The KFTC Guidelines on Types and Standards of
Prohibited Unfair Trade Practices
in Retail Agency Transactions are now Enforceable
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Companies utilizing retail agents in the sales and distribution of their products/services in Korea can expect stricter regulation of their retail agency transactions now that the Korea Fair Trade Commission’s Guidelines on Types and Standards of Prohibited Unfair Trade Practices in Retail Agency Transactions (the “Guidelines”) have come into effect and are enforceable as of December 21, 2018. The Guidelines further delineate and supplement the types of unfair trade practices generally prohibited by the Fair Retail Agency Transactions Act (the “FRATA”) and described in the FRATA’s Enforcement Decree (the “Enforcement Decree”), and are meant to cover-off loopholes in the Enforcement Decree. Further, the Korea Fair Trade Commission (the “KFTC”) has announced that it will thoroughly monitor for violations of the Guidelines’ longer list of prohibited unfair trade practices through written fact-finding surveys/probes and implementation of an anonymous complaints system. Moreover, as retail agents become more aware of what types of acts would violate the Guidelines, the risk of civil follow-on damages and KFTC complaints will likely increase. Accordingly, companies whose retail agency transactions would be subject to regulation under the FRATA (and the Enforcement Decree and Guidelines) are advised to ensure that their compliance programs appropriately address these issues for their businesses in Korea. It would also be prudent to review your distribution agreement templates to check whether amendments or updates are needed in light of the Guidelines. The following is a list of the FRATA’s prohibited unfair trade practices in retail agency transactions that are more specifically proscribed in the Enforcement Decree and the Guidelines.
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1. Forced purchases |
| Enforcement Decree | Guidelines |
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| Forcing a retail agent to order unwanted products/services Unilaterally modifying and supplying the goods/services ordered
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| Unilaterally supplying un-ordered goods/services Forced purchase of a tied product
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2. Forced provision of benefits |
| Enforcement Decree | Guidelines |
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| Forcing a retail agent to bear sales staff wages and other costs for a supplier’s sales promotion events Forcing a retail agent to bear supplier’s sales staff’s wages Forcing a retail agent’s employees to work in the supplier's place of business Forcing a retail agent to bear costs unrelated to the agency transaction (e.g. donations, sponsorships, etc.)
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| Forcing a retail agent to bear excessive costs for its participation in promotional events, even if such participation is voluntary Forcing a retail agent to bear costs without a reasonable basis, even if such costs are related to the agency transaction
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3.Forced sales targets |
| Enforcement Decree | Guidelines |
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| Forcing a retail agent to meet sales targets by penalizing failures through early contract termination, suspension of supply of goods/services, or refusal to pay
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| Forcing a retail agent to meet sales targets by penalizing failures through significant reductions/delays in the supply of goods/services or imposition of less favorable payment terms |
4.Imposition of penalties or less favorable terms |
| Enforcement Decree | Guidelines |
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| Forcing a retail agent to accept the supplier’s interpretation of disputed contract terms Forcing a retail agent to accept additional terms and conditions during the ongoing term of the agency contract Restricting a retail agent from claiming damages incurred from contract termination Suspending or restricting the supply of goods/services or sales support without reasonable cause Reducing or refusing to pay sales incentives despite the lack of pre-defined grounds for such payment reduction or refusal Forcing a retail agent to reimburse for damage or loss to leased equipment or fixtures at full value without taking into account depreciation value Refusing returns of goods damaged or broken by the supplier Forcing a retail agent to bear return costs (e.g. delivery costs) for goods returned due to supplier’s fault
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| Retail agency contracts permitting unilateral termination by supplier without prior notice or consultation; Suspending the transaction without reasonable grounds Unilaterally amending agreed contract terms (e.g. sales commission) less favorably toward the retail agent without reasonable grounds Refusing returns of goods without reasonable grounds Refusing to accept returns of goods unfit for resale due to supplier’s fault without reasonable grounds |
5.Interference with retail agent’s management |
| Enforcement Decree | Guidelines |
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| Interference in appointments and dismissals or determinations of work area and work conditions of a retail agent’s employees Demanding a retail agent to share its business secrets without reasonable grounds Interference with a retail agent’s customers, business hours, business territory and sales promotion activities.
| ● | Demanding a retail agent to improve its store environments without reasonable grounds |
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