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Newsletter | December 2014, Issue 4
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ANTITRUST & COMPETITION
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Regulations on Subcontracting, Franchising and Distribution to be Amended
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On September 30, 2014, the Korea Fair Trade Commission (the “KFTC”) announced plans to amend regulations regarding the subcontracting, franchise and distribution sectors. In particular, the KFTC identified 12 action items that address the propriety and need for certain rules, and aim to mitigate burdens on industry. The KFTC plans to submit the relevant bills to the National Assembly and finalize the amended Enforcement Decrees by the end of 2014, and to update the subordinate regulations by the first quarter of 2015.
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Key features of the proposal are discussed below.
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Deadlines to be established for taking administrative measures in connection with alleged violations of the Subcontracting Act and the Franchise Act
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The Fair Transactions in Subcontracting Act (the “Subcontracting Act”) and the Fair Transactions in Franchise Business Act (the “Franchise Act”) currently provide that a KFTC investigation must be commenced within three years from the date on which the transaction was completed (unless a complaint regarding the allegedly illegal conduct was filed within such three-year period, in which case the investigation may be commenced thereafter). However, these laws do not place any restriction on when such investigations must be concluded. This has led to concerns of prolonged KFTC investigations. To address such concerns, the KFTC will amend the relevant laws to require that sanctions such as corrective orders must be rendered within three years from the commencement of an investigation (if a complaint was filed with the KFTC, three years from the filing of such complaint).
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Mitigating Large Franchise and Retail Business Operators’ Duty to Compensate for Facility Costs
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Under the current Act on Fair Transactions in Large Franchise and Retail Business, if a large franchise and retail business operator (the “Large Retailer”) terminates or refuses further transactions with a supplier or a commercial tenant for whatever reason, the Large Retailer must compensate the supplier or tenant for the expenditures already made by the supplier or tenant in connection with the facilities to be used at the Large Retailer’s business site. The KFTC will amend this law so that the Large Retailer has a duty to compensate only when the Large Retailer is at fault for the termination or refuses to engage in further transactions.
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Adjustment to Definition of Prime Contractors As Applied to SMEs
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According to the current Subcontracting Act, when two small and medium enterprises (“SMEs”) enter into a subcontracting arrangement, the company entrusting the services is considered to be the prime contractor if it employs more regular employees than the subcontractor, even if its annual revenue is less than that of the subcontractor. To address this issue, the KFTC will only consider annual revenue and not the number of regular employees in determining whether an SME qualifies as a prime contractor.
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