Hello, this is attorney Um Sang-yun from the law firm Cheongchul.
The Fair Trade Commission (hereinafter referred to as 'FTC') has established the Monopoly Regulation and Fair Trade Act (hereinafter referred to as 'Fair Trade Act') to prevent businesses from using their superior position in transactions to make unjust demands on the other party, thus prohibiting acts of abusing transactional status (Fair Trade Act Article 45, Paragraph 1, Item 6).
Today, we will examine the concept and types of abusive acts regarding transactional status, as well as points that companies should be mindful of.
[What is Abuse of Transactional Status?]
Abuse of transactional status refers to the act in which a business with a superior position in a transaction unjustly exploits this position to unilaterally impose various disadvantages, such as forcing the purchase of goods or services, or interfering in management, thereby exploiting economically weaker parties.
According to the Fair Trade Act and the 'Guidelines for Reviewing Unfair Trade Practices' (FTC Guidelines), for the establishment of abusive acts of transactional status, a 'transactional status' must be recognized, and a mere difference in bargaining power does not constitute a recognized transactional status in general civil matters.
[Criteria for Determining Transactional Status]
Transactional status refers to the superior position arising in the transaction relationship that allows a specific business to force the counterparty to transact or impose disadvantages. For transactional status to be recognized, the dependency of one party on the other must be considerable, and generally, the degree of dependency is examined based on the proportion of sales to the counterparty in the total sales.
If there is a continuous transactional relationship, this may be recognized as a factor supporting the transactional status. The existence of a continuous transactional relationship is judged based on whether there are investments in specialized capital facilities, human resources, technology, etc., for maintaining the transaction relationship, and if specific facilities for transactions with the counterparty exist, it can be regarded as a continuous transaction.
For example, if a transaction with a specific business continues for a long time and maintaining the transaction relationship requires a large-scale investment, it may be recognized as a transactional status if switching the counterparty would cause significant difficulties due to equipment changes or substantial losses.
[Types of Abuse of Transactional Status]
The Enforcement Decree of the Fair Trade Act and the Guidelines for Reviewing Unfair Trade Practices categorize the types of abuse of transactional status as follows:
o Forced Purchase: An act of forcing the purchase of goods or services that are unnecessary for the other party. For example, when a dealer is forced to purchase more than the planned sales volume, this falls under this category.
o Coercing Benefits: An act of demanding the provision of money, goods, etc., that are not directly related to the transaction. For example, demanding unfair donations or sponsorships from suppliers falls under this category.
o Forced Sales Targets: An act of setting unrealistic sales targets and imposing disadvantages for failing to meet them. For example, if the sales of the counterparty fall short of the target, applying a lower unit price compared to when the target is achieved, or halting the supply of goods, falls under this category.
o Providing Disadvantages: An act of unilaterally changing transaction conditions without justifiable reason or suspending transactions to cause loss to the counterparty. For example, imposing additional costs not specified in the contract falls under this category.
o Management Interference: An act of unjustly intervening in the personnel or management decision-making of the counterparty. For example, forcing the appointment or dismissal of a specific executive falls under this category.
Meanwhile, for the illegality of such acts to be recognized, it must be acknowledged that they may impede fair competition and order in the market, and the fairness of the transaction content is judged by considering the purpose of the act, the predictability of the counterparty, typical trading practices in the industry, relevant laws, etc.
[Legal Responses and Preventive Measures]
Abuse of transactional status constitutes an unfair trade practice subject to investigation by the FTC, and violations may result in corrective orders, penalties, and criminal sanctions. Therefore, it is necessary for companies to take the following measures to prevent such acts and minimize legal risks.
o Drafting Contracts and Complying with Transaction Conditions: Transaction conditions should be clearly defined in documents such as contracts, and should not be unilaterally changed to disadvantage businesses in a weaker position.
o Establishing Internal Compliance Monitoring Systems: Companies should conduct regular training and audits to prevent unfair trade practices.
o Preparing for Investigation Responses: Violations of the Fair Trade Act are often identified through on-site investigations by the FTC. Therefore, it is advisable to establish guidelines for responding to on-site investigations in advance and seek assistance from legal experts.
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