business activities, in that it used its market-dominating position to force the wholesalers to accept its demand and stopped them from receiving and selling Hite Beer, but is also unfair interference with the business activities of its competitor by making the sales of new products by Chosun Breweries difficult.
III. Application of the Act
The enterprise's actions are an unfair interference with the business activities of Chosun Breweries and wholesalers of both enterprises in Inchon area by abuse of its market-dominating position, and a violation of Article 3 (3) of the Fair Trade Act. The following is the judgment based on Article 5 of the Act.
<Judgment>
The enterprise must not abuse its market-dominating position to unfairly interfere with the business activities of other enterprises.
The enterprise must send to all of its transacting wholesalers within fourteen days of receiving the correction order, written notifications of the fact that it received correction orders from the FTC for its violation of the Act by conducting activities in the above-stated 1. It must also make public its reception of the correction order by placing a five line by 20cm public announcement in one weekday installment of one daily newspaper in Inchon within fourteen days of receiving the order. The scope of publication, page, wording of the announcement, and type size must be coordinated with the FTC prior to placing the announcement.
2. Abuse of market-dominating position and superior position by A
(FTC Resolution No. 96-34)
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1. Summary of the facts
The enterprise is in the business of the manufacture and sale of explosives under the Monopoly Regulation and Fair Trade Act and is designated a market-dominating enterprise, holding 86.4% of the domestic explosives market while its competitor Koryo Chemical(Ltd.) accounts for 13.6%.
The enterprise conducted business transactions with explosives dealers nationwide without a dealership contract until its competitor Koryo Chemical (hereinafter referred to as "its competitor") began the manufacture and sale of explosives(in September 1993). When its competitor made its entry into the market, A signed dealership contracts with explosives dealers in January 1994 on the condition that the dealers do not conduct business with its competitor(Article 3 (3),(4) of the contract).
The Chonan branch office of the enterprise significantly reduced the supply of its products to a dealer, Seohae Explosives Trading, a limited company and the reporter of the case, after November 6, 1994, when the dealer began to sell its competitor's products along with those of the enterprise. In early November of 1995, the enterprise completely stopped all supplies to the reporter of the case completely.
In its products supply agreement signed on May 31, 1994 with Daerim Engineering(Ltd.), a buyer, and Samsung Explosives(Ltd.), a dealer, the enterprise included a provision that guaranteed shipping at significantly lower prices than the normal price, on the condition that Daerim Engineering did not use any other company's product. The enterprise carried out the provision in the contract.
A manager of the explosives business division of the enterprise ordered the head of the Chechun branch on June 3, 1995 to forcibly close off the business activities of Hoingsung Explosives, a dealer of its competitor. The head of the enterprise's Chechun branch executed "a plan to take over all business from our competitor (Hoingsung Explosives)" and around July 1995 reported the plan to the headquarters, part of which was to supply to its dealers the same items as those sold by the dealers of its competitor at more favorable prices or better business conditions.
The enterprise established a condition in its transaction agreements with dealers (Article 3 of the dealership contract) that the consent of nearby dealers would be a requirement for the establishment of new dealerships.
The enterprise signed dealership contracts with dealers that stated cases of dispute that arise between dealers will be brought before a court which has jurisdiction over the headquarters of the enterprise (Article 16).
II. Summary of the Ruling
The enterprise was designated a market-dominating enterprise in explosives from 1985 to 1996, enjoying a de facto monopoly with a 86.4% market share(as of 1995). It has control over the national explosives distribution network(97% of the national distribution network), while the establishment of new explosives stores by new entrants is extremely difficult in light of the laws and regulations that control guns, weapons, and explosives. This put the enterprise in a position to exercise market-dominating power in the domestic explosives market.
Dealers that have signed dealership contracts with the enterprise are independent contractors which should be given the freedom to determine their own respective business activities based on their management strategies and judgment. The market should be a place of fair and free competition based on the price and quality of a product. Therefore, it would be unreasonable for a business to use its economic position to restrict the business activities of its dealers or cause difficulties by forcing a condition that bans them from dealing in the products of its competitor. It would also be undermining free and fair competition in the market. In light of this, the FTC deems that the enterprise's activities of signing dealership contracts with dealers based on the condition that its competitor's products will not be sold by the dealers, or refusing to conduct business transactions with dealers on the grounds that they dealt in its competitor's products, are unfair business activities that undermine fair and free competition in the marketplace. Such activities are deemed to have been possible due to the enterprise's market-dominating position inside the Korean explosives market. Therefore, the enterprise's activities are deemed as an unreasonable interference with the business activities of its dealers and its competitor by abuse of its market-dominating position.
Competition in the market should be based on the price and quality of a product, and staged through fair and free means. The FTC deems the enterprise's activities of selling explosives under clearly better prices or transaction terms than its competitor's, on the condition that the dealer does not use its competitor's product, and executing plans to block business transactions by its competitor or the competitor's dealers while offering clearly better prices and transaction terms to dealers who are competing with the competitor's dealers are unreasonable interference with the business activities of not only its competitor but also the competitor's dealers, and undermines fair and free competition in the market. The FTC deems that such actions by the enterprise were possible due to its market-dominating position in the domestic explosives market. Therefore, the enterprise's actions are deemed as an unreasonable interference with the business activities of its competitor and the competitor's dealers by abusing its market-dominating position.
The enterprise's actions of stating in its contracts with new dealers that the consent of existing dealers located near the new dealer's business site is required to open new dealerships is aggravating the monopoly of a dealer by limiting the establishment of new explosives dealers licensed by the National Police Administration. Its actions are deemed as a restriction of competition by the abuse of its market-dominating position.
The enterprise claims that the objective of this provision in the contract was to protect its customers and to promote the safe distribution of products. However, banning the purchase of its competitor's products enables it to maintain its monopolistic position and limits the consumers' scope of choice. Such action does not protect the customer; on the contrary, it increases the burden on the customer. Furthermore, The enterprise's claim is invalid since the National Police Administration issues licenses on the condition that a safe distance of 12 kilometers be in place between different explosives storage facilities for a safe distribution, and has made the official binding interpretation that the storage and sales of both companies' products in the same facility is permissible.
In cases of legal disputes between two parties to a contract, the suit is in principle filed with a court that has jurisdiction over the defendant's location. However, the enterprise stated in the contract that any legal disputes would be brought before a court that has jurisdiction over its company headquarters, regardless of whether it is the defendant or the plaintiff in the case. This is deemed as an act of putting the enterprise at an advantage over the dealer in terms of proceeding with a suit, and also poses the risk of causing an economic hardship on the dealer, not to mention difficulties in its response to the suit. Therefore, such actions of the enterprise are deemed as an unreasonable abuse of its economic position to set up transaction terms to its advantage and to the dealers' disadvantage.
III. Application of the Act
The actions of the enterprise as stated in Summary b. and c. are violations of Article 3, (3) of Monopoly Regulation and Fair Trade Act. The actions of the enterprise as stated in Summary e. and f. are violations of Article 3, (5), and the actions of the enterprise as stated in Summary g. are violations of Subparagraph 4 of Article 23 (1). Based on Article 6 (4) of the FTC's Notification on the Types of and Criteria for Determining Unfair Business Practices, Article 5 and Article 24 have been applied in this case to reach the following judgment.
<Judgment>
The enterprise must not engage in the following activities by abuse of its market-dominating position.
To sign dealership contracts with its dealers on the condition that they do not conduct business transactions with its competitor.
To interfere with the business activities of its competitor or dealers such as refusing to conduct business transactions with dealers citing their sales of its competitor's products.
To interfere with the business activities of other businesses by providing products at clearly advantageous prices and transaction conditions in light of accepted prices and transaction conditions to its dealers who are competing with the dealers of its competitor.
To limit competition by aggravating the monopoly of an existing dealer in an area, such as stipulating in contracts with dealers that the consensus of a nearby dealer is required in order to set up a new dealership.
The enterprise must not set transaction conditions to be disadvantageous to its transacting partner, such as designating a court of jurisdiction to its advantage by the abuse of its position in the transaction
The enterprise must amend or delete from its already signed dealership contracts within thirty days of receiving this correction order Article 3, (3) and Article 4 according to 1., and Article 16 according to 2.
The enterprise must send a written announcement of its receipt of the FTC's correction order for its violation of the Monopoly Regulation and Fair Trade Act by engaging in activities stated in 1. and 2. within thirty days of reception to all of its dealers(including Seohae Explosives Trading(Ltd.), the filer of this case). It must also make public the correction order within thirty days of receipt by placing five lines by 18.5cm public announcement in one daily newspaper (full page). However, the wording of the announcement and the scope of the newspaper, page, and type size must be agreed upon by the FTC in advance.
Chapter 2 Restraints on Business Combination
1. A's violation of restraints on business combination
(FTC Resolution No. 96-51)
I. Overview of the Facts
The enterprise A is a manufacturer of nylon threads(F threads), a chemical fiber, and a designated business for the application of the Act and its restraints on business combination.
Nylon products are manufactured and supplied in a oligopoly the enterprise along with three other companies as of 1994. Korea Kaprolactum is the only Korean manufacturer of kaprolactum, the raw material of nylon products, but its production meets only 34% of the domestic demand. The rest of the demand is met through imports.
Kaprolactum(Ltd.) divides the sales quota of its products to the three companies at a certain ratio.
The enterprise reported to the FTC on January 3, 1996, that it held 20.38% of Korea Kaprolactum's stock. Kolon(Ltd.), another nylon manufacturer, held 18.38%, while Koryo Synthetic Fiber(Ltd.) held 7.11%.
The FTC received a report in February 1996 that the enterprise purchased shares of Kaprolactum from Kolon and Koryo, using borrowed names from subsidiary companies and executives, and thus raised its shareholdings to 56.6%. An FTC investigation found the enterprise held 30.14% of the total issued stock.
The enterprise exercised its influence in selecting executives using its 30.14% share at a Kaprolactum general shareholders' meeting that was held on February 27, 1996.
II. Summary of the Ruling
Kaprolactum is a product not suitable for import substitution since its import price is higher than its domestic price, and the number of foreign suppliers and supplies is limited. Foreign businesses' entry into the domestic kaprolactum market is also unlikely, since it requires a heavy initial investment.
If the enterprise should control the management of Korea Kaprolactum(Ltd.), the sole manufacturer of kaprolactum, it could place the price and distribution ratio in its favor, restraining competition in the market. Furthermore, kaprolactum would take up 55-60% of its total manufacturing cost, reinforcing its concentration in the market for raw materials and products .
Therefore, the enterprise's action of buying shares of Korea Kaprolactum to the point where it could control the management of the company through subsidiaries and executives is a restraint on competition in the local market for nylon products and raw materials.
III. Application of the Act
The actions of the enterprise are violations of the provision in Subparagraph 1 of Article 7, (1) of the Monopoly Regulation and Fair Trade Act. The provision in Article 16 of the Act was applied to make the following judgment. However, no orders will be made to sell shares, since the enterprise has already sold off the 162,752 shares of Korea Kaprolactum that were in excess of the 20.38% it reported to the FTC during the investigation.
<Judgment>
The enterprise must not engage in business combination activities that restrain competition in a transaction area either directly or through an interested party, such as buying Korea Kaprolactum` s stock.
The enterprise must make public within thirty days of notification the fact that it received a correction order from the FTC for its violation of the Act by engaging in the activities stated in 1. It must make the fact known on one page of the weekday installment of a major daily newspaper by a four line by 15cm public notice. The scope of the newspaper, page, wording and type size must be coordinated in advance with the FTC.
Chapter 3 Unfair Collaborative Acts
1. The unfair collaborative act of sixteen companies participating
in the bidding of the Paekche Bridge Construction Project
(FTC Resolution No. 94-408)
I. Overview of the Facts
A and fifteen other companies(hereinafter to be called "Collaborators in Paekche Bridge bidding" or "enterprises under scrutiny") are construction companies designated by Article 2 (1) of the Monopoly Regulations and Fair Trade Act(hereinafter referred to as "the Act"). The sixteen enterprises under scrutiny engaged in the following act in order for A to win the bidding with the lowest price for the Paekche Bridge construction project held by the Government Supply Administration on September 30, 1994.
The managing director of A made phone calls to senior managers of twelve of the bidding participants before the bidding to request cooperation in A receiving the contract. He directed his workers to ask for cooperation of the other bidders.
On the bidding day, A submitted bids at a higher price than its own for the other nine participants and distributed them before the bidding started in front of the Banpo Building and the bidding box at the Government Supply Administration. The enterprises placed their seals on the bids given to them by A and submitted them, thereby cooperating with A's act to win the contract.
In the case of B, a director was directly contacted and requested by the head of A's division in charge of bidding and raised its bid from 16.72 billion won to 18.48 billion won to cooperate with A's actions to win the bid.
C and four other enterprises under scrutiny received phone calls from A, which was soliciting cooperation, and came to know of A's preemptive rights. These five companies submitted their bids at 95.18% or 100.6% of the expected bidding price, and helped A to win the contract. C and four other companies denied "collaborative" setting of bidding prices.
I. Summary of the Ruling
The FTC deemed the act to be collaborative bidding based on the following five points.
1) In the National Police Administration's investigation, C and four other companies admitted confirming the amount of their bids with A employees.
2) The Government Supply Administration deemed there had been a collaborative bidding process and postponed the bidding. It gave notice of rebidding schedules and banned all sixteen enterprises that participated in the initial bidding from taking part in the second round. However, C and four other companies did not protest, indirectly acknowledging there had been collaboration in the bidding.
3) The first group of bidders in government supply construction projects have a low possibility of winning the contract by bidding at a price higher than 95% of the anticipated price. But the five companies nonetheless submitted their bids at 95.18% or 100.6%, displaying their unwillingness to win the contract in the first place.
4) It is customary in construction business to cooperate with the company holding preemptive rights to help it win in a government construction bid, in return for reciprocal cooperation in another bidding situation. It is deemed therefore that all enterprises under scrutiny were aware that A had preemptive rights in this case, and they were participating only to claim future support for their preemptive rights by cooperating with A, when there was no disadvantage in not participating if they were not likely to be awarded the contract.
5) D, another enterprise under scrutiny in this case, submitted an impossible bid at 100.6% of the anticipated price, although its chances of winning the contract with such a bid was very low. This and the fact that the enterprise was designated as an unsuitable bidder because of its careless bid offers grounds to deem that it was only aiming at claiming future preemptive rights by cooperating with A's bid to win.
The FTC deems that collaboration of all participants in the bidding for Paekche Bridge construction is a restraint on fair and free competition of each company that should exercise its own free will in bidding. Such unfair collaborative acts are deemed as a restraint on competition in construction project bidding.
All sixteen enterprises under scrutiny are deemed to have violated Subparagraph 1 of Article 19, (1) of the Act, and the FTC ordered a public announcement in major daily newspapers of the fact that they were given correction orders and notified of the ban on acts that restrain competition. A complaint was filed with each of the enterprises under scrutiny and all of the company employees responsible for the bidding, to hold them liable under the provision in Subparagraph 8 of Article 66, (1), according to Articles 70 and 71 of the Act.
III. Application of the Act
Such actions by the enterprises under scrutiny are violations of Subparagraph 1 of Article 19, (1) of the Act. Therefore, Article 21 was applied to hand out the following decision. Article 71 was applied for the liability of Seo Suk Won and fifteen officials of the sixteen enterprises including A Construction.
<Judgment>
The enterprises under scrutiny must not restrain competition in bidding for construction projects by a predetermination of the winning bidder, or an agreement on or an alteration of the bidding price in a bidding for a public construction project(including local governments and government-invested organizations).
The enterprises under scrutiny must make public the fact that they violated the Act by engaging in activities stated in I. 1. and as a result received correction orders from the FTC within fourteen days of notification in the weekday installment of a major daily newspaper(all editions) by a five line by 20cm public announcement notice in all their names. The scope of the newspaper, page, wording and type size must be coordinated with the FTC in advance.
Complaints were filed against each of the enterprises under scrutiny.
2. Subscription fee increase by twelve daily newspaper companies
(FTC Resolution No. 93-308)
I. Overview of the Facts
In 1992, the sales chiefs of twelve newspaper publishers having a nationwide circulation with head offices in Seoul(hereinafter to be referred to as "newspaper publishers in Seoul") who were in charge of subscription fee collection discussed measures to raise subscription prices based on the consensus that rising costs and personnel wages necessitated a hike in subscription fees.
The newspaper publishers in Seoul held a meeting on October 28, 1992 to announce their plan to raise subscription fees from 5,000 won to 6,000 won starting January 1, 1993. The plan stated ten of the newspaper publishers in Seoul were to raise fees on January 1, another publisher on March 1, and the one remaining publisher did not set a plan to raise fees.
On November 25, 1992, the newspaper publishers in Seoul held another meeting and announced their plan to place company notices on raising subscription fees after December 20, 1992. They also announced the plan by the Board of the Korea Newspaper Sales Council to raise subscription fees for most newspaper publishers in Seoul from 6,000 won to 7,000 won in early 1993. The enterprises under scrutiny placed public notices in their respective papers on December 30 and 31, 1992, and raised subscription fees from 5,000 won to 6,000 won on January 1, 1993.
II. Summary of the Ruling
The FTC deems the subscription fee hikes by the newspaper publishers in Seoul to be an unfair collaborative action(specifically, a collaborative action on prices), and ordered an end to the agreement and the autonomous decision to raise fees as well as the placement of public announcements on the correction order in newspapers. The FTC reviewed the actions of the enterprises under scrutiny from two perspectives; agreement, and restraint on competition in the market, in order to determine whether they comprised the elements of an unfair collaborative actions.
In relation to the first element, the FTC acknowledged a discussion and an agreement on subscription fee hikes took place at the sales chiefs' meeting. While the enterprises claim that there was no consensus on fee hikes, the FTC refuted their claims on the grounds that fee hikes at the same level in the same time frame constituted sufficient grounds for the application of the presumption clause of the Act.
On restraint on competition, the nine enterprises publish all nine general dailies distributed nationwide, and four of the six economic dailies sold nationwide, and two of the enterprises publish all foreign language dailies. Therefore, the fee hike by the publishers was ruled as an action that restrains competition in the daily newspaper market.
III. Application of the Act
The actions of the enterprises under scrutiny are a violation of Subparagraph 1 of Article 19, (1) of the Act, and the following is the judgment based on Article 21 of the Act.
<Judgment>
The enterprises under scrutiny must not engage in actions that restrain competition in the daily newspaper market, such as jointly raising subscription fees. They must do away with their agreement on fee hikes within three months of being notified of this correction order and determine their respective subscription fees based on their individual decisions.
The enterprises under scrutiny must make public their violation of the Act and the subsequent receipt of the correction order from the FTC by placing a four line by 12cm public announcement in the weekday installment of one daily newspaper(all editions) in all their names. The scope of the newspaper, page, wording, and type size must be coordinated in advance with the FTC.
Collaborative establishment of commission rates by 32 banks
(FTC Resolution No. 93-27)
I. Overview of the Facts
All thirty-two domestic banks that make up 100% of the local banking market(in terms of the total deposits) are the enterprises under scrutiny in this case. Bank commissions were to have been decided by each bank after the Financial Group's Agreement was abolished on July 23, 1984 and the financial industry came under the Fair Trade Act on July 21, 1984. But in reality, the Bank of Korea supervised the banks' establishment of commission rates. On October 12, 1992, the Ministry of Finance announced its plan for Financial Deregulation.
On October 13, 1993, the planning chiefs of Bank C and sixteen other banks met at the "Dowon" restaurant in Seoul to agree on raising or establishing bank commissions. This was called an agreement to "rationalize bank commission rates." Based on this agreement, working level officials from six leading banks, representative regional banks, and representative special banks met in a meeting at Bank C to draft "measures to rationalize bank commission rates" for the enterprises to review.
On November 12, 1992, planning chiefs from nineteen banks met at the National Banking Federation to finalize the "four-step measure to rationalize bank commission rates" and agreed to work out the details through working level meetings. On November 19, 1992 and January 27, 1993, officials in charge of commission rates at the banks met at Bank C to finalize detailed plans in the first and second phases of the "measure to rationalize bank commission rates." The plans were executed during the same time frame.
II. Summary of the Ruling
The FTC deemed the "measure to rationalize bank commission rates" and its implementation as meeting the stipulation in Subparagraph 1 of Article 19, (1) on 'fixing, maintaining or altering prices' and deemed it as an agreement and a restraint on competition in the domestic banking industry. Therefore, the FTC ordered the banks under scrutiny to immediately do away with the agreement and their actions of jointly raising or establishing bank commission rates. It also ordered them to voluntarily decide whether or not to collect bank commissions and to set their own commission rates. To affirm their compliance with the order, it requested a report from the banks on the monthly commission rates and the resulting commission income per item before the fifteenth of the month for three months. An order for a public announcement of the receipt of the correction order was made in this case.
III. Application of the Act
The actions of the banks under scrutiny are violations of Subparagraph 1 of Article 19, (1) of the Act, and the judgement hereafter is in application of Article 21 of the Act.
<Judgment>
The banks under scrutiny must not engage in actions that restrain competition in the domestic banking industry by jointly raising or establishing commission rates. They must immediately do away with the agreement to jointly raise or establish rates, and each bank must decide on its own whether or not to collect commissions and the level of commissions.
The banks under scrutiny must report to the FTC their monthly commission rates and resulting income pertaining to this case in a format designated by the FTC before the fifteenth of each month for the next three months.
The banks under scrutiny must in their name make a five line by 20cm public announcement in the weekly installment of a major daily newspaper within fifteen days of being notified of the fact that they received correction orders from the FTC because of their violations of the Act. The scope of the newspaper, page, wording and type size must be coordinated with the FTC in advance.
Unfair collaborative action of three paper manufacturers
(FTC Resolution No. 96-132)
I. Overview of the Facts
The enterprises under scrutiny are businesses in the manufacture and sale of paper products and were designated by Article 2, (1) of the Monopoly Regulation and Fair Trade Act. A, B, and C are enterprises with revenues of 887.7 billion won, 251.9 billion won, and 59.9 billion won respectively. In 1996, A and B were designated as market-dominating enterprises for newsprint, and A and C Paper for book stock. [Market share : newsprint 89.5%, book stock 81.0%, A accounting for 60.4% of both items' market as of the end of 1994.]
In newsprint, the enterprises under scrutiny raised their prices by 9% on January 1, 1995 due to rising international raw material costs and a surge in the domestic demand(due to an increased number of newspaper pages, etc.). On April 1, 1995, they carried out a second price hike of 16%, and on September 1, 1995, a third hike of 8%.
For book stock, they raised prices by 9% on April 1, 1995, 9.5% on September 1, 1995, and lowered the prices by 3% on April 1, 1996.
Although a fall in international raw material prices by a large margin since October 1995 presents a reason for a sales price decrease, the enterprises are still maintaining the prices since the third hike for newsprint and the first drop in prices for book stock.
II. Summary of the Ruling
In relation to the enterprises' agreement on price hikes, the FTC presumes they conducted an unfair collaborative action under a tacit agreement; they met in advance to coordinate their views on price hikes, and despite their differences in cost structures and management, B and C agreed to use the same increased rates after A, as a representative of the industry, negotiated its prices with the Korea Newspaper Association and determined the scope of the increase.
The enterprises' action of restraint on competition as a result of the enterprises' collaborative action constitutes restraint of price competition in the local newsprint and book stock markets, since they, as market-dominating enterprises with 89.5% of the local newsprint and 81% of the book stock markets, did not compete on prices but instead arranged an agreement to establish, fix or maintain prices.
III. Application of the Act
The actions of the enterprises as stated in a. are violations of Article 19, (1), and the action in b. is a violation of Subparagraph 1 of Article 19, (1) as according to Article 19, (3). Therefore, the provision in Article 21 is applied in the following judgment.
<Judgment>
The enterprises under scrutiny must not engage in unfair collaborative actions such as jointly establishing, maintaining or fixing the price of newsprint and book stock that would restrain competition in the local market.
The enterprises under scrutiny must place a public notice within thirty days of being notified of this corrective order by placing under their names a five line by 18.5cm announcement in the weekday installment of a major newspaper, stating that they were notified by the FTC of the correction order because their activities as stated in 1. are violations of the Act. The scope of the newspaper, page, wording and type size must be coordinated with the FTC in advance.
Chapter 4 Unfair Business Practices
1. A's Refusal of Transaction
(FTC Resolution No. 93-92)
I. Overview of the facts
The enterprise under scrutiny is an influential enterprise and the third largest business in the domestic cosmetics market with a 9.5% market share in 1992(as of the end of 1992, capital : 10.3 billion won, 1992 revenues : 118.2 billion won). In early December 1992, one of its sales officials made the following request of the Cheju Central Dealer(Rep : Chung Kyun Chul, Cheju City Ildo 2 dong 356-17) which had carried its competitor's products before beginning transactions with the enterprise(December 13, 1990);
First, to carry only its products(Judanhak),
Second, not to offer sales on its products.
The enterprise stopped supplies to the dealer on December 10, 1992, citing the dealer's failure to carry out its request.
II. Summary of the Ruling
The enterprise's action of requesting the dealer to carry only its products and not its competitors' products is deemed an unreasonable restraint on the free business activities of the dealer, which is an independent enterprise, and limiting the transaction opportunities of its competitors and thus limiting competition between brands in the market. Furthermore, the request not to offer sales on its products is an unreasonable restraint on the free business activities of the dealer that has the right to decide his/her own prices and therefore a restraint on the dealer's ability to be compete through pricing.
Therefore, taking into consideration the enterprise's position as an influential enterprise in the domestic cosmetics market, its action of withholding supplies to the dealer as a means to achieve a result that is a violation of the Act as seen in a. constitutes an unfair refusal of transaction.
III. Application of the Act
The actions of the enterprise as seen in Fact 1. are violations of Subparagraph 1 of Article 23, (1) of the Act, according to the provision in Article 1, (2) of the Notification on the Types of and Criteria for Determining Unfair Business Practices. Therefore, the provision in Article 24 of the Act is applied to decide on the following judgment.
<Judgment>
The enterprise must not refuse transactions unreasonably to a transacting party in a constant business relationship for carrying its competitors' products or offering low prices.
The enterprise must send written notification of its receipt of the FTC's correction order to all of its dealers within fourteen days of receipt, stating its violation of the Act by its action in 1. The wording of the notification must be coordinated with the FTC in advance.
2. Unfair Insider Transactions by A
(FTC Resolution No. 94-330)
I. Overview of the Facts
The enterprise A under scrutiny is a business in the manufacture and sale of confectionery and ice cream foodstuffs (as of the end of 1993, capital : 7,107 million won, 1993 revenues : 577,156 million won) and a designated business by Article 2, (1) of the Act. It is a subsidiary of the A Group which is designated as a Business Group according to Article 14 of the Act.
The enterprise had carried out the following actions during January-December 1993 in transactions with its subsidiaries and non-subsidiaries.
The enterprise paid for its purchase of oil and fat, which are raw materials for confectionery, with promissory notes due in 77 days to B, its affiliated company, and promissory notes due in 90 days to a non-affiliated company, Shinyang(Ltd.)
In launching construction contracts for new plants and offices, the enterprise requested underwriting against construction defects from non-affiliated companies such as Hwangji Construction(Ltd.), Jinsung Automation Machinery(Ltd.), and Samju Engineering(Ltd.), but exempted its affiliates, C and D from the underwriting request.
II. Summary of the Ruling
The FTC deems there is no legitimate reason for the enterprise to pay B, its affiliate, with promissory notes having earlier settlement dates than those paid to a non-affiliated company for its purchase of oil and fat, based on the evidence submitted by the enterprise. Furthermore, the FTC deems there is no legitimate reason to request underwriting against defects from non-affiliates while granting exemptions to affiliates in its Taejon plant construction project. Therefore, the actions in 2. a. and b. are deemed as discrimination between affiliated and non-affiliated companies in payment and underwriting conditions.
III. Application of the Act
The enterprise's action in 2. a. b. constitutes the factors stated in the provision in Article 2, (3) of the Notification on the Types of and Criteria for Determining Unfair Business Practices, and is a violation of the latter half of Subparagraph 1 of Article 23, (1) of the Act. Therefore, the FTC applied the provision in Article 24 in the following judgment.
<Judgment>
The enterprise must not discriminate against non-affiliated companies and give advantages to its own affiliates in payment or collateral conditions in the purchases of oil and fat and the signing of construction contracts.
3. A's elimination of competitive business
(FTC Resolution No. 94-328)
I. Overview of the facts
The enterprise is a business in the sale of petroleum products (as of the end of 1993, capital : 1.07 billion won, revenues : 58 billion won), and designated by the provision in Article 2, (1) of the Act.
The size of the lubricant market within petroleum products(1993) is approximately 450 billion won, and 76 businesses of various sizes and market competitiveness are producing small quantities of about 400 items. The annual share of turbine oil in the lubricant market is 1.1%(1993), or 5 billion won, with nine companies currently in production.
Turbine oil for power plants is an industrial lubricant that requires a long-term supply of over twenty years, since the operation of a power plant cannot stop once it has begun. Therefore, it is customary for participating companies competing in bids to submit lower prices for the initial supply than at the normal supply price of manufacturers, and once selected as the supplier they provide the following supplies of turbine oil at the market price.
As of 1993, the enterprise under scrutiny receives 98.5% of its lubricant supplies from Yukong(Ltd.) and 1.5% from Yukong Hooks(Ltd.) for sales to retail outlets, manufacturers, shipping businesses, construction companies and gas stations. The supply of turbine oil involved in this case is provided by Yukong(Ltd.).
The enterprise won the bid to become the supplier of turbine oil to Taeahn Fire Power Plants No. 1 and No. 2 held by Korea Heavy Industries(Ltd.) on June 16, 1994(initial volume : 1,032 drums, anticipated price : 185,360,000 won) by submitting a bid of one(1) won after bidding against its competitor Kyungin Energy(Ltd.) and three others. On June 20, 1994, it signed a supply agreement with Korea Heavy Industries(Ltd.) at one won.
II. Summary of the Ruling
The transaction price of products in trade practices should be determined by the balance of supply and demand based on fair and free competition in the market. This transaction price is subject to fluctuations, but sales by one business at a price significantly lower than the supply cost without reasons such as cost reductions or technical innovations undermine fair transactions and would isolate its competitor in the market. This is why the Act considers such actions as unfair transaction practices.
In this case, the bidding price of one(1) won submitted by the enterprise under scrutiny for 1,032 drums of turbine oil is significantly lower than the purchase price from Yukong(Ltd.) of 187,617,000 won. It is also significantly lower than Korea Heavy Industries' anticipated price of 185,360,000 won. As seen in 1. b., the initial supplier of turbine oil used by a power plant is the one to be used throughout the life cycle of the plant of over twenty years. Prohibiting competitors in the bidding means a monopolized supply system and monopolized profits for the next twenty years. The enterprise took advantage of this fact and intentionally submitted a bid of one won for the right to supply turbine oil, and in doing so restricted its four competitors and secured a long-term monopolizing position. Such an action is deemed to pose risks of restriction of fair transactions.
Based on the above, action 2. of the enterprise is deemed an action of posing risks of restricting competitors in the bid for a long-term supply contract at an unfairly low price.
III. Application of the Act
The enterprise's action in Fact 2. is pursuant to Article 3, (2) of the Notification on the Types of and Criteria for Determining Unfair Business Practices and a violation of Subparagraph 2 of Article 23, (1) of the Act. Therefore, the provision in Article 24 is applied in the following judgment.
<Judgment>
The enterprise must not engage in actions that may prohibit its competitors by signing a contract at an unreasonably low price in a bid for a long-term transaction contract for supplying petroleum products.
The enterprise, within fourteen days of notification, must make a three line by 10cm public notice stating the fact that it violated the Act by engaging in the action in 1. and thereby received a correction order from the FTC in the weekly publication of a major daily newspaper(all editions). The scope of the newspaper, page, wording and type size must be coordinated with the FTC in advance.
3-1. A's elimination of competitive enterprise
(FTC Resolution No. 94-329)
I. Overview of the facts
The enterprise under scrutiny is an enterprise engaged in the sale of petroleum products.
The enterprise conducted an action that posed risks of elimination of its competitor by signing a contract in a long-term petroleum product supply contract at an unreasonably low price, as stated in No. 94-328(November 9, 1994).
II. Summary of the Ruling
Such an action by the enterprise as stated in 2. is pursuant to the provision in Article 3, (2) of the Notification on the Types of and Criteria for Determining Unfair Business Practices(Notification No. 1993-20), and a violation of Subparagraph 2 of Article 23, (1) of the Act, and subject to penalty as according to the provision in Article 24, (1).
III. Application of the Act
The enterprise under scrutiny must pay a fine according to Article 24-2, (1) of the Act. The fine will be 20 million won, taking into consideration the severity of the violation and its subsequent effects.
<Judgment>
The enterprise must submit the fine according to each of the following items.
Amount of the fine : 20 million won
Submission date : within sixty days of being notified of this fine order
Submission venue : A state collection facility designated by the Head of the National Tax Administration
The collection of the fine is assigned to the Head of the National Tax Administration.
4. The action of unfairly luring customers by fourteen pharmaceutical companies
(FTC Resolution No. 94-25)
I. Overview of the facts
A and thirteen other pharmaceutical companies are manufacturers and sellers of pharmaceutical goods, etc. From January 1991 to June 1993, they paid drug acceptance fees(lending fees) and payments to general hospitals, in order to increase sales of their products by increasing purchases of their products and prescription drugs, either directly or through wholesalers.
The enterprise A paid drug acceptance fee and prescription payments of 2,829 million won and entertainment expenses of 1,142 million won, totaling 3,971 million won in payments, to 88 general hospitals including Kangnam St. Mary's Hospital and their employees.
The enterprise B paid 3,257 million won in drug acceptance fees and prescription payments and 1,772 million won in entertainment expenses, totaling 5,029 million won, to 173 general hospitals and their employees including Shinchon Severance Hospital.
The enterprise C paid 2,082 million won in drug acceptance fees and prescription payments and 1,112 million won in entertainment expenses, totaling 3,194 million won to 209 general hospitals including Baek Hospital and their employees.
The enterprise D paid a total of 1,918 million won to 166 general hospitals including Kyunghee Medical Center and their employees, in drug acceptance fees and prescription payments of 1,697 million won and entertainment expenses of 221 million won.
The enterprise E paid a total of 3,561 million won to 297 general hospitals including Koryo University Anam Hospital and their employees, in drug acceptance fees and prescription payments of 2,238 million won and entertainment expenses of 1,323 million won.
The enterprise F paid a total of 2,310 million won to 267 general hospitals including Soonchunhyang Hospital and their employees, in drug acceptance fees and prescription payments of 1,552 million won and entertainment expenses of 758 million won.
The enterprise G paid a total of 1,547 million won to 184 general hospitals including Ewha University Hospital and their employees, in drug acceptance fees and prescription payments of 1,091 million won and entertainment expenses of 456 million won.
The enterprise H paid a total of 2,066 million won to 181 general hospitals including Choongang University Hospital and their employees, in drug acceptance fees and prescription payments of 1,699 million won and entertainment expenses of 367 million won.
The enterprise I paid a total of 1,912 million won to 218 general hospitals including Choongang University Hospital and their employees, in drug acceptance fees and prescription payments of 1,823 million won and entertainment expenses of 89 million won.
The enterprise J paid a total of 1,908 million won to 168 general hospitals including Dongah University Hospital and their employees, in drug acceptance fees and prescription payments of 1,472 million won and entertainment expenses of 436 million won.
The enterprise K paid a total of 1,884 million won to 91 general hospitals including Koshin Medical Center and their employees, in drug acceptance fees and prescription payments of 1,592 million won and entertainment expenses of 292 million won.
The enterprise L paid a total of 932 million won to 138 general hospitals including Inha Hospital and their employees, in drug acceptance fees and prescription payments of 731 million won and entertainment expenses of 201 million won.
The enterprise M paid a total of 988 million won to 223 general hospitals including Patimer Hospital and their employees, in drug acceptance fees and prescription payments of 812 million won and entertainment expenses of 176 million won.
The enterprise N paid a total of 661 million won to 71 general hospitals including Wonkwang University Hospital and their employees, in drug acceptance fees and prescription payments of 591 million won and entertainment expenses of 70 million won.
II. Summary of the Ruling
The transaction of products should be done through free competition based on the quality and price of products, and the means of competition should be a fair one in order to let consumers freely make a choice of products with good quality and low prices.
The fact that the enterprises under scrutiny made to general hospitals and other clients excessive payments in drug acceptance fees, prescription payments, supply purchase supports, funding for employee events and academic events, constitutes an unfair action for the following reasons.
(1) Drug acceptance fees are illicit payments made to physicians or departments in return for selecting for purchase a new product that is under fierce competition. It is deemed that the enterprises took advantage of the fact that hospitals consider the monetary gifts instead of the quality of new products of similar quality manufactured by different companies when making purchasing decisions, and lured away hospitals that conducted business with their competitors with the monetary gifts to transact with themselves.
(2) A prescription payment is a type of monetary gift that is in proportion to the amount of pharmaceuticals used by a hospital to encourage more prescriptions of that particular drug. It is deemed that each of the enterprises provided fees exceeding 10% of the daily prescription on a regular basis to doctors and hospital employees and lured hospitals to conduct business with them instead of their competitors.
(3) The total amount of funding provided by the enterprises to the hospitals for supply purchases, employee events, and academic events ranged from 6.3% to 15.8% of total cost of pharmaceuticals, and their excessive spending is deemed as an unfair luring of customers.
Despite the fact that the revenues vs R&D spending ratio of 100 leading pharmaceutical companies in 1991 was an average of 3.3%, the enterprises neglected R&D investments and distorted the efficient distribution of resources by excessive spending on the items in b., in the end undermining competition and the healthy growth of pharmaceutical companies and their enhancement of international competitiveness. They are also inflicting damage upon Korean citizens who have a right to quality medical services by a provision of quality pharmaceutical products at low prices.
Based on the above-stated facts, the actions of each of the enterprises constitutes the provision in Article 4, (1) of the Notification on the Types of and Criteria for Determining Unfair Business Practices, and constitute actions of unreasonably inducing customers of their competitors to deal with them by suggesting unfair or excessive gains in light of normal transaction practices.
III. Application of the Act
The actions of the enterprises stated in 1. are pursuant to Article 4, (1) of the Notification(No. 90-7) and are violations of the provision in Subparagraph 3 of Article 23, (1) of the Act. Therefore we apply the provision in Article 24 to decide on the following judgment.
<Judgment>
The enterprises under scrutiny --A, B, C, D, E, F, G, H, I, J, K, L, M, and N-- must not engage in actions of unreasonably inducing customers of their competitors to deal with themselves, by providing or suggesting provisions of unfair or excessive gains in light of normal transaction practices in acceptance fees, rebates, and support for employee events and supply purchases in order to increase sales of their manufactured products by having them selected by the hospital or increased prescriptions.
5. Tie-in sales of A and B
(FTC Resolution No. 92-124)
I. Overview of the facts
A is a manufacturer and seller of liquors such as Passport, Secret, and Seagram Gin. B is the manufacturer and seller of liquors such as Something Special, Berinign Gold, and Samba. A and B run seventeen integrated branch offices, but they have separate transaction contracts with 605 distributors including 257 liquor wholesalers, 189 supermarket chains, and 102 pension discount outlets.
In transactions with liquor wholesalers, A supplied Passport, a popular high-class whiskey made from imported alcohol, along with Secret and Seagram Gin, which have done poorly in sales due to low customer preference.
B sold Something Special, a popular high-class whiskey made from imported alcohol, along with Samba, which has done poorly in sales due to low customer preference.
II. Summary of the Ruling
Article 5, (1) of the Notification on the Types of and Criteria for Determining Unfair Business Practices states an unfair action in supplying one's commodities to a transaction partner to be actions that force the partner to wrongfully, in light of the normal business practices, to purchase another commodity from oneself. Normal business practice in supplying two different products is a transaction practice in which supply is made through an independent order placed with the transacting partner. Tie-in sales of a less popular product to a popular product is not considered a normal transaction practice.
In this case, Passport and Something Special are popular whiskey brand products supplied by A and B to their wholesalers, while Secret, Seagram Gin, and Samba are less popular products. A and B's actions of tying sales of less popular products to popular products are deemed to be unfair actions that might hamper fair competition in light of normal business practices.
As to coercion, A and B are oligopolies in the domestic whisky market along with Jinro United Distillers(Ltd.) and designated market-dominating enterprises in 1992. Their products of Passport and Something Special are high-popularity brands for which supply always falls below the quantity requested in the transacting partners' order. A and B have a superior position in the transaction, while their transacting partners are in a difficult position to refuse their request. According to the statement of the transacting partners, if they had refused the request, A and B would refuse the supply of the unpopular products or significantly reduced the supply as well as delaying the delivery of supplies. Supplies of unpopular products such as Secret, Seagram Gin, and Samba to five wholesalers in Taejon and Chungnam regions is 96% that of popular products such as Passport and Something Special(From January to May 1995).
Taking these facts into consideration, A and B took advantage of the transaction environment in which their transacting partners were unable to refuse their request, and regardless of the transacting partners' wishes, they conducted tie-in sales of unpopular products with the popular. A and B are deemed to have coerced their transacting partners into purchasing unpopular products as a tie-in to the popular products unfairly in light of normal business practices.
III. Application of the Act
Such actions of the enterprises are pursuant to the provision in Article 5, (1) of the Notification and violations of Subparagraph 3 of Article 23, (1). Therefore, the provision in Article 24 is applied to decide on the following judgment.
<Judgment>
The enterprises under scrutiny must not coerce their transacting partners to purchase other products unfairly while supplying their products in light of normal business practices.
The enterprises must send written notifications of their receipt of the correction order from the FTC for their violation of the Act within fourteen days of being notified to all their transacting partners. The wording of the notification must be coordinated with the FTC in advance.
6. A's Coercion in dealing
(FTC Resolution No. 95-296)
I. Overview of the facts
The enterprise is a manufacturer and seller of satellite receivers and a designated enterprise by Article 2, (1) of the Act.
The enterprise engaged in the following action regarding sales of its satellite receivers.
The enterprise started production of satellite receivers(Model : JIS 2000D) in May 1994 and distributed sales objectives to all its sales departments as well as non-sales departments and production plants No. 1 and 2 since July 1, 1994, to promote sales by employees.
On May 10, 1995, the enterprise notified the current number of households without satellite receivers and accounts receivables to each department as of the second day of the month, and notified the following; (1) the employees who received orders for 100 installed units were to collect the payments before May 20, and to notify the enterprise's accounting department of the status of the receivables before May 20 for deduction from their salaries for May. (2) The addresses and installation sites for 185 uninstalled units were to be reported before May 13. In case a report was not filed, the list of employees' names would be announced at a senior executives' meeting on May 16.
Around May 6, 1995, when sales records showed the poor performance of achieving only of 56.5% of the target(1,025 unit sales compared to the target of 1,813 units), the enterprise lowered its sales objective to 1,300 units from 1,813 units. On the fourteenth of the same month, it divided the target units of 276 and allocated responsibilities to each department and employee to sell from June 14, 1995 to July 15, 1995. It notified in written form all departments of its decision in writing to deduct the receivables and the cost of uninstalled units from the employees' wages for three months starting in July.
The enterprise achieved 82.7% of its employees' sales objective of 1,300 units by selling 1,075 units(122,547,000 won) or 34.3% of the total units of total sales of 3,126 units (374,762,000 won) during the period from July 1, 1995 to September 19, 1995, by extending the employees' sales period to September 19, 1995, and achieved 82.7% of the target sales goal of 1,300 units through its employees.
II. Summary of the Ruling
The enterprise claims that its sales of satellite receivers through employees as stated in 2. was to promote the employees' sense of pride in the product as well as ingenuity to prepare for the scheduled launch of the Mukunghwa Satellite and to encourage the foreign language training of all its employees in the globalization era through their own use and evaluation. It also claims that no pressure, coercion or coercive means were used.
However, the fact remains that the enterprise designated sales objectives for each employee and department, including sales and non-sales departments and its two production plants, and held each seller responsible for collection of payment. Furthermore, it was announced that the uncollected payments were to be deducted from the sellers' salary, while names of employees who had failed to meet their sales targets were to be released, and employees were in a difficult position to refuse to comply with this measure in light of their relations with the enterprise. All of these facts lead the FTC to deem that the action of the enterprise in 2. was the coercion of sales of the manufactured receiver by employees, and the claims made by the enterprise are contradictory to the fact or unlikely.
Furthermore, the enterprise's action of coercing its employees to sell satellite receivers by abusing its superior position is an unfair action, since employees should be able to freely decide whether to purchase or sell the product.
Therefore, the enterprise's action in 2. is deemed as coercion to unfairly force employees to sell its products.
III. Application of the Act
The action of the enterprise as stated in 2. is pursuant to the provision in Article 5, (2) of the Notification and a violation of the latter half of Subparagraph 3 of Article 23, (1) of the Act. Therefore, the FTC applies the provision in Article 24 of the same Act to decide on the following judgment.
<Judgment>
The enterprise under scrutiny must not coerce its employees to sell the satellite receivers that it manufactures.
The enterprise must make public the fact that it received a correction order from the FTC for its violation of the Act by engaging in the action stated above within fourteen days of being notified, by placing a three line by 10cm announcement in the weekday installment of a major daily newspaper(all editions). The scope of the newspaper, page, wording and type size must be coordinated with the FTC in advance.
7. Coercion of sales objectives by A
(FTC Resolution No. 92-94)
I. Overview of the facts
The enterprise is a manufacturer and seller of beverages and ginseng products through 26 dealers, supermarkets, and department stores nationwide. The enterprise engaged in the following action during the period between January 1989-July 1990 while giving rewards and punishments to dealers.
The enterprise used a sales objective achievement ranking in the evaluation for its employee award and punishment system, which enabled it to issue warnings to and control credit(limit credit sales) of the lowest three dealers on the monthly evaluation ranking. Transaction arrangements with dealers found in the lowest three positions for four months were unilaterally cancelled. Based on this evaluation system, a warning was issued to the Puchon dealer that ranked last on the list during the period between February and May of 1989, and in July its transaction contract was cancelled.
II. Summary of the Ruling
The enterprise's dealers are selling only its products under a dealership contract, and they must suffer enormous operational losses in order to choose another transaction partner beside the enterprise under scrutiny. This makes it predictable that the dealer is unable to refuse the demands of the enterprise, which has a superior position over the dealer in the transaction.
It is deemed that the enterprise coerced dealers to achieve their sales objectives by setting the sales objectives of dealers and using the achievement ranking in awards and punishment for dealers to issue warnings and cancel transaction arrangements.
Therefore, in light of normal business practices, the enterprise's action is deemed as coercion of transacting partners to achieve transaction objectives that it established by unfairly abusing its superior position in the transaction.
III. Application of the Act
The enterprise's actions are pursuant to Article 6, (3) of the Notification and violations of Subparagraph 4 of Article 23, (1) of the Act. Therefore, the FTC applies the provision in Article 24 to decide on the following judgment.
<Judgment>
In supplying its products to its dealers, the enterprise must not unfairly abuse its superior position in the transaction to hand out sales objectives and coerce dealers to achieve them.
8. Conditional transaction of A
(FTC Resolution No. 94-66)
I. Overview of the facts
The enterprise under scrutiny is a manufacturer and seller of stationery goods. 34 dealers nationwide that have contracts with the enterprise to supply its products to retail stationery stores. Morning Glory Plaza(Ltd.) receives product supplies directly from the enterprise, and sells its products to consumers along with other retail stationery stores.
As seen in the dealership contract, the enterprise
limited the scope of a dealer's sales to a certain area according to Article 2, (2) and (3) of the dealership contract and banned dealers from direct or indirect sales of products in areas other than their designated area or shifting the location of operations without prior consent of the enterprise. Article 28, (4) of the contract states the enterprise can cancel contracts or stop the supply of products if a dealer operates in areas other than his/her designated sales area.
Article 17 of the contract states the price of the products are determined by the enterprise and the dealer cannot arbitrarily change prices. Article 28, (8) of the contract allows for cancellation of the contract or stopping product supplies if the dealer violates the terms of the contract or does not comply with the enterprise's management policy.
The enterprise
(1) According to Articles 22 and 23 of the contract stating the deposit of collateral of over 100 million won and 20 million won in cash deposits, the enterprise can request additional cash or real estate collateral if the collateral is deemed insufficient. Article 24 of the contract states "issuance of blank checks to the enterprise to guarantee the dealer's implementation of debts," while Article 28, (3) states cancellation of contract or supply stoppage "if the collateral, deposit, or check stipulated in the contract is not provided."
(2) Article 23, (2) of the contract stated "the right to interpret the contract belongs to 'A.'"
The enterprise stated in Article 28, (7) "cases that the minimum purchase objective determined by 'A(70% of total credit)' is not met by a huge margin."
II. Summary of the Ruling
On the facts in 2. a.
The enterprise's dealers should be able to make their business decisions based on their operational plans and capabilities as an independent business. However, the enterprise designated transaction areas for each dealer and established a clause in the transaction contract that allows it to cancel the contract or stop the supply of products to a dealer that violates the terms, which is deemed as a transaction based on the condition of unfair restriction of the transaction area of the dealer.
On the facts in 2. b.
The action of the enterprise to designate a sales price in supplying its products to a dealer is an action of resale price maintenance, which is restricted by the provision in Article 29, (1) of the Act. The product of the enterprise in this case is not designated by the FTC for resale price maintenance based on Article 29, (2) of the Act, and therefore the action of resale price maintenance by the enterprise is a violation of the Act.
On the facts in 2. c.
(1) On the facts in 2. c. (1)
(a) The enterprise's action of making the dealers deposit a blank check with itself to exercise the right to indemnify debts that might arise in the future, despite the fact that Articles 22 and 23 state 100 million won's worth of collateral and 20 million in deposits as well as provisions of conditions for additional cash or real estate collateral anytime on an as-needed basis, is deemed the establishment of unfair restrictions in transaction conditions, since it is unilaterally advantageous to the enterprise regardless of the transaction partner's wishes.
(b) The enterprise's action of collecting and keeping blank checks from dealers poses the risk of restricting the dealer's business activities, since the dealer has no choice but to comply with the enterprise's demands during the transaction period because of the legal nature of the blank check that enables the holder of the check(the enterprise) to exercise the supplementary rights that put the check into effect. If the two parties to the contract should have conflicts in transaction relations, the dealer has no choice but to suffer the consequences should the enterprise process the check to its advantage. Such disadvantage to the dealer that signed the blank check leads the FTC to deem the enterprise's act of receiving blank checks from dealers without a reasonable explanation for safekeeping during the transaction period is an act of conferring a disadvantage in the transaction relationship with the dealer.
(2) On the facts in 2. c. (2)
Disputes over contract terms should be interpreted fairly and objectively according to the principles of trust and integrity. When the right to interpret the transaction arrangement between the two transacting parties belongs to the enterprise, it can make an arbitrary interpretation of the terms to its advantage. Therefore, it is deemed that the enterprise established a transaction condition that is disadvantageous to its transaction partner by abusing its position in the transaction.
On the facts in 2. d.
(1) The enterprise's action of establishing minimum purchase objectives for the dealer and providing for cancellation of the contract or a stoppage of supplies when the objectives are not met is deemed a coercive means to achieve its transaction or sales objectives.
(2) Normal transaction practices hold that the purchase and sales objectives of a dealer should be determined by the dealer itself based on its operational plan and capabilities. The action of the enterprise of establishing purchase objectives for its dealers and coercing them to achieve these objectives is deemed coercion in sales objectives to the transaction partner by abusing its position in the transaction in light of normal transaction practices.
III. Application of the Act
The action of the enterprise in Fact 2. a. is pursuant to Article 7, (2) of the Notification(No. 90-7) and a violation of Subparagraph 5 of Article 23, (1) of the Act. The actions in 2. c. and d. are pursuant to Article 6, (4) and (3) of the same Notification and violations of Subparagraph 4 of Article 23, (1). Therefore, the provision in Article 24 is applied. The action in 2. c. is pursuant to Article 2, (6) of the Act and a violation of Article 29 of the Act, and the FTC applies the provision in Article 32 of the Act to decide on the following judgement.
<Judgment>
The enterprise must not engage in actions of coercion of dealers to unfairly limit their transaction areas.
The enterprise must not abuse its superior position in the transaction to disadvantage its dealers or designate and coerce the achievement of its sales objectives to them.
The enterprise must not engage in actions of predetermining and maintaining the resale price of products that it supplies to its dealers.
The enterprise must delete without delay from its dealership contracts within thirty days of receiving this correction order Articles 2, 17, 24, 31 (2), 28 (3), (4) and (7).
The enterprise must send to all its dealers written notification of the fact that it received this correction order from the FTC for its violation of the Act by engaging in the action in 1., within fourteen days of being notified of the order. It must also make public the fact in the weekday installment of a major daily newspaper(all editions) by a four column by 15cm public announcement within fourteen days of receiving the order. The scope of the newspaper, page, wording and type size must be coordinated with the FTC in advance.
9. Special unfair transaction practice of A in department store management
(FTC Resolution No. 93-66)
I. Overview of the facts
The enterprise New Core(Ltd.)(hereinafter referred to as "the enterprise") is a business running the New Core Department Store in Banpo-dong, Kangnam-gu, Seoul with the establishment license for a large retail store dated December 24, 1987, according to Article 15 of the Act on the Promotion of Wholesale and Retail Trade. It is also a designated enterprise according to Article 2, (1) of the Notification on the Types of and Criteria for Special Unfair Business Practices Relating to the Department Store Business("Department Store Notification"). From the standpoint of its contractors and concessionaires, who are mostly small and mid-sized businesses that rely heavily on the enterprise for a large part of their revenues and therefore are in a difficult position to refuse its demands in order to maintain transaction relationships with the enterprise, the enterprise is deemed to be in a superior position in these transactions.
The enterprise held an employee recommendation sales event during the Chusok holidays of August 27-September 10, 1992(fifteen days) and the Lunar New Year's Day period stretching from January 13-22, 1993 to increase revenues. It established sales objectives according to the rank of employee and department, and gave out awards to individuals and departments with excellent sales records. It sold gift certificates for leather shoes to suppliers or concessionaires and deducted the amount from their product payments.
The enterprise also issued "Company Cards" to consumers that fit a certain profile and sent 3-4 discount coupons(discount rate 3-5%) to every new subscriber of the card or existing card subscribers on birthdays or wedding anniversaries. When the consumer presented the discount coupon to the concessionaires, they were offered discount prices while the discounted amount that should be borne by the enterprise was instead borne by the concessionaire(2-3%) by deducting it on a one-time basis from their product payments.
The enterprise also made suppliers and concessionaires pay for a portion of the production costs of the '92 Chusok Shopping Guidebook' and the '93 Year's-end Shopping Guidebook' by deducting the amount from their regular product payments on a one-time basis.
II. Summary of the Ruling
The enterprise established individual and department sales objectives and awarded them according to their achievement of objectives. Employees coerced or recommended the purchase of gift certificates for leather shoes to suppliers or concessionaires in order to meet the objectives. Jaesung Trading and other suppliers purchased certificates well over their actual spending amount, and the enterprise deducted the amount from their product payments on a one-time basis. These facts lead the FTC to deem that the enterprise's action to be coercion to purchase its gift certificates by suppliers or concessionaires through abusing its superior position in the transaction.
As for the enterprise's action of sending discount coupons to consumers and making concessionaires pay for the discount amount, the coupons are for sales promotions and the discount offered on the coupon should be part of the enterprise's promotion costs. Transaction contracts with concessionaires did not stipulate the rate of sharing discount payment expenses, and the enterprise had the renters pay 2-3% of the discount and deducted the amount from the next month's product payments. Such actions lead the FTC to deem the enterprise's action was an abuse of its superior position in the transaction and transferring part of its promotion costs unfairly to its concessionaires against their wishes.
The enterprise's action of making suppliers and concessionaires pay advertisement costs in producing the '92 Chusok Shopping Guidebook' and the '93 Year-end Shopping Guidebook' by deducting the costs from their product payments on a one-time basis cannot be viewed as an unfair transfer of advertisement expenses if the enterprise, its suppliers and concessionaires divided the cost at a reasonable level. However, the enterprise did not divide the cost by number of advertisement pages, but made its suppliers and concessionaires pay an excessive share and did not settle the balance afterwards. Such an action is deemed as an unfair transfer of advertisement expenses by abusing its superior position in the transaction.
III. Application of the Act
The enterprise's action of coercing or recommending the purchase of its gift certificates for leather shoes and transferring discount payments on the certificates to suppliers and concessionaires is pursuant to Article 6 of the Notification on Department Stores. The action of transferring payments for advertisement costs for making shoppers' guidebooks is pursuant to Article 9 of the Notification on Department Stores. These are violations of Subparagraph 4 of Article 23, (1) of the Act. Therefore, the FTC applies the provision in Article 24 to decide on the following judgment.
<Judgment>
The enterprise must not coerce the purchase of gift certificates by suppliers or concessionaires.
The enterprise must not unfairly transfer the cost of discounts on its discount coupons to concessionaires.
The enterprise must not unfairly transfer advertisement expenses to suppliers or concessionaires when making product promotion material.
The enterprise must make public the fact that it received this correction order from the FTC for its violation of the Act by engaging in actions 1. 2. 3. within fourteen days of being notified, by placing a four column by 15cm announcement in two major daily newspapers(all editions). The wording of the announcement must be coordinated with the FTC in advance.
10. Unfair offering of gifts or prizes by A
(FTC Resolution No. 94-5)
I. Overview of the Facts
The enterprise is a business in the sale of petroleum products. It made advertisements through the distribution of 7,000 copies of promotional leaflets and eight placards on a gift offering called the "Third anniversary festival of A" The enterprise gave out purchase certificates of 10,000, 15,000 and 20,000 won to customers who purchased fuel at ten of its directly-run service stations. Customers who collect more than 20,000 won's worth of purchase certificates were given four liters of Ssangyong Dragon Engine Oil worth 5,500-6,000 won in gifts from April 1 to December 31, 1992(275 days) and from January 1 to August 31, 1993(243 days).
II. Summary of the Ruling
On whether the action is pursuant to the provision on offering consumer gifts
As seen in the above facts, the enterprise's action of offering gifts together with the sale of its products is pursuant to the provision in Article 3, (1) of the Notification on the Types of and Criteria for Unfair Business Practices Relating to the Offering of Gifts(FTC Notification No. 1993-12, hereinafter referred to as "New Notification on Gifts").
On the violation of consumer gift offering period
Article 11, (1) of the previous Notification(FTC Notification No. 90-11) stipulates the period for consumer gift offerings is no more than 20 days per year. Article 11, (1) of the New Notification on Gifts stipulates the period is to be no more than 40 days per year. It is deemed the enterprise's 275-day period for offering gifts in 1992 exceeded the legally permitted 20 days by 255 days, while the 243-day period in 1993 exceeded the legally permitted 40 days by 203 days.
III. Application of the Act
The actions of the enterprise stated above are pursuant to Article 11, (1) of the New and Old Notification on Gifts respectively, and a violation of Subparagraph 3 of Article 23, (1) of the Act. Therefore, the FTC applies the provision in Article 24 of the Act to decide the following judgment.
<Judgment>
The gift-offering period of the enterprise under scrutiny must not exceed the legally permitted time limit.
II. Unfair Special Discount Sales of A
(FTC Resolution No. 96-182)
I. Overview of the Facts
A is a manufacturer and seller of sporting goods, with over 10 billion won in annual revenues and subject to Article 4, (2) of the Notification on the Types of and Criteria for Unfair Business Practices Relating to Special Discount Sales(FTC Notification No. 194-3, September 1, 1994, hereinafter referred to as "Notification on Special Discount Sales").
During 1995, A held on five occasions special discount sales of its product(product brand: LeCaf) through its directly-managed distributors and dealers beyond the period indicated or advertised by the enterprise by eight to fifteen days. By holding 119 days of special discount sales, it exceeded the legally permitted annual total of 60 days by 59 days.
II. Summary of the Ruling
On special discount sales
The enterprise held special discount sales of its products for a certain period of time at a special discount price, which is pursuant to the action of special discount sales stipulated in Article 2, (1) of the Notification on Special Discount Sales.
On the violation of the Notification on Special Discount Sales
Article 7, (1) of the Notification states that "in case the enterprise desires to conduct a Special Discount Sale, the total shall be held to 60 days per calendar year and shall not exceed 15 days at one time." Article 8, (1) of the Notification states "no enterprise shall engage in the unfair means of attracting customers when holding Special Discount Sales by holding the sales beyond the period indicated or advertised by the enterprise."
(1) The enterprise held 119 days of Special Discount Sales in a year and held 19 to 29 consecutive days of the Special Discount Sales over five times, violating Article 7, (1) of the Notification on Special Discount Sales that states the total must be held to 60 days and shall not exceed 15 days at one time.
(2) The enterprise held five Special Discount Sales periods in 1995 beyond the period indicated or advertised by the enterprise by 8 to 15 days, which are pursuant to provision on the unfair means of attracting customers as stated in Article 8, (1) of the Notification.
III. Application of the Act
The actions of A are pursuant to Article 7, (1) and Article 8, (1) of the Notification on Special Discount Sales, and violations of the provision in the first half of Subparagraph 3 of Article 23, (1) of the Act. Therefore, the FTC decides on the following judgement.
<Judgment>
The enterprise must not engage in unfair means of Special Discount Sales as follows.
Holding Special Discount Sales beyond 15 days at one time
Holding Special Discount Sales totalling more than 60 days per year
Holding Special Discount Sales beyond the period indicated or advertised by the enterprise
The enterprise must make public the fact that it received a correction order from the FTC for violation of the Act as stated in 1. within 30 days of being notified by placing a joint five column by 18.5cm advertisement with violators of the same provision-B, C, D, E, F, and G- in the weekday installment of a major daily newspaper(all editions). The scope of the newspaper, page, wording and type size must be coordinated with the FTC in advance.