Hello, I am Attorney Eom Sang-yun from Cheongchul Law Firm.
The Fair Trade Commission (hereinafter referred to as 'FTC') imposes penalties for violations of the Monopoly Regulation and Fair Trade Act (the 'Fair Trade Act') by considering the seriousness of the legal violation, the size of the business, and the degree of damage caused by the violation comprehensively. In particular, the calculation of penalties is governed by detailed criteria for penalty imposition ('Penalty Guidelines'), which specify the procedures and standards.
Today, we will look into how the penalties imposed by the Fair Trade Commission are calculated and the points to be aware of.
[Question]
How is the amount of penalties calculated by the Fair Trade Commission?
[Answer]
The Fair Trade Act stipulates various punitive measures including corrective orders and penalties for violations such as unfair joint actions, abuse of dominant market position, unfair trade acts, and violations of merger restrictions. The penalties imposed by the Fair Trade Commission are fundamentally calculated by applying the 'imposition standard rate' to 'related sales revenue' calculated according to the Penalty Guidelines (Article 13, Paragraph 1 of the Enforcement Decree of the Fair Trade Act). However, if there is no sales revenue or it is difficult to determine, fixed penalties may be imposed.
Enforcement Decree of the Fair Trade Act Article 13 (Penalties) ① The 8th Article of the text states that "sales revenue determined by presidential decree" refers to the sales revenue of relevant goods or services sold by each violator during the violation period in certain transaction areas or an equivalent amount calculated based on the standards prescribed and notified by the Fair Trade Commission (hereinafter referred to as "related sales revenue"). In this case, if the violation occurs in relation to the purchase of goods or services, the purchase amount of the relevant goods or services is considered as related sales revenue. |
The typical method of calculating penalties is as follows.
1. Calculation of Basic Calculation Criteria
a. Estimation of Related Sales Revenue
The sales revenue directly or indirectly related to the violation is estimated. For example, in the case of collusion, the sales revenue of the goods or services subject to collusion applies.
Meanwhile, case law states that "the range of relevant goods or services that serves as the premise for estimating sales revenue must be determined individually and specifically considering the content of the agreement among the businesses that engaged in unfair joint acts, the types and nature of goods or services that are directly or indirectly affected by the unfair joint acts, their uses and substitute possibilities, and the trading area, trading counterparties, and trading stages. However, if it is revealed that the cause of the occurrence of sales revenue is the contract for the supply of goods or services concluded before the agreement, and that only the actual supply of goods or services in accordance with the price, quantity, deadline, etc. specified in that contract occurred during the violation period, it is difficult to consider the corresponding sales revenue as goods or services directly or indirectly affected by the agreement, thus it should be excluded from related sales revenue."
b. Determining the Imposition Standard Rate
The seriousness of the violation is categorized into 'less serious violations', 'serious violations', and 'very serious violations', and the imposition standard rate is determined within each phase. For example, in the case of collusion, the imposition standard rate is determined within a range of up to 20% according to the degree of seriousness of the violation. The score at this time is calculated based on the detailed evaluation criteria table in the [Attachment] of the Penalty Guidelines.
Degree of Seriousness | Calculation Score | Imposition Standard Rate |
Very Serious Violations | 2.6 and above | 15.0% to 20.0% or less |
2.2 to less than 2.6 | 10.5% to less than 15.0% | |
Serious Violations | 1.8 to less than 2.2 | 6.5% to less than 10.5% |
1.4 to less than 1.8 | 3.0% to less than 6.5% | |
Less Serious Violations | Less than 1.4 | 0.5% to less than 3.0% |
c. Calculating the Calculation Standard Amount
The calculation standard amount is derived by multiplying the related sales revenue by the imposition standard rate.
2. First Adjustment
After calculating the calculation standard amount, whether to increase it is determined based on the duration or frequency of the violation.
Penalty Guidelines a. Adjustment based on the duration of the violation If the duration of the violation has not been considered in the process of determining the calculation standard, the calculation standard is adjusted according to the duration of the violation as follows. 1) Short-term Violations: Maintain the calculation standard if the duration of the violation is within 1 year. 2) Medium-term Violations: In cases where the duration of the violation exceeds 1 year but is within 2 years, an amount corresponding to 10% to less than 20% of the calculation standard is added; if it exceeds 2 years but is within 3 years, an amount corresponding to 20% to less than 50% of the calculation standard is added. 3) Long-term Violations: If the duration of the violation exceeds 3 years, an amount corresponding to 50% to 80% of the calculation standard is added. b. Adjustment based on the frequency of the violation If there are two or more instances of violation over the past 5 years, resulting in a weighted sum of the frequency of violations of 2 or more (including warnings but excluding warnings for violations that do not require corrective action), the calculation standard may be increased as follows starting from the second violation. 1) If there has been at least one violation over the past 5 years resulting in a warning or higher, and the sum of the frequency of violations is 2 or more: 10% to less than 20% 2) If there have been two or more violations resulting in a warning or higher, and the sum of the frequency of violations is 3 or more: 20% to less than 40% 3) If there have been three or more violations resulting in a warning or higher, and the sum of the frequency of violations is 5 or more: 40% to less than 60% 4) If there have been four or more violations resulting in a warning or higher, and the sum of the frequency of violations is 7 or more: 60% to 80%. |
3. Second Adjustment
Consider additional factors such as the possibility of retaliation against other businesses not involved in the violation, cooperation in the investigation and deliberation, and whether the violation was voluntarily corrected to further increase or decrease the first adjusted amount. For example, if active cooperation, such as submitting data during the FTC's investigation stage, is achieved, a reduction rate of up to 10% may be applied; if facts are acknowledged in the deliberation stage, a reduction rate of up to 10% may also be applied.
4. Determination of Imposed Penalty
If the second calculation criteria do not sufficiently reflect the actual burden of the violating business, market or economic conditions, the effects of the violation on the market, and the scale of profits gained from the violation, the FTC may adjust the second adjustment calculation criteria and determine the imposed penalty.
Meanwhile, the Supreme Court stated, "The Fair Trade Commission has discretion to determine whether to impose penalties for violations of the Fair Trade Act and, if so, the specific amount of penalties within the scope stipulated in the Fair Trade Act and its enforcement decree. Therefore, the imposition of penalties by the Fair Trade Commission on violators of the Fair Trade Act is considered discretionary action. However, if such discretion is exercised with an erroneous understanding of the facts that underlie the imposition of penalties or violates the principles of proportionality and equality, it would be considered as an illegal deviation and abuse of discretion," indicating that the imposition of penalties by the FTC is subject to discretionary action (2016Du34714).
Thus, it cannot be concluded that the FTC's failure to apply the grounds for increasing or decreasing penalties set forth in the Penalty Guidelines or the application of a high imposition standard rate is necessarily illegal; it is necessary to assess the specific circumstances to determine whether there are grounds for viewing such discretion as being deviated or abused.
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