Fair Trade Law Q&A - Other Deceptive or Obviously Unfair Conduct

A1:

The warning letter, notification letter, attorney letter, open letter and advertisement or public notice specified in Point 2 of the Fair Trade Commission Disposal Directions (Guidelines) on the Reviewing of Cases Involving Enterprises Issuing Warning Letters for Infringement of Copyright, Trademark and Patent Rights are not limited to hard copy only. The term “written materials” is the same. Hence, before publicizing another enterprise infringing on its copyright, trademark or patent rights on social media like Facebook, its own website or in emails, the enterprise in concern has the responsibility to make sure the infringement complies with the conditions described in Point 3 or 4 of the disposal directions in order not to violate the Fair Trade Law.

A2:

Article 25 of the Fair Trade Law (hereinafter, "Article 25") is a general provision. To facilitate its concrete and clear-cut application, the Fair Trade Commission issued Disposal Directions (Guidelines) on the Application of Article 25. The content of the Principles is summarized below:

1. To clarify the distinction between Article 25 and related provisions of other laws and regulations such as the Civil Code and the Consumer Protection Act, the requirement of "sufficient to affect trading order" should be the first criterion applied when screening for the applicability of the Fair Trade Law or Article 25. In other words, the Commission will review a case under Article 25 only if the act at issue is sufficient to affect trading order in the market. If the requirement of "sufficient to affect trading order" is not met, remedy should be sought under the Civil Code, Consumer Protection Act, or other laws or regulations.

   On condition that the requirement of "sufficient to affect the trading order" is met, then, to ascertain the scope governed by Article 25, it is necessary to examine whether the alleged illegal practice could not be not fully corrected by, first, provisions concerning restrictive competition (e.g. monopoly, cartel, and vertical restraints on competition) and, second, provisions concerning unfair competition (e.g. commercial imitation, false advertising, business defamation). Thus, the distinction in the application of Article 25 and other articles of the Fair Trade Law is that Article 25 is applicable only as a supplementary provision, i.e. applicable only to acts that are out of the reach of other articles of the Fair Trade Law.

   If a certain unlawful act is caught by other provisions in the Fair Trade Law, meaning either that the application of those specific provisions could fully establishes the illegality of the act, or the illegal contents of the alleged act could be exhaustively regulated by those provisions, there are no grounds for the supplementary application of Article 25. Conversely, only if those specific provisions fail to evaluate the alleged unlawful act in its entirety will there be room for the supplementary application of Article 25.

   With respect to the issue of "protecting consumers interest," the applicability of Article 25 will be determined by examining whether the enterprise concerned is abusing its advantageous position to use "deceptive" or "obviously unfair" sales tactics to harm consumers' interest, and the requirement of "sufficient to affect trading order" has accordingly been met.

2. The application of Article 25 frequently gives rise to the question of overlapping with other laws, and should be resolved according to the following factors:
   1. Contracts between enterprises or enterprises and consumers are trade terms agreed upon by both parties out of their own free will. Regardless of whether their contents are obviously unfair or whether they are subsequently performed, contractual behavior should in principle be regulated by contract law. Article 25 is applicable only in exceptional circumstances where the behavior threatens the competitive order or market trading order. If obviously unfair content of a contract fails to meet the requirement of "sufficient to affect trading order," it should be resolved through civil remedies proceedings. Only if this requirement is met and public interests are at stake should Article 25 be invoked.
   2. Although protecting consumers' interest is among the legislative purposes expressly set forth in Article 1 of the Fair Trade Law, it is necessary to distinguish between the core legal interests protected by the Fair Trade Law and those protected by the Consumer Protection Act. Article 25 should be invoked only in cases where the requirement of "sufficient to affect trading order" is met and where, moreover, the conduct by nature has a bearing on the public interest. Examples would be where an enterprise's relatively advantageous market position vis-a-vis its consumers is so endemic to the industry that consumers' interest is harmed due to over-reliance or the lack of alternatives.
   3. Owners of intellectual property rights are entitled under relevant intellectual property laws to inform whoever might have infringed their rights to terminate the infringements. However, if prior to any confirmation and notification proceedings being undertaken, the owner makes outright oral or written representation directed at its competitor's distributors or consumers (trading counterparts or potential trading counterparts) alleging that a competitor has infringed its rights or interests, and provide no basis for the recipient to form a reasonable judgment, constitute an abuse of intellectual property rights to create unfair competition, and are governed by Article 25. The prerequisite for invoking Article 25 with respect to oral or written warnings regarding intellectual property rights is the improper exercise of such warnings that could lead to unfair competition. Whether the Fair Trade Law has been violated should be determined merely by whether in formality the proper procedures have been followed for exercising such rights, and will not include the consideration of whether any infringement has actually occurred.
3. (Distinctions of the applicability of Article 25 vis-a-vis other articles of the Fair Trade Law)

   Application of Article 25 should be guided by the principle of "supplementariness ," meaning that Article 25 is applicable only to unlawful acts that could not be completely covered by the other articles of the Fair Trade Law. If a certain unlawful act could be completely covered by the other individual articles of the Fair Trade Law - that is, if the illegality of alleged acts could be comprehensively evaluated or exhaustively regulated by those articles - then those articles will take precedence and there are no grounds for supplementary application of Article 25. Conversely, if those articles fail to regulate the illegality of the act, Article 25 may then come into play.

4. "Trading order" as used in Article 25 refers to trading behavior that comports with good moral ethics of society and business competition ethics centered on efficient competition. Its concrete content is the type of trading order that is in conformity with social ethics, and upon which the spirit of free and fair competition rely. When determining "sufficient to affect trading order," consideration should be given to whether it is sufficient to affect the overall trading order (e.g. the number of victims, the quantity and degree of harm caused, the deterrent effect on other enterprises, and whether specific organizations or groups have been targeted by the alleged deceptive or patently unfair acts) or whether the case would affect a majority of future potential victims before invoking Article 25; however, the trading order has in fact been affected is not required. For single, individual, non-recurring trade disputes, on the other hand, civil remedies should be pursued rather than the application of Article 25.
5. "Deceptive" as used in Article 25 refers to acts of engaging in trade with trading counterparts by misleading them through active deception or through passive concealment of material trading information. "Material trading information" as used in the preceding paragraph refers to the important trading information sufficient to affect trading decisions. Whether an act is "misleading" should be determined by whether objectively there is a reasonable likelihood (and not merely some possibility) that it would mislead the general public or deceive trading counterparts, together with the evaluation of trading counterparts' ability of judgment based on the "reasonable judgment" standard (An extremely low level of care should not be taken as the standard.) Common types of such acts include:

   (1)	Impersonating or free riding on the credibility of another entity.
   (2)	Disingenuous sales tactics.
   (3)	Concealing material trading information.

6. "Obviously unfair" as used in Article 25 refers to engaging in competition or commercial transactions by obviously unfair means. Its most common and concrete types fall into three general categories:
   1. Unfair competitive conduct contrary to business competition ethics
      1. Exploiting the fruits of others' work

         The determination of illegality should in principle consider the following factors: (1) the work that have been free ridden upon or imitated to a substantial degree must be those that the enterprises have already exerted a substantial degree of efforts in those work and thereby created a certain economic interest in them that had already been exploited by the alleged free-riding or imitating acts; and (2) the free-riding or imitating acts could mislead trading counterparts into believing that the goods or services come from the same source or product line or an affiliated enterprise. However, even where the above two criteria are not met, a violation may still be found in cases where the means employed are highly reprehensible (e.g. complete imitation), and determination should be made based on the various facts in each individual case. Common types of such conduct are as follows:

         1. Free riding on the business reputation of another:

            Determination of whether business reputation is protected by Article 25 should take into account of whether it is a substantially well-known brand in the market and whether it would create quality connection among related enterprises or consumers in the market.

         2. Imitation to a substantial degree:

            Determination of imitation to a substantial degree should examine in totality (1) whether the imitation reaches the level of "exactly alike" or "highly similar"; (2) the relevance and proportionality between the efforts exerted and cost incurred by the imitator and its resulting competitive advantage or benefit; and (3) the uniqueness and state of possession of the imitated work in terms of market competition.

            Acts of taking advantage of the work of another person to promote one's own goods or services.

      2. Impeding fair competition with the purpose of harming competitors

         Common types of such conduct are as follows:

         1. Improper comparative advertising:

            Comparative advertising that, rather than making false representations about one's own or another's goods or services, employs different means or standards of measurement to compare identical goods, or that highlights only those main categories of comparison in which one's own product fares more favorably, while deliberately disregarding those categories in which the competitor compares favorably, with the intent of creating an unfair overall impression of the comparison results, and where the legal requirements of Article 22 of the Fair Trade Law are not met.

         2. Making representations to trading counterparts of a competitor alleging that the competitor's infringement of intellectual property rights:

            It is a legitimate exercise of legal rights for an intellectual property rights holder who discovers goods in the market with a potential to infringe his intellectual property rights to give notification of the infringement, with a request for its removal, to the directly infringing manufacturer or, in the case of imported goods, to the importer or agent having equivalent status. Regardless of whether the allegations are true or false, it is a dispute over intellectual property rights, to which Article 25 does not apply. If, on the other hand, the holder makes representations (regardless of whether written or oral) to dealers or consumers (i.e. trading counterparts or potential trading counterparts of a competitor) who might indirectly infringe his rights, alleging, without undertaking the prerequisite confirmation and notification procedures, that the competitor has infringed his rights, such conduct—if sufficient to raise concerns in the minds of the competitor's trading counterparts or to cause them to refuse to trade with the competitor—would constitute obviously unfair acts under Article 25.

   2. Engaging in trade by means contrary to social ethics

      Common types of such conduct include carrying out trading by means of coercing or harassing a trading counterpart to suppress the trading counterpart's free will regarding whether to trade.

   3. Abusing an advantageous market position to engage in unfair trade

      An enterprise holding market power or advantageous market information takes advantage of the information asymmetry or other relative trading disadvantage on the side of its trading counterpart (an enterprise or consumer) to engage in unfair trade. Commonly seen types of such conduct are as follows:

      1. where an enterprise provides imperfect substitutes for basic necessities or services or does business in a manner contrary to business ethics or public order and good morals during a time when market mechanisms failed and market supply and demand are not in equilibrium;
      2. Obviously unfair conduct resulting from non-transparency of information.

Relevant article(s) of law: Fair Trade Law, Article 25

A3:

To maintain trading order in the franchise business market as well as protect franchisees and fair competition, the Fair Trade Commission has established the "Fair Trade Commission Disposal Directions (Guidelines) on the Business Practices of Franchisors" to provide references for franchisors in franchisee recruitment and business management. According to Point 3 of the said directions, 10 days before signature of contracts with franchisees or at a time considered appropriate, franchisors are required to provide in writing important franchise information, including:

1. All expenses required before operation begins (such as the franchise fee, training cost, product, material and capital equipment expenses, remodeling cost, etc.)
2. All expenses required during operation (calculation and collection of licensing fees, management assistance and marketing and promotion expenses, product or material costs, etc.)
3. Matters related to intellectual property rights
4. Contents and approaches of management assistance and training
5. Business management or schedule plans
6. Restrictions on franchisees during the franchise contract period
7. Contract change, termination or cancellation conditions and handling approaches

Failure to provide the above-mentioned nine types of important franchise information without justification is considered obviously unfair conduct. If such conduct is deemed able to affect trading order, it is in violation of Article 25 of the Fair Trade Law.

Relevant article(s) of law: Fair Trade Law, Article 25

A4:

To improve transparency of home transaction information and regulate the presale home marketing practices of real estate developers and agents, the Fair Trade Commission has established the "Fair Trade Commission Disposal Directions (Guidelines) on Selling Presale House" to set criteria for related businesses. As specified in the said directions, in addition to fulfilling the obligation of disclosing the corresponding information before contract signature, real estate businesses may not impose any restriction on the right of homebuyers to read purchase contracts in advance and they may not engage in any deceptive or obviously unfair conduct after contract signature. Therefore, when consumers make contact with builders or marketing agents about presale home purchases, they ought to make sure whether such businesses fully disclose important trading information in writing as specified in Point 3 of the said directions. Such information includes:

1. A photocopy of the building permit
2. The location map, site plan (cadastral map), layout for each floor and parking space layout approved by the competent authority
3. The most recently updated list of unit ownership percentages approved by the building authority during the marketing period (the list must indicate the unit ownership percentages of the main structures, affiliate structures and areas of joint ownership)
4. A copy of the presale home purchase contract (including the items under joint ownership, their total areas and how the percentages are calculated)
5. Names of financial institutions to provide loans for buyers of units of the project
6. Information about restrictions on use of land if it is in a redevelopment zone and redevelopment expenses unit owners will be responsible for

Consumers must also make sure real estate businesses comply with the regulation set forth in Point 4 of the said directions and do not request homebuyers to pay a deposit or a certain fee to acquire a copy of the presale home purchase contract or do give homebuyers at least five days to examine the contract before signature. Real estate businesses violating any of the abovementioned will be considered engaging in obviously unfair conduct. If such conduct is able to affect trading order, it is in violation of Article 25 of the Fair Trade Law.

Relevant article(s) of law: Fair Trade Law, Article 25

A5:

1. Gas safety equipment businesses normally call the products they sell "gas breakers," "gas safety valves," "automatic excessive gas flow shutters," "gas explosion prevention devices," etc. Such products do have the function of shutting excessive gas flows but the marketing approaches adopted by certain businesses can cause disputes. Therefore, the Fair Trade Commission has established the "Fair Trade Commission Disposal Directions (Guidelines) on Sales of Gas Safety Devices" to provide references for gas safety equipment businesses and consumers as well as to maintain trading order, ensure fair competition and protect consumers’ interests. However, whether a business is in violation of the Fair Trade Law depends on the situation in each case.
2. According to the Fair Trade Commission’s experience, illegal practices adopted by gas safety equipment businesses to sell gas safety devices include the following types and consumers are advised to be cautious and to refuse to make purchases if they are in any doubt:
   1. Using false, untrue or misleading representations or symbols about the price, quantity, quality or function of gas safety devices in advertisements
   2. Using pretexts such as giving presentations on gas accident prevention, making gas safety inspections, working with public interest groups and providing service under government funding to mislead consumers
   3. Not telling or lying about the price, quantity, quality, function, features, or limitations of use of gas safety devices to mislead consumers
3. As set forth in Article 19 of the Consumer Protection Act, consumers who change their minds about products they have purchased through mail order or door-to-door sales may return the products or cancel the contracts in writing within 7 days after receiving the products without giving any reasons or being responsible for any expenses. Therefore, if consumers intend to cancel purchase contracts after having gas safety devices installed, they can act according to the said regulation and send written notices (such as legal attest letters) to request that gas safety equipment businesses remove the devices and return the funds.

Relevant article(s) of law: Fair Trade Law, Article 25

A6:

1. Since parallel-imported genuine goods are unauthorized genuine products rather than necessarily inferior or fake products, parallel import of genuine products does not constitute counterfeiting and does not violate Article 21.
2. The determination as to whether the parallel import of genuine goods violates Article 21 depends on whether such act by the importer is intended to mislead the consumer public as to the source of the goods.
3. When a company imports goods that the original overseas manufacturer has already authorized another domestic agent to import or domestic manufacturer to produce, the authorized importer or manufacturer may have already invested heavily in marketing to make the goods well known to consumers. In such cases, if the unauthorized importing company take actions, such as by making representations with respect to the product contents, source, importer name and address, and so forth, in order to mislead consumers into believing the goods are those imported by the authorized importer or domestic manufacturer, such actions amount to "free-riding" and are considered deceptive or obviously unfair acts under Article 25.

Relevant article(s) of law: Fair Trade Law, Article 25