[Fair Trade, Agency Law] Sanctions by the Fair Trade Commission against the Headquarters' Improper Interference in Agency Management

Hello, this is Attorney Eom Sang-yun from Cheongchul Law Firm.

Recently, the Fair Trade Commission imposed corrective orders against a tire supplier for improperly interfering in the management activities of its agencies. This action serves as a wake-up call to suppliers (headquarters) that use their superior trading position to restrict the autonomous management activities of agencies, providing important implications for agency contracts and operations.

[Violations of Agency Law Targeted by the Fair Trade Commission]

The main legal violations identified by the Fair Trade Commission include the following:

1. Demand for Agency Sales Price Information: The supplier required all agencies, without reasonable grounds, to input sales price information of products sold to consumers into a computerized program developed and provided by the headquarters. The sales amount of the agencies is a core business secret directly linked to margins (selling price - supply price), and if this is exposed to the headquarters, the agencies may find themselves in a disadvantaged position in future supply price negotiations. The Fair Trade Commission judged this as an improper demand for information.

2. Limitation on Sources of Consumables: The supplier restricted certain types of agencies through a trade contract to procure consumables, such as batteries, filters, and wipers, only through specific suppliers designated by the headquarters. If agencies wanted to procure consumables from sources other than those designated by the headquarters, they were required to obtain prior approval, and the contract even specified provisions allowing for the suspension of supply of certain products in case of a violation, infringing on the autonomy of the agencies.

[Criteria for Judging Improper Interference in Management Activities under Agency Law]

The Fair Trade Commission deemed that actions of the kind described above fall under the 'acts of interfering in management activities' prohibited by Article 10, Paragraph 1 of the Act on the Fairness of Agency Transactions.

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

Article 10 (Prohibition of Interference in Management Activities)

① Suppliers shall not engage in behaviors that improperly interfere with the management activities of agencies by abusing their superior trading position or allow affiliated companies or other businesses to do so.

Enforcement Decree of the Act on the Fairness of Agency Transactions

Article 7 (Types or Standards of Interfering in Management Activities) Acts prohibited under Article 10, Paragraph 1 of the Act are defined as any of the following:

1. (Omitted)

2. Demanding that agencies provide information related to trade status, sales details, etc., that constitutes business secrets without reasonable grounds

3. Unilaterally determining and requiring agencies to comply with their customers, operating hours, sales areas, promotional activities, etc.

4. (Omitted)

The Fair Trade Commission found that the supplier improperly interfered in the management activities of the agencies by abusing their superior trading position. In particular, Article 7 of the Enforcement Decree of the Agency Act specifies the types of prohibited acts of interfering in management activities, and this case corresponds to the following types.

• Demand for Business Secret Information Without Reasonable Grounds (Enforcement Decree Article 7, Clause 2): The demand for agencies' sales price information, which constitutes a business secret, was made without a reasonable reason.

• Unilaterally Determining Customers and Requiring Compliance (Enforcement Decree Article 7, Clause 3): The headquarters unilaterally designated and restricted suppliers that agencies should autonomously decide.

[Implications and Precautions]

This decision by the Fair Trade Commission clearly shows that suppliers (headquarters) requesting sensitive sales price information from agencies or restricting the sources of other items (consumables, etc.) beyond the main products they supply may fall under improper management interference according to the Agency Act.

According to the Agency Act, agencies enjoy the autonomy of management activities as independent businesses, and headquarters must be cautious not to improperly intervene in key management decisions such as price setting and customer selection of the agencies by abusing their superior trading position.

The supplier voluntarily rectified the problematic contract clauses and made system modifications after the Fair Trade Commission opened an investigation. However, just because they self-corrected afterward does not mean that the violations themselves disappear. Therefore, it is advisable for suppliers (headquarters) to regularly check that the content and operation mode of agency contracts do not violate the Agency Act and to ensure not to infringe upon the management autonomy of the agencies.

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