Fair Trade Attorneys, Responding to Coercion against the Will of Suppliers

 

International Trade & Distribution

Fair Trade Attorneys, Responding to Coercion against the Will of Suppliers

 

​

Fair Trade Attorney, Prohibition on Giving Disadvantages under the Large Retail Business Act, Fair Trade Team | Dowoo Hwasan Attorneys & Counselors |

Following the previous article, we will examine the types of acts giving disadvantages by large retail business entities under Article 17 of the Large Retail Business Act. Article 17 of the same Act prescribes 9 types of acts (Paragraphs 1-9) as giving disadvantages and a provision on comprehensive prohibition (Paragraph 10). Today, we will look in Paragraphs 4 and 5 among various acts of giving disadvantages.

 

---

Fair Trade Attorney, Fair Trade Team

Large Retail Business Entities’ Act of Giving Disadvantages

 

Article 17 (Prohibition Against Giving Disadvantages)

A large retail business entity shall not perform any of the following acts against a supplier, etc. without justifiable grounds:

1. Having the supplier, etc. purchase merchandise coupons or articles;

2. Having the supplier, etc. supply goods at a remarkably lower supply price than the usual supply price to markets;

3. Having the supplier, etc. supply a remarkably higher quantity than normal quantity in order to hold a sales promotional event;

4. Having the supplier, etc. participate in a sales promotional event contrary to the will of the supplier, etc.;

5. Failing or delaying restoration of the supply price, of which reduction has been agreed upon for a limited period, to the ordinary price even after such period passes;

6. Having the supplier, etc. advertise goods contrary to their will;

7. Interfering with the supplier, etc. in closing a sales floor in a particular store or having the supplier, etc. open a sales floor in his or her other store, contrary to the will of the supplier, etc.;

8. Changing the location, size or facilities of a sales floor of the supplier, etc. during the contract period;

9. Changing the terms of a contract prescribed by Presidential Decree, such as the rate of sales incentive during the contract period;

10. Other acts corresponding to the provisions of subparagraphs 1 through 9 that give disadvantages to the supplier, etc. or cause the supplier, etc. to provide advantages.

[Title Amended on Oct. 16, 2018]

​

---

​▶ Making the supplier participate in a sales promotional event contrary to the will of the supplier, etc. (Paragraph 4)

 

​· Purpose of regulation: Prohibition on forcing suppliers, etc. to participate in special sales events such as sales with free gifts or discount sales, etc. (coercion without considering the supplier's intention → increasing burden on suppliers, etc.)

· Scope of application: Applies to both suppliers and store lessees (lawful when there is a justifiable cause à large retail business entities should secure materials that show the act benefits suppliers à alleviating the risk of sanctions)

 

​※ Relationship with the provision on shifting burden of sales promotional expenses under Article 11 of the Large Retail Business Act

- Violation of Article 4 is established by participating in sales promotional events against the will of suppliers

- Compliance with the provision on the ratio of sharing expenses under Article 11 is NOT considered for determining violation of Article 4

In Practice: Comply with the provision on sharing promotional expenses under Article 11 à NO possibility of violating Article 11 and Article 17(4)

 

Case of Forcing Suppliers to Participate in Promotional Events with Free Gifts in the Department Store Business of OO Co., Ltd.

(Korea Fair Trade Commission, 1998. 11. 25. Decision 9807BUSA1087)

 

​- Facts

OO Department Store made 42 suppliers participate in the promotional event with free gifts despite not consenting to participate. Afterward, the department store unilaterally deducted the expenses for the free gifts from the payment for product sales.

​- Decision of the KFTC

The department store shall not conduct the act of forcing suppliers to participate in promotional events with free gifts. The act of coercion is an abuse of the transactional position under the Fair Tarde Act.

---

​

​▶Failing or delaying restoration of the supply price, of which reduction has been agreed upon for a limited period, to the ordinary price even after such period passes (Paragraph 5)

 

​· Supply price and retail price

- Price competition

- For price reduction events à demand to reduce the supply price à based on consultation between the retail business and the supplier, temporarily reduce the supply price à retail price is reduced à the specified period ends à demand to supply products at the discounted supply price for quantities that are supplied after the specified discount period (price reduction period) à possible violation of Article 17(5) (NO violation of Article 17 if the large retail business has a justifiable cause) à possible violation of Article 7, Article 8

 

​· Justifiable cause: Suppliers first requested to extend the period as the successful promotional event increased the revenue

· Scope of application: Regardless of the supply transaction type (include all related to suppliers in the direct purchase, special contract purchase, and consignment transaction)

 

Case of receiving supplies by applying low price after the end of the promotional event of OO Shopping

[KFTC 2020. 1. 28. Decision No. 2020-026, 2016SEOGYUNG0034]

​

​- Facts

The Respondent (OO Shopping Co., Ltd.) applied supply prices determined low for the reason of conducting price discount events over 8 times for the period from October 2012 to May 2015 after the events ended and thereby received supplies of pork from 6 suppliers.

​

(Unit: Final Price · Event Price · Sales Price – won/kg, Supply Quantity – kg, Supply Amount – won)

No.	Meeting Date	Supply Period		Final Price	Supply Quantity	Supply Amount	Event Price	Sales Price
1	2012-10-29	2012-11-01	2012-11-01	11,000	183	1,460,800	8,000	15,800
2	2012-12-10	2012-12-13	2012-12-13	13,000	474	5,452,150	11,500	15,800
3	2012-12-24	2012-12-27	2012-12-27	13,000	126	1,261,000	10,000	16,500
4	2013-03-04	2013-03-07	2013-03-08	11,700	624	4,865,640	7,800	14,800
5	2013-05-20	2013-05-23	2013-05-23	14,257	31	301,950	9,900	17,500
6	2013-09-09	2013-09-12	2013-09-18	15,800	18,045	252,624,400	14,000	19,500
7	2014-09-01	2014-09-04	2014-09-10	17,500	7,106	95,924,250	13,500	23,500
8		2015-05-28	2015-05-29	17,700	435	7,038,900	16,200	25,000
Total					27,024	368,929,090

​

​- Decision of the KFTC

When a discount even has ended, the supply price at the lower level applied during the event period shall be restored to the normal price. However, the Respondent also acknowledges that it delayed thereof without a justifiable cause. The act of the Respondent above violates Article 17(5) of the Act.

 

​- Order of KFTC

A warning is rendered on the act of the Respondent in the direct purchase transaction with 6 suppliers of pork including A Corp., under which the Respondent negotiated a lower supply price with the suppliers for the sales promotional event then applied it without change after the end of the sales promotional event to make orders.

​

Contact

Samyoung Building, Suite 701

437 Teheran-ro, Gangnam-gu

Seoul, Republic of Korea 06158

T. +82.2.6207.1114

F. +82.2.6207.1124

E. dowoo@dowoolaw.com