Slanderous Advertisements on Korea-Denmark Dairy Processing(Ltd.) by A (1) Related measures (in relation to FTC Resolution No. 90-69)

- Facts of the case : The enterprise placed slanderous advertisements in regional daily newspapers such as the Kwangju Daily and used slanderous leaflets during August 29, 1988-May 25, 1989 that said the dairy processed products of Korea-Denmark Dairy Processing(Ltd.) were made using second-rate milk that has a higher bacterial content. The enterprise in the past engaged in slanderous, exaggerated or false advertisements and its executive manager is the instigator of the advertisements in this case.

- Measures taken:

• The enterprise must stop slanderous advertisements against Korea-Denmark Dairy Processing(Ltd.).

• The enterprise must make public its violation of the Act in two regional daily newspapers by a five column by 20cm public notice.

• A complaint was filed against Pasteur Dairy Products(Ltd.) and its executive manager.

- Applied Act : Fair Trade Act (Law No. 3875, December 31, 1986), Subparagraph 6 of Article 15, (1), Article 16, Article 56, (2), Article 59, and Article 60

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(2) Progress report

- December 12, 1990 : an objection was raised

- January 18, 1991 : dismissal of objection

(FTC Resolution No. 91-2)

- February 13, 1991 : an administrative litigation was raised

(Case No. 91ku 3088)

- July 21, 1993 : plaintiff's application dismissed

- September 8, 1993 : plaintiff makes a final appeal

(Case No. 93nu 19726)

- March 11, 1994 : dismissal of final appeal (FTC wins)

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(3) Application and facts of the case

<Application>

Stringent testing and hygiene management of bacilli in milk is necessary to produce low-temperature antibacilli milk. Pasteur claims it purchases high-quality milk at high prices, while Korea-Denmark uses milk with a quality less than second-rate possessing a high bacilli content that makes its products harmful to human health. Therefore, A claims it made public these facts and that it was not an action of false, exaggerated or slanderous advertisement.

<Judgment>

In light of the fact that Korea-Denmark uses the Ultra High-Temperature(U.H.T.) antibacilli method, and there having been no case of its products including more than the legally permitted amount of bacilli in its products under any of the related laws, Pasteur's advertisement is deemed to be slanderous of the quality of its competitor's milk without objectively acknowledged proof.

2. The action of restriction on competition by the A branch of Korea Pharmacists' Association

(1) Related measures (FTC Ruling No. 93-221)

Facts of the case : With the withdrawal of the collective resolution by the Korea Pharmacists' Association to shut down their pharmacies on September 22, 1993, the A branch of the Association held a protest rally on September 21, 1993, calling for execution of the shutdown agreement. On the same day, it held meetings of committees and members, to decide on shutting down their pharmacies indefinitely starting on September 22, 1993. The agreement was carried out. The commissioner of the Pharmacists' Committee agreed in a phone call with the wholesalers' representative to supply administrative management product items at a price 20% higher than the pharmacies' purchasing price to public health centers. Some wholesalers sold the products at a higher price than that offered in sales to pharmacies.

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Measures taken :

• The enterprise must not restrict the business activities of member enterprises by restricting sales of pharmaceutical products such as through joint agreements on the shutdown of pharmacies.

• The enterprise must place a four column by 15cm public announcement in three major dailies of Taegu.

• A complaint was filed against the Chapter Chief, the commissioner and the A branch of the Korea Pharmacists' Association.

(2) Progress Report

October 21, 1993 : an objection was raised

November 25, 1993 : dismissal of the objection

December 7, 1993 : an administrative litigation was raised

(Case No. 93ku 28166)

September 28, 1994 : plaintiff's application was dismissed

October 24, 1994 : plaintiff makes a final appeal

(Case No. 94nu 13909)

May 12, 1995 : dismissal of final appeal

(3) Application and facts of the case

<Application>

The A branch of the Korea Pharmacists' Association conducted a vote on a shutdown when faced with pressure from young aggressive member pharmacists to shutdown the branch's pharmacies. When 68% of the vote was in favor of a shutdown, even member pharmacists who were against the idea had to comply with the majority's decision in favor of the shutdown, and the Association did not participate in the shutdown.

The Chapter Chief felt threatened by the coercion of the aggressive members and moderated the meeting to decide on whether to hold a vote on the issue and announced the results. The FTC's action of filing a complaint against him although he had never dictated the shutdown to members is illegal, as well as overstepping its jurisdiction.

The commissioner had never influenced wholesalers of pharmaceutical products to raise their supply prices to public health centers. Other enterprises in this case would refer to enterprises with whom they are in a competitive relationship, but the public health centers in this case are not subject to the Fair Trade Act. If the other enterprises were wholesalers of pharmaceutical products, they would not be in a competitive relationship with the plaintiff, for which the Fair Trade Act cannot be applied either.

<Judgment>

The member pharmacists' shutdown of their business should be determined according to their free will. However, the A branch decided and carried out the shutdown through meetings, resolutions and a vote, led by the Chapter Chief. Member enterprises who were opposed to the shutdown had no choice but to comply with the collective decision to shut down their businesses against their wishes, and carry out the restriction of sales of pharmaceutical products during the shutdown period is pursuant to the "act of restricting sales."

Since all pharmacies are member enterprises of the A branch, the action is an unfair restriction on the business activities of member enterprises by restricting competition in pharmacy business.

The supply of products to consumers through public health centers is controlling consumer sales prices and goes against consumer protection, making the wholesalers "other enterprises." The wholesalers' association raised prices according to the recommendation of the commissioner. This is an action of restriction or interference in business activities regardless of whether they are in a position to instruct or coerce the wholesalers' association. Therefore, the FTC's ruling is neither illegal nor an abuse of jurisdiction.

3. Unfair joint actions of five PC manufacturers

(1) Related measures (FTC Resolution No. 94-282 287)

Facts of the case : Five PC manufacturers including D participated in the bidding for the supply of administrative computer network PCs held by the Administration of Government Supply(four times for 286 XT, twice for 286 AT, and twice for 386 SX). They were awarded the contracts with quantity bids similar to the Administration's expected purchase quantity and prices that were the same as or similar to one another's(by a margin of 110-1,000 won). The FTC deemed it collaboration in bidding and applied the provision on the assumption of an unfair joint action to issue correction orders and the payment of fines(total of 3.85 million won).

Measures taken

• The enterprises must not restrict competition by jointly determining the price and quantity of PC sales to government organizations.

• The enterprises must place four column by 15cm public announcements of their violation of the Act in three major daily newspapers.

• The enterprises must pay the following fines.

- A : 83,930,690 won

- B : 129,985,000 won

- C : 29,703,670 won

- D : 52,163,520 won

- E : 89,678,030 won

Applied Act : Subparagraphs 1 and 3 of Article 19, (1), Article 19, (3), Article 21, and Article 22 of the Fair Trade Act

(2) Progress report

October 1, 1994 : an objection was raised

November 2, 1994 : dismissal of the objection, including the deletion of public announcement of the violation(some parts quoted)

(FTC Resolution No. 94-10)

November 4, 1994 : Completion of fine payments by the five PC manufacturers

December 1, 1994 : an administrative litigation was raised

(Case No. 94ku 36751)

February 13, 1996 : application dismissed (FTC wins)

The plaintiff did not file an appeal

(3) Application and facts of the case

<Judgment>

The enterprises are monopolistic businesses that account for 82.7% of the PC market for government organizations in 1993, at the time of the bidding. They submitted bids that are the same or similar to one another in "a certain transaction area" for each bid. They also submitted the same quantity bids, the total of which was equal to the quantity in the purchase plan. This leads the FTC to deem that it is presumable they engaged in a joint collaborative action, according to the law. The enterprises failed to come up with evidence to the contrary.

A fine is applicable not only when economic gains take place but also for collaboration in a bidding market that needs fair competition, which is subject to criticism. The issuance of the fines is neither illegal nor severe.

4. The unfair transaction action of A

(1) Related Measures (FTC Resolution No. 94-19)

Facts of the case : The enterprise under scrutiny(A) had conducted a transaction with its partner Dongah Pharmaceuticals(the reporter of the case) in Taegu and North Kyungsang Province in wholesale sales of pharmaceutical products. When both enterprises participated in the total cost bidding held by Kyungbuk University Hospital for 261 items of clinical test products, the enterprise did not supply the pharmaceutical products that it monopolizes despite several requests by the reporter of the case. The reporter's contract with the university hospital was cancelled(July 1, 1994) as a result, since it failed to deliver the items. In light of the fact that in total amount bidding by university hospitals, purchase and supply from other wholesalers is inevitable to win and fulfill the contract, the FTC deemed that the enterprise's action of stopping supplies to the reporter with which it had a continued transaction relationship was an unfair refusal of transaction by abuse of its monopolistic status.

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Measures taken

• The enterprise must not unfairly stop transactions with transacting partners with which it had a continuous transaction relationship.

• The enterprise must make public its violation of the Act by placing a four column by 15cm public announcement in a daily newspaper in the Taegu and North Kyungsang Province.

Applied Act : Subparagraph 1 of Article 23, (1) and Article 24 of the Fair Trade Act

 

(2) Progress report

August 5, 1994 : an objection was raised

September 5, 1994 : dismissal of the objection (FTC Resolution No. 94-9)

November 5, 1994 : an administrative litigation was raised

(Case No. 94ku 34120)

December 14, 1995 : plaintiff's application was dismissed

(FTC wins)

January 13, 1996 : plaintiff makes a final appeal

(Case No. 96nu 2019)

June 25, 1996 : dismissal of final appeal (FTC wins)

(3) Application and facts of the case

<Application>

Since the enterprise and the reporter of the case are in a mutually competitive relationship, transactions would be to protect one's established supplier acquired through technical development, trust and invested capital. When the reporter participated in the total cost-method bidding, it held no prior consultation with the enterprise on product items monopolized by the enterprise. The reporter unilaterally demanded the transactions after it was awarded the contract. Responding to such large scale supply transactions on a continuous basis would bring enormous damage in a limitation of supply deadlines. Since clinical test products require follow-up management, this would require sharing one's own knowledge and technology with its competitor. The enterprise refused to transact with the reporter because the latter submitted a bid at a low price without considering fair profits in order to restrict other businesses from the bidding competition. This is a legitimate action in a free market economy in which a business has the right to choose its transacting partners.

<Judgment>

In light of practices in pharmaceutical products wholesale business, it is unlikely that A's securing a supplier through its own capital and technology is a legitimate reason for the refusal of transaction of its monopoly product items to its partner. This can be compensated by reflecting the losses in its supply price to the reporter. A's refusal of transaction is not deemed to stem from a limitation of deadlines or insufficient management capabilities, but a "refusal as a means of achieving a goal to restrict competition" to maintain the market price on the monopolized item as it intends, and therefore is not legitimate. The reporter is a competitor in a continuous transaction relationship with the enterprise under scrutiny, and suffered difficulties in its business activities when the enterprise's refusal of transaction led to the cancellation of the contract with its transaction partner and it was deprived of transaction opportunities.

Therefore, the enterprise's action of refusing to transact is "an action that goes beyond the freedom of choosing a transaction partner" and the FTC's measure is legitimate. (Dongah Pharmaceuticals' bidding price is lower than that of other competitors, but far lower than the price required in supply. Therefore, it cannot be seen as an action of unfair transaction practice that poses the risk of excluding a competitor.)

5. A's action of unfair subcontract transaction

(1) Related measures (FTC Resolution No. 92-128)

Facts of the case : A was contracted by Continental Hotel for the construction project of Continental Hotel and sports facilities in March 1991 and subcontracted some parts of the construction to Sudoo Construction for 786,500,000 won on March 19, 1991. When extra work was needed in the midst of the subcontracted construction and a civil complaint was filed, the enterprise paid 230 million won in compensation and received construction delay orders of 158 days. The enterprise claims that the extra work was only the surplus in the ongoing construction which required no need for contract amendments, and the construction delay losses(340 million won) and compensation payments exceed the unpaid balance payment of 3 trillion won, making it unnecessary for the enterprise to make the subcontract payment. However, the FTC deemed such an action by the enterprise as an action of unfair subcontracting transaction, and issued correction orders.

(2) Progress report

November 30, 1992 : an objection was raised

December 28, 1992 : dismissal of the objection (FTC Resolution

No. 92-8, p. 909 of volume 12 of Ruling Cases)

February 5, 1993 : an administrative litigation was raised

(Case No. 93ku 3037)

July 6, 1994 : plaintiff's application was cited (FTC loses)

July 27, 1994 : The FTC makes an appeal

(Case No. 94nu 10320)

June 16, 1995 : dismissal of original judgment (FTC wins)

May 31, 1996 : plaintiff's application dismissed (Case No. 96nu 20272)

July 22, 1996 : plaintiff makes a final appeal (Case No. 96nu 9409)

November 15, 1996 : plaintiff's final appeal dismissed

(FTC wins the case)

(3) Application and facts of the case

<Application>

The enterprise had made a verbal agreement with the reporter of the case on the extra demand for construction work, and it is a simple increase in the quantity of the workload that does not need extra documentation or contract amendments. The faulty construction by the subcontracted company led to crevices in the walls of nearby houses, resulting in civil complaints and 332,340,000 won in compensation as well as construction delay orders. As a result, the construction was finished 158 days behind schedule, leading to 338,910,000 won (3/1000 per day) in late fees. This is not the balance of the subcontract payment, in light of 301,580,000 won of the balance of subcontract payment.

<The Appellate Court's Ruling(plaintiff wins)>

The extra construction is a simple increase in the workload and does not necessitate extra documentation or contract amendments. Compensation for nearby residents for shoddy construction and delay payments should be borne by the subcontractor according to the contract. The FTC's action of ignoring the contracted agreement and ordering the enterprise to pay only the subcontract payment is an unfair correction order.

<FTC's grounds for appeal>

The extra construction work in this case is not simply an increase in the workload, but a huge additional workload and an increase of construction costs. This is why the FTC deems additional documentation on the extra construction is necessary.

Delaying payment to subcontractor when it is unclear where the responsibility lies for the civil complaints and delayed construction project would put the small-sized subcontractor in great economic difficulties and would not guarantee its protection, thereby going against the purpose of the Fair Transactions in Subcontracting Act.

Therefore, the determined subcontracting payment should be paid to the subcontractor according to the Subcontracting Act, and other disputes such as civil complaints should be settled through separate civil suits.

<Supreme Court Ruling(FTC wins)>

Additional documentation must be drawn up and distributed for changes of the original contract in design or additional construction, unless there is a legitimate reason. The extra construction is not a mere increase in workload of the existing construction, but a new addition to the design. Therefore, A Construction must distribute to its subcontractor documentation displaying subcontracting payments on the extra construction before the start of the additional construction.

Article 13 of the Subcontracting Act that states the duty of the contractor to pay subcontracting payments does not have an exception clause such as "refusal or delay of payment is acceptable when there is a legitimate cause." Therefore, the efficacy of the law would be undermined if the contractor's actions were to be judged by the absence of such a clause in the Act. The action of the contractor in not paying its subcontractor after the due date is a violation of the Act and subject to punishment.

The FTC's decision should be on whether the enterprise's action of refusing or delaying its subcontract payment was a violation of the Act or not, unless there is a legitimate reason. It does not have to decide whether the enterprise had a legitimate reason to refuse or delay payment to its subcontractor.

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