Countermeasures against Unfair Trade Practice: What if a large retailer requests business management information from its supplier in South Korea? ​

 

Countermeasures against Unfair Trade Practice: What if a large retailer requests business management information from its supplier in South Korea?

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Countermeasures against unfair trade practices, large retail business act, request to provide management information | Dowoo Hwasan Attorneys & Counselors, Fair Trade Team |

 

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Article 14(1)-(4)(Prohibition of Request for Management Information) of the Act on Fair Transactions in Large Retail Business 

(1) A large retail business entity shall not unduly request a supplier, etc. to provide any of the following information:

1. Information concerning the supply terms (including supply price) for the goods which suppliers supply to other business entities;

2. Information concerning the lease terms (including rental rate) to open a sales floor in other business entities' stores;

3. Other management information prescribed by Presidential Decree that is equivalent to the information described in subparagraphs 1 and 2, relating to the supplier, etc. or transaction partners of the supplier, etc.

(2) Where a large retail business entity requests a supplier, etc. for management information falling under any of the subparagraphs of paragraph (1), he/she shall provide the supplier, etc. with documents stating the purpose of a request, matters concerning the maintenance of confidentiality, etc. before requesting management information, as prescribed by Presidential Decree.

(3) Each of the large retail business entity, the supplier, etc. shall put his/her signatures or shall write his/her names and affix his/her seals on the documents prescribed in paragraph.

(4) Where a large retail business entity requests a supplier, etc. for management information, he/she shall make a request within the minimum extent necessary for the purpose of such request. ​

 

Why a large retailer wants to acquire important management information (supply terms, store opening terms, etc.) of its supplier?

- To have it as a basis to adjust the supply unit price or fee

- To request participation in sales promotion events

- To acquire supply terms to other retailers and store opening information such as lease fee à to share information on price among large retail businesses à potential risk of collusion among retailers

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▶ While prohibiting unfair request for management information, a duty to provide a written document in advance is required when making such a request!

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Relevant Precedent (Seoul High Court, 2015NU38902)

- Burden of Proof for Unfairness: Korea Fair Trade Commission

- However, to prove unfairness, there is no necessity for acts of the large retailer to have happened actually such as imposing disadvantages to suppliers based on the management information obtained by requesting as such, including moving the store or excluding from important events (the KFTC needs not to prove the factual happening of such actions).

 

 

Before requesting management information, a large retail business entity shall provide the supplier, etc. for with documents stating the purpose of a request, matters concerning the maintenance of confidentiality, etc. as prescribed by the Presidential Decree. (Article 14(2))

 

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Prohibition on requesting for certain ‘management information’

Examples of management information (Each subparagraph of Article 14(1), Article 11 of the Enforcement Decree)

​Subparagraph (1): Information concerning the supply terms (including supply price) for the goods which suppliers supply to other business entities à Supply price, quantity, period and method of supply, period and method of payment, return terms, etc.

Subparagraph (2): Information concerning the lease terms (including lease rate) to open a store in other business entities' stores à Lease rate paid to the other business entity, period and method of rent payment, location and area of the store leased from a third-party business entity

Subparagraph (3): Other management information prescribed by Presidential Decree that is equivalent to the information described in subparagraphs 1 and 2, relating to the supplier, etc. or transaction partners of the supplier, etc. à Product cost information, sales-related information of products sold at stores of other business entities (sales amount, sales volume by period), information on promotional events (period, number, transaction conditions of promotions), unique information for accessing the delivery-related computer network (unique identification name, password, etc.)

 

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Case of violation related to Article 14 (Prohibition on Request for Management Information) of the Large Retail Business Act [2015 Retail 3347]

 

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Facts of the Case

The Respondent requested for and received information such as monthly average sales at the competitor’s store from its 68 suppliers including OOOO, which had stores in both its and its competitor’s stores in regions OO and OO, without providing a written document that specified the purpose of the information request and confidentiality via email or call.

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Details of the management information requested from the suppliers

Source: Summary of materials submitted by the Respondent

Manager	Period of request	Number of suppliers	Details of the request	Purpose of the request
000	Around 2013.11.	4	Monthly sales of the store opened at 000 department store	Related to the sale of 000 department store
	Around 2013.12.	33	Sales of miscellaneous goods, cosmetics, and sports stores opened at 00 branch of 0000 department store	Identifying future sales before opening 00 0000 branch
000	Around 2014.10	2	Sales of ladies' clothing, children's clothing stores opened at 00 branch of 0000 department store	Identifying future sales before opening 00 0000 branch
000	Around 2013.11.	13	Sales of miscellaneous goods stores opened at 00 branch of 00 department store	Identifying future sales before opening 00 0000 branch
	Around 2014.12.	28	Sales of ladies' clothing, children's clothing stores opened at branch of 0000 department store	Identifying future sales before opening 00 0000 branch
	Subtotal	29(excl. duplicate)	​
​	Total	68	​

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Decision of the KFTC

- The management information requested by the Respondent qualifies as the management information prescribed under Article 14(3) of the Act and Article 11(1)-2 of the Enforcement Decree.

- Additionally, by comprehensively considering the facts that ① the monthly sales information of the supplier regarding the competitor business entity as requested by the Respondent is the supplier’s trade secret, for which suppliers have no reason to voluntarily provide thereof unless requested by the Respondent, (…) ④ such information has a high likelihood of becoming the beginning of subsequent unfair practice, such as reduction of the product sales price and forcing participation in sales promotion events, against suppliers with lower sales for the Respondent than for the competitor, and ⑤ the Respondent requested the management information at issue via calls and emails, not by legitimate request method for management information under Article 14(2) of the Act, which failed to secure the procedural legitimacy of the process of the request, the unfairness of the request for management information of the Respondent is admitted.

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▶ Whether a violation of the duty to provide written request in advance when requesting for management information is established: Violated Article 14(2) of the Act

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Order of the KFTC

▶ The Respondent shall not repeat acts such as unduly requesting the suppliers to provide management information such as the sales amount of the products supplied to another large retail business entity as its competitor and failing to provide a written document that states the purpose of the request and confidentiality before the request for management information.

 

The Fair Trade Team of Dowoo Hwasan Attorneys & Counselors pursuits only the right path for related companies’ establishment of compliance, while eradicating the abuse of transactional status that occurs in transactions such as distribution, franchise, subcontracting, and agency. If you have any further inquiries or need any materials, please contact Dowoo Hwasan Attorneys & Counselors at any time (+82.2.6207.1114, dowoo@dowoolaw.com), and our fair trade and distribution-specialized attorneys will be happy to assist you.

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