KFTC Strengthens Regulations on Labeling and Advertisement Activities

The Fair Trade Commission of Korea (the “KFTC”), as an effort to tighten up the series of labeling and advertisement related regulations amid recent growth of the number of unfair advertisement cases, has toughened the administrative surcharge imposition standards and promulgated the review standards for internet advertisement, while submitting its bill to amend the Act on Fair Labeling and Advertising to the National Assembly.

1. Amendment Bill to the Act on Labeling and Advertising (the “Act”)

The KFTC submitted its bill to amend the Act (the “Amendment”) to the National Assembly on September 11, 2012, and the major changes sought under the Amendment are as follows:

  • Filing a Claim for Damages prior to Rendering of Cease and Desist Order

Under the current Act, a claim for damages can be brought only when and if the cease and desist order of the KFTC is finally rendered, and the statute of limitation runs for 3 years thereafter. However, the Amendment would delete the pertinent provision and thereby allowing the claims (for damages) to be brought prior to rendering of the cease and desist order from the KFTC, and the statute of limitation would run for 3 years from the time when the damage and the violator are known or 10 years of the violation.

  • Determination and Recognition of Damages Amount by Court

As in the cases under the Monopoly Regulation and Fair Trade Act, the Amendment would adopt a system where if it becomes difficult to prove the damage suffered, the court determines the appropriate amount of damages based on the entire argument presented and results of evidentiary investigation.

2. Amendment to the Guidelines on Imposition of Administrative Surcharge on Violation of the Act

The KFTC amended the “Guideline on Detailed Standards of Imposition of Administrative Surcharge” (the “Guidelines”), effective as of October 16, 2012. The Guidelines, as amended, increases the basis rate from 1% to 2% of the relevant revenue, and increases the basis surcharge amount from KRW 400 million to KRW 500 million in the cases where the calculation of the relevant revenue is difficult. Furthermore, the Guidelines tighten up the factors to be considered for aggravation or reduction of the surcharges.

Click here to view table.

3. Promulgation and Implementation of Review Standards for Internet Advertisement

With respect to the rapidly increasing internet advertisement, the KFTC promulgates the Review Standards for Internet Advertisement (the “Standards”), effective as of September 7, 2012. The Standards categorize the internet advertisement by type and by contents and explains the criteria to determine the unfairness of each category, and provide case studies and exemplary cases.  

Meanwhile, in the cases of search advertising, the Standards make it possible to have the internet portal sites and the advertisement agencies be liable in the following cases:

Click here to view table.

4. Implication and Cautionary Notes

Amid the KFTC’s tightening up of the regulatory measures in connection with false labeling and advertisement, it is expected that once the amendment bill of the Act were passed the National Assembly, the number of the lawsuits seeking damages by the consumers would increase. As such, it would become necessary for the enterprises to take appropriate cautionary measures to see if there is any element of unfairness in their labeling and/or advertisement.

Amendment of the Guidelines on Concerted Practice Review

The Fair Trade Commission of Korea (the “KFTC”) amended the Guidelines on Concerted Practice Review (the “Guidelines”), as of August 21, 2012. The Guidelines, as amended, modifies and supplements the standards of determining the unfair collusive activities, and the major changes brought by the amendment are as follows:

1. Constitution of Unfair Collusive Activity

  • The Monopoly Regulation and Fair Trade Act provides a system under which the collusion may be inferred where substantial causal relation is found even if the agreement(s) among the participants were not explicitly proven as the collusive activities were carried out by the participant covertly.
  • Prior to the amendment, the Guidelines enumerated the following as the circumstantial evidences of information exchange that would supplement the inference: (i) the notes/memos on price increase, reduction of production, etc., as taken by the participants match (ii) participants act uniformly after meetings/contacts; (iii) the participants exchange, or agree to exchange, information on price, production, etc. After the amendment, the cases where the information of the competitor, such as price, production volume, and/or the production plan, which are not normally disclosed to third party, were included in the internal report are added.

The amendment makes it clear that unfair collusion may be found in cases where the collusion occurred among not all of the participants in particular area of transactions or bidding, or among the customers/users..

2. Collusion Commencement Date and Termination Date

As the administrative surcharge for unfair collusion is calculated based on the revenue generated during the relevant period, it is important to determine the commencement date and the termination date of the collusion.

  • Under the Guidelines, as amended, the commencement date is the date on which the agreement among the participant is made, or in cases where it is difficult to ascertain the agreement date, the date on which the collusive activities are first carried out by each of the participant is deemed the commencement date.
  • Under the Guidelines, the termination date is the date on which the participant explicitly or implicitly showed its intent to abandon the agreement and take actions that contradicts the agreement. As such, in order to have a termination of the collusion, the participant is required to take actions that contradicts the agreement, and in this regard, the Guidelines provide the following standards:

Click here to view table.

After the amendment, it become necessary to take extra caution not to have the collusion be inferred based on the circumstantial evidence of the internal report containing the confidential information of the competitor(s). Furthermore, in order to have collusive activities be deemed terminated, in addition to delivery of the termination notice, the participants should take affirmative steps that contradicts the agreement, such as price reduction, etc.