Vol. 2 [Kim&Chang] KFTC Announces Enforcement Plan for 2019

관리자 | 2019.04.27 | Hits 587
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KFTC Announces Enforcement Plan for 2019

- Goals include improving unequal transactional relationships, building an industrial ecosystem that promotes innovation-based competition, protecting consumer rights and producing tangible results to foster a fair economy

On March 7, 2019, the Korea Fair Trade Commission ("KFTC") announced its enforcement plan for 2019 (the "Plan").  The stated policy goal of the Plan is "fostering a fair economy that improves the daily lives of all Korean people", and the key vision is the achievement of tangible results and creation of synergies through organic cooperation among government agencies.  These are in line with the KFTC’s past enforcement goals, and the agency remarked that it is starting to see the effects of its policies.
In the Plan, the KFTC lays out a number of policy initiatives that aim to (i) improve the relationship between transacting parties with unequal bargaining power to promote mutual growth, (ii) help build an industrial ecosystem that promotes innovation-based competition, (iii) create a business environment where consumers’ rights and interests are protected, and (iv) achieve tangible results with respect to creation of a fair economy.  The KFTC also adopted two new policy goals, to strengthen its role as a leader in promoting fair trade and shared growth, and preparing and implementing a comprehensive government-wide plan for enhancing fairness in subcontractor transactions.
Key points of the Plan are summarized below.
1. Improve relationship between transacting parties with unequal bargaining power to promote shared growth

The KFTC plans to prepare and implement a comprehensive government-wide plan for increasing fairness in subcontractor transactions, impose sanctions for unfair trade practices in the public sector, and try to make the timely payment of subcontracting fees a standard practice.

A. Guarantee fair prices and timely payment of subcontracting fees

  • Require medium sized companies to pay cash for subcontracted work and prohibit payment in promissory notes (except when protective measures are in place, such as a payment guarantee)

  • Make unfair “special contractual terms” that shift costs from the primary contractor to subcontractors null and void as a general rule (through a statutory amendment)

  • Step up monitoring of sectors (e.g., exclusive trading, private brand/label products, shipbuilding, software, construction) where violations appear especially frequently, based on survey results

B. Create a stable business environment for franchise owners (for each phase of lifecycle)

  • (Opening a franchise store) Specify the types of false/exaggerated information that may not be provided to those starting a franchise business (through promulgation of regulatory guidelines); create/distribute model contracts for greater number of franchise industries

  • (Operating a franchise store) Require franchisors to obtain prior consent from franchisees before launching advertising/promotional campaigns that the franchisees will have to pay for; amend franchise contract evaluation criteria to encourage franchisors to earn profits through franchise royalties as opposed to coercion of franchisees to purchase certain products from franchisors

  • (Closing a franchise store) Prohibit franchisors from demanding cancelation penalty when a franchise contract is cancelled due to reasons not attributable to the franchisee, such as a sudden change in the store’s surrounding area (through amendment to Enforcement Decree)

C. Ease the burden of small-scale suppliers and distributors

  • (Retail) Require large-scale distributors to share labor costs when using suppliers’ employees (through a statutory amendment); introduce model contracts for all distribution/retail sectors, including large-scale shopping malls, factory outlets, and duty-free shops (currently, model contracts are only available for department stores, mega marts, home shopping channels, convenience stores, and online shopping malls) (December)

  • (Distribution) Monitor, investigate and impose sanctions for channel stuffing and coercion to meet sales targets, etc.; introduce treble damages when a company retaliates against a business partner for its reporting unfair trade practice to the authorities; introduce model contracts for other distribution sectors based on survey results (currently, model contracts are only available for the clothing and food & beverage sectors)

  • (Special forms of employment) Extend protection for workers under special employment arrangements to loan solicitors, credit card solicitors, chauffeur service providers, construction workers and machinery industry, and specify the types of abuses of superior bargaining position for each type of work.


2. Build an industrial ecosystem that promotes innovation-based competition
The KFTC will continue to monitor and regulate monopolies and oligopolies in “new growth” industries including mobile operating system, app market, online platform, digital audio and pharmaceuticals.  
The Plan also contemplates the introduction of a monitoring trustee system and compliance inspections.  Considering the difficulties with implementing the consent decree system due to difficulties in monitoring compliance with the consent decree, this feature appears to be a move in the right direction as it will likely facilitate the swift resolution of cases through consent decrees and allow proactive remedies.

A. Promote technological innovation through effective merger review system

  • Expedite review of investments in or acquisitions of small and medium enterprises (SMEs) by conglomerates which raise no anticompetitive concerns

  • Revise venture holding company system (e.g., relax total asset requirement (through amendment to Enforcement Decree), abolish restrictions on acquiring shares of non-affiliates (under 5%) (statutory amendment), relax regulations on the percentage of a subsidiary’s shares to be owned by a holding company when an existing holding company establishes a venture-holding company)

  • Update merger review system for new growth industries, including introduction of new criteria for assessing anti-competitiveness


B. Take strict measures against market practices that discourage innovation

  • (In the mobile operating system, app market, online platform, digital audio and pharmaceutical industries) Impose sanctions for anti-competitive conduct and abuse of patent rights; monitor enforcement actions by foreign competition agencies and engage in international discussions on ICT companies

  • (In the automotive, electric/electronics, chemical industries) Closely monitor conglomerates for technology misappropriation (unfair use of technological materials, leaking technology to a third party); abolish the KFTC’s exclusive criminal referral right regarding technology misappropriation; expand the scope of compensation/damages (3 times to 10 times), establish statutory grounds for presuming/estimating monetary amount of damages caused by technology misappropriation (through statutory amendment)

C. Improve anti-competitive regulations that inhibit innovative competition 

  • Within 2019, conduct a market analysis and prepare a plan for promoting competition in broadcasting/media industry ((1) terrestrial television, (2) CATV, (3) over the top (OTT) video streaming services markets)

  • Identify and improve regulations that constrain development of new technology businesses (e.g., legal tech) or competition among service providers

  • Improve regulations that restrict market entry or marketing activities in industries related to the human life cycle (e.g., wedding, child care, elderly care industries)

D. Promote a culture of voluntary compliance with fair trade laws

  • Introduce monitoring trustee system and compliance inspections to encourage the use of the consent decree system, which is designed to promote voluntary remedy by companies and provide active relief for damages (through statutory amendment)

3. Create a transaction environment where consumer rights are guaranteed
The KFTC will likely extensively investigate collusion in the medical, healthcare, and rail (transport) industries.  The KFTC’s focus is to protect consumer rights and interests, and it would be prudent for industries in which there is a direct contact with consumers to monitor the developments and internally review areas where they may be implications for consumer health, safety and costs.

A. Strengthen prevention and response system to ensure consumer safety

  • (Relief) Relax requirements for pursuing class action, introduce the class action system for Fair Labeling and Advertising Act and Product Liability Act 

B. Guarantee consumers’ rights in daily life

  • Improve unreasonable/unfair contractual terms and standards that harm consumers’ interest on a day-to-day basis (e.g., package delivery services, loan trading, water purifier leasing services, language proficiency assessment tests, sports season tickets, e-sports (games), exercise/fitness activities (yoga, pilates, etc.), funeral services)


C. Find ways to deal with new consumer problems unique to online/mobile era

  • Conduct comprehensive overhaul of the E-Commerce Act (in particular, concerning cybermall operators)

  • (In social dating, mobile video-on-demand (VOD) services markets, etc.) Step up monitoring of new types of consumer damages, such as failure to provide product information, interfering with cancellation of orders, and deceptive advertising by social influencers

  • Place greater responsibility on the business operators to provide information on products for which there is a significant information asymmetry (e.g., random boxes)

D. Impose sanctions against unfair trade practices that cause consumer harm

  • (Cartel) Monitor cartels in (i) medical and healthcare industries, and (ii) intermediary goods sectors, such as rail (transport), which may lead to consumer harm; improve systems and market environments that may facilitate cartel formation

  • (Unfair transactions) Investigate and impose corrective orders on tire makers that maintain retail prices and coercive conducts against franchisees and distributors; monitor exclusive importers/suppliers of medical/pharmaceutical products that fail to offer cheaper products in order to maximize profit

4. Comprehensive amendment of FTL 
Gather public opinion through roundtable discussions, public forums, etc.; prepare draft of the key subordinate regulations to facilitate deliberation by the National Assembly, and swiftly implement once the amendment bill is passed