Hello, I am Attorney Eom Sang-yun from Cheongchul Law Firm.

Recently, the Fair Trade Commission imposed corrective orders on tire suppliers for improperly interfering with the management activities of their dealers. This measure serves as a wake-up call against suppliers (headquarters) using their superior bargaining position to restrict the dealers' autonomous management activities, providing significant implications for dealer contracts and operations.

[Acts Violating the Dealer Act Targeted by the Fair Trade Commission]

The main legal violations identified by the Fair Trade Commission are as follows.

1. Request for Dealer Sales Price Information: The supplier, without reasonable cause, required all dealers to input the sales amounts of products to consumers into a computerized program developed and provided by the headquarters, and obtained this information. The sales amounts of the dealers are key trade secrets directly linked to margins (sales price - supply price), and if this information is exposed to the headquarters, the dealers may find themselves in a disadvantageous position in future supply price negotiations. The Fair Trade Commission deemed this an improper request for information.

2. Restriction on Suppliers of Consumables: The supplier limited certain types of dealers through transaction agreements to procure consumables such as batteries, filters, and wipers only from specified suppliers designated by the headquarters. Dealers were required to obtain prior approval if they wanted to procure consumables from suppliers other than those designated by the headquarters, and a clause was included stating that some product supplies could be suspended in case of contract violations, which infringed upon the dealers' autonomy.

[Criteria for Judging Improper Interference in Management Activities under the Dealer Act]

The Fair Trade Commission determined that the aforementioned actions fall under the 'interference with management activities' prohibited by Article 10, Paragraph 1 of the Act on the Fairness of Dealer Transactions.

The Act on the Fairness of Dealer Transactions (hereinafter referred to as the “Dealer Act”)

Article 10 (Prohibition of Interference with Management Activities)

① Suppliers shall not engage in acts that unfairly use their trade position to interfere with the management activities of dealers or allow affiliated companies or other businesses to do so.

The Enforcement Decree of the Act on the Fairness of Dealer Transactions

Article 7 (Types or Standards of Interference in Management Activities) Acts prohibited under Article 10, Paragraph 1 of the Act are acts corresponding to one of the following:

1. (Omitted)

2. Requiring dealers to provide information classified as trade secrets, such as current status of clients or sales records, without reasonable justification

3. Unilaterally determining and requiring dealers to execute their client relationships, business hours, sales areas, promotional activities, etc.

4. (Omitted)

The Fair Trade Commission considered that the supplier improperly intervened in the management activities of the dealers using their superior trade position. In particular, Article 7 of the Enforcement Decree of the Dealer Act specifies the types of prohibited interference in management activities, and this case corresponds to the following types.

• Request for Trade Secret Information Without Reasonable Justification (Enforcement Decree Article 7, Item 2): Despite being classified as trade secrets, the sales amount information of the dealers was requested without reasonable justification

• Unilaterally Designating Clients and Requiring Compliance (Enforcement Decree Article 7, Item 3): The head office unilaterally designated and restricted the clients for consumables that must be decided autonomously by the dealers

[Implications and Precautions]

This decision by the Fair Trade Commission clearly shows that acts such as requiring sensitive sales price information from dealers or restricting suppliers for items other than key products supplied by the headquarters (such as consumables) may constitute improper management interference under the Dealer Act.

According to the Dealer Act, dealers are entitled to autonomy in their management activities as independent businesses, and headquarters must be careful not to improperly intervene in key management decisions such as price determination and client selection by abusing their superior bargaining position.

The supplier removed the problematic contract clauses and modified the system after the commencement of the Fair Trade Commission's investigation, but retroactive corrections do not erase the fact of legal violations. Thus, suppliers (headquarters) should continuously check whether the contents and methods of their dealer contracts comply with the Dealer Act and ensure that they do not infringe upon the dealers' management autonomy.

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