Hello, I am Attorney Eom Sang-yun from Chungchul Law Firm.
Today, we will discuss collusion through information exchange.
[Question]
Can exchanging business-related information with a close contact at another company lead to collusion?
[Answer]
Article 40 (1) 9 of the Monopoly Regulation and Fair Trade Act (the ‘Fair Trade Act’) prohibits any agreement to engage in certain acts that substantially restrict competition in a particular trading area by exchanging information such as ‘price, production quantity, and any other information specified by presidential decree.’ Article 44 (2) of the Enforcement Decree of the Fair Trade Act specifies that such information defined by presidential decree includes ① cost, ② shipment quantities, inventory quantities, or sales quantities, and ③ transaction conditions or payment conditions.
Therefore, even if there is no direct agreement on prices, exchanging information regarding costs, inventory quantities, sales quantities, etc., which can affect prices, may still fall under what is called collusion or unfair joint action.
Fair Trade Act Article 40 (Prohibition of Unfair Joint Actions) ① A business operator shall not agree (hereinafter referred to as "unfair joint action") to jointly engage with other business operators in any of the acts specified in each of the following subparagraphs that unfairly restrict competition through any contract, agreement, resolution or any other means: 1. Actions to determine, maintain, or change prices 2. Actions to determine the transaction conditions of goods or services, or the conditions for payment or remuneration 3. Actions to restrict or limit the production, shipment, or transportation of goods or the transaction of services 4. Actions to restrict the transaction area or counterparties 5. Actions to hinder or restrict the establishment or expansion of facilities for trading in production or services, or the introduction of equipment 6. Actions to limit the types or specifications of goods or services during their production or trading 7. Actions to jointly operate/manage major business sectors or establish entities for the purpose of such operation/management 8. Actions to determine the successful bidder, successful bidder price, bid price, or successful bid price, or any other matters specified by presidential decree when bidding or auctioning 9. Any other actions that interfere with or restrict the business activities or content of other business operators (including the business operator who performed the action), or exchange information such as prices, production quantities, and other information specified by presidential decree to substantially restrict competition in a certain trading area.
Enforcement Decree of the Fair Trade Act Article 44 (Criteria for Joint Action) ② The term “information specified by presidential decree” referred to in Article 40 (1) 9 shall mean the following information regarding goods or services. 1. Cost 2. Shipment quantities, inventory quantities, or sales quantities 3. Transaction conditions or payment conditions |
Meanwhile, the Fair Trade Commission (the ‘FTC’) has established the ‘Guidelines for the Review of Unfair Joint Actions Involving Information Exchange’ (‘Information Exchange Review Guidelines’), which set out the evaluation criteria regarding collusion and presumptive provisions related to information exchange (Article 40 (5) 2 of the Fair Trade Act).
According to the Information Exchange Review Guidelines, information exchange means ‘the act of notifying other business operators about price, production quantity, cost, and other competitively sensitive information,’ and acts of indirect notification through intermediary parties such as business associations or third-party operators are also included in information exchange.
Furthermore, for the information exchange agreement to be illegal, it must meet the following criteria: ① there must be an information exchange agreement, ② as a result of the execution of that agreement, competition in the relevant market must be unjustly restricted, and ③ there must be no efficiency-enhancing effects that offset the competition-restricting effects. Such agreements also include tacit agreements. Other provisions of the Information Exchange Review Guidelines provide examples of explicit and tacit agreements, as well as the competition-restricting effects caused by information exchange, to offer predictability for the subjects involved.
Guidelines for Reviewing Unfair Joint Actions Involving Information Exchange Ⅲ. Meaning of the act of giving and receiving information Law Article 40 (1) 9 prohibits agreements between business operators to ‘give and receive’ information if it restricts competition, and Law Article 40 (5) 2 stipulates that agreements for the ‘giving and receiving’ of information can be presumed as unfair joint actions. The act of ‘giving and receiving’ information (hereinafter referred to as "information exchange") means notifying other business operators of competitively sensitive information such as prices, production quantities, and costs. The means of notification, whether by post, email, phone call, meeting, etc., do not matter. Moreover, actions of indirect notification through intermediary parties such as business associations (associations, cooperatives, etc.) and third-party operators are also included. For indirect notification to be established, specific business information must be conveyed to other competing businesses through an intermediary. If only one-sided information is communicated to an intermediary such as a business association, it does not constitute information exchange. (…) 2. Establishment of the Information Exchange Agreement a. Meaning of the Information Exchange Agreement An information exchange agreement refers to a mutual agreement between business operators to exchange information specified in Law Article 40 (1) 9 and the Enforcement Decree Article 44 (2), that is, price, production quantity, cost of goods or services, shipment quantities, inventory quantities, sales quantities, terms of transaction of goods or services, or conditions for payment or remuneration (the specific meanings of transaction and payment conditions are based on 『Guidelines for Reviewing Joint Actions』 IV.2.). |
As of now, there seem to be no recognized cases of collusion through information exchange under the comprehensively revised Fair Trade Act, but it is reported that there are ongoing investigations into cases where the Information Exchange Review Guidelines have been applied.
Therefore, even when exchanging information with other business operators in the same industry, it is important to be aware of the Fair Trade laws and review guidelines in order to avoid actions that could be assessed as collusion.
Chungchul Law Firm is a law firm established by attorneys from the four major law firms, specializing in corporate law and providing comprehensive solutions for unfair joint actions and unfair trading practices. If you have any further inquiries, please feel free to contact us by email or phone.
