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Newsletter | July 2016, Issue 2
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Litigation
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Supreme Court Overturns a KFTC Decision against Ramen Manufacturers for Price Fixing
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In a recent decision, the Supreme Court of Korea overturned Korea Fair Trade Commission’s (“KFTC”) decision imposing corrective orders and fines on ramen manufacturers. This case involved the alleged price fixing ramen noodles, in violation of the Monopoly Regulation and Fair Trade Law (the “FTL”).
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The Supreme Court rendered a decision in favor of our client, ruling that there was insufficient evidence to support the existence of a price fixing agreement, in violation of Article 19, Paragraph (1) of the FTL's prohibition against improper concerted acts.
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Details
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Although the KFTC had relied on statements by the leniency applicant to allege that the first price increase was the result of price fixing, the Supreme Court found that the statements were not sufficient to support the existence of an agreement, because: (1) they were merely hearsay9; and (2) they were not sufficiently specific or accurate as they only indicated discussions on the need to raise prices or “follow-the-leader” pricing.
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As for the subsequent price increases, the KFTC relied on the information exchange of the leading manufacturer with other manufacturers regarding the timing and amount of ramen price increases.
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Although the Supreme Court acknowledged that such information exchange did occur, the Court ruled that the information exchange was insufficient to support the existence of an agreement to increase the ramen prices, in light of the following factors:
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| 1. |
In the Korean domestic ramen market, there has been a long tradition of manufacturers following the market leader's price increases.
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The market leader's ramen prices are subject to de facto government control. Since it would be reasonable for the market leader's competitors to follow the prices to which the market leader agreed with the government, it would be difficult to view the prices to be a result of an agreement to fix prices. |
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| 2. |
The wide variety of ramen products makes it difficult to fix or otherwise agree upon the price of each product. The large variance in price increases across the various ramen types makes it unclear as to whether there even was an “appearance of concerted act.”
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In addition, there were other circumstances that were inconsistent with price fixing, such as certain manufacturers who delayed price increases or provided various types of subsidies and support to those in the distribution chain.
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Thus, the Supreme Court found that the statements of employees of the leniency applicants were not credible and concluded that the supporting evidence was mere information exchange, and not enough to support allegations of an agreement that would constitute an improper concerted act.
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As a result, the Supreme Court reaffirmed the KFTC’s burden of proof in cartel cases by requiring the KFTC to base its case on more concrete evidence that proves a mutual “meeting of the minds” to fix prices (e.g., appearance of a concerted act, history and background of information exchange).
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This case posed considerable challenges for us in defending the case, in particular, because the KFTC was supported by the proactive and aggressive cooperation of the leniency applicant. However, Kim & Chang was able to achieve a successful outcome for our client by submitting specific rebuttal evidence, and making aggressive challenges to the KFTC’s allegations, and to the credibility of the leniency applicant’s statements.
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| 9 |
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Not based on the direct experience of the person giving the statement.
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