International Trade & Distribution / Corporate Legal Advice, Legal Response to Provision of Disadvantages under the Large Retail Business Act

 

International Trade & Distribution

Corporate Legal Advice, Legal Response to Provision of Disadvantages under the Large Retail Business Act

 

Corporate Legal Advice, Prohibition Against Giving Disadvantages under the Retail Business Act, Fair Trade Team | Dowoo Hwasan Attorneys & Counselors |

Today, we will examine the prohibition against giving disadvantages under Article 17 of the Large Retail Business Act. Article 17 of the Large Retail Business Act prohibits large retail business entities from conducting certain acts against suppliers, etc. without justifiable reasons. There are 9 types of acts (Paragraphs 1-9) and a provision on comprehensive prohibition (Paragraph 10) under Article 17. When there is an action in violation, you can take legal responses against large retail business entities under the Large Retail Business Act. Among various types of acts giving disadvantages, today, we will discuss Paragraphs (1), (2), and (3).

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Corporate Legal Advice, Fair Trade Team of Dowoo Hwasan

Provision of Disadvantages by Large Retail Business Entities

 

Article 17 (Prohibition against Giving Disadvantages) of the Large Retail Business Act

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]​

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​▶ Making the supplier purchase merchandise coupons or articles (Paragraph 1)

 

· Merchandise coupons? NOT limited to the ones issued by a large retail business enterprise. If the coupon can be used commonly at its own store or affiliates’ stores, it falls under the “merchandise coupon”.

​· Preserving related documents: When a large retail business entity has made its suppliers purchase merchandise coupons for justifiable reasons, the retailer must keep documents that specify the issuance, sales, and recovery of the coupons (Article 6(8) of the Act, Article 5(12) of the Enforcement Decree)

- Case: Newcore Department Store (South Korea) – Forced sales of merchandise coupons to suppliers (1998. 12. 28. Decision No. 88-108)

Facts: Newcore Department Store sold merchandise coupons for shoes and rib sets at 20% discount to its suppliers then deducted the amount from its supply payment to the suppliers for 1-3 times.

Decision of the KFTC: The KFTC found that the act gave disadvantages to suppliers by unfairly utilizing its superior transactional position, which qualified as the abuse of transactional position (Article 23(1)-4 of the Fair Transaction Act) (case where it was determined as illegal even though the large retail business sold merchandise coupons at a 20% discount to the suppliers).

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​▶ Making the supplier supply goods at a excessively lower supply price than the usual supply price to markets (Paragraph 2)

· Purpose: Aims to prevent significant supply price cut.

· Standard for determining price remarkably lower than usual supply price to markets: Comprehensively consider old market prices, market prices of similar products, and changes in market circumstances, etc.

※ Determination by individual market – Even in the case of the same products, supply price itself may differ due to the differences in distribution structure such as departments store, TV home shopping, and online shopping mall, etc. Thus, the determination shall be made by looking at them as individual and separate markets. NOT applicable to volume discount (a usual price discount for purchase of a large number of products). 

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▶ Making the supplier supply an excessively higher quantity than normal quantity to hold a sales promotional event (Paragraph 3)

​· Purpose: To prevent infringement on the freedom of suppliers with the request to supply excessively large quantity. Also, it prevents the risk of product supply issues for other distribution channels. ​

· Scope of application: NOT applicable to store lease, applicable to suppliers (in practice, does not apply to direct purchases, applicable to special contract purchases), NOT applicable to promotional events hosted by suppliers)

· Problem of the Provision: In reality, the request on quantity is rarely significantly excessive to the point that the supplier cannot provide the quantity for other distribution channels. Thus, the problem is that the provision on significantly excessive quantity is ambiguous.

Contact

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437 Teheran-ro, Gangnam-gu

Seoul, Republic of Korea 06158

T. +82.2.6207.1114

F. +82.2.6207.1124

E. dowoo@dowoolaw.com

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