The Korea Fair Trade Commission (the “KFTC”) has made an administrative announcement over a proposed amendment to the “Notification on Detailed Standards for Imposition of Administrative Fines for Violation of the Fair Labeling and Advertising Act” (the “Administrative Fine Notification”) to commence the public comments period between November 1, 2024 and November 21, 2024.
The proposed amendment to the Administrative Fine Notification provides for (i) the revised calculation method of relevant revenue, (ii) the basis for imposing a fixed-amount administrative fine, and (iii) the grounds for fine reduction for cooperation with the KFTC’s investigations and deliberations, as outlined in the “Notification on Detailed Standards for Imposition of Administrative Fines,” which serves as the general standards for imposing fines on violations of the “Monopoly Regulation and Fair Trade Act,” the primary antitrust law administered and enforced by the KFTC. Therefore, companies should thoroughly review and consider the impact of this amendment to the Administrative Fine Notification when determining the consequences of future violations of the Fair Labeling and Advertising Act, and responding to the KFTC’s investigations and deliberations, particularly with respect to the calculation of the relevant revenue.
In particular, as a result of the amendment to the Administrative Fine Notification, the KFTC will be less likely to impose a fixed-amount administrative fine than in the past, possibly resulting in an overall increase in the level of administrative fines. Therefore, it is recommended that respondents proactively engage with the KFTC early in the process, particularly after identifying a suitable method for calculating the relevant revenue based on (i) the specific details of the violation, (ii) the current business status or situation, and (iii) the relevant market conditions. Furthermore, pursuant to the amendment, even if respondents fail to meet the criteria for the reduction of fines for cooperation during the “investigation” stage, they have another opportunity to reduce fines up to 10% through cooperation with the KFTC during the “deliberation” stage, while effectively responding to the legal risks associated with violations of the Fair Labeling and Advertising Act.
The details of the proposed amendment to the Administrative Fine Notification are as follows:
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Regarding the Calculation of Relevant Revenue
In determining the relevant revenue that serves as the basis for calculating and imposing administrative fines on respondents for violating the Fair Labeling and Advertising Act, the KFTC has traditionally imposed a fixed-amount administrative fine when the respondents either do not have the data necessary to calculate the relevant revenue or refuse to submit such data. However, this amendment to the Administrative Fine Notification provides for a basis for reasonably calculating the relevant revenue using objective data, which includes, among others, the respondent’s performance before and after the violation, the total revenue during the relevant period, the ratio or proportion of the revenue for the relevant products, and the market conditions.
Therefore, the KFTC’s position is that it will only impose fixed-amount administrative fines in exceptional cases where it is still impossible to calculate relevant revenue even after considering these various factors. In all other cases, the KFTC will impose fixed-rate administrative fines, which are calculated based on a percentage of the relevant revenue (i.e., applicable penalty rate). In addition, for the imposition of fixed-amount administrative fines, the amendment to the Administrative Fine Notification establishes upper limits for administrative fines so that the fixed-amount administrative fine does not exceed the “maximum amount that could be imposed if fixed-rate administrative fines were to apply.”
This upper limit is calculated by multiplying the total revenue of the respondent during the relevant period by the maximum penalty rate corresponding to the severity of the particular type of violation (e.g., abuse of dominance, cartel, and unfair trade practice).
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Reduction of Administrative Fines for Cooperation With Investigations
Under the previously applicable Administrative Fine Notification, a respondent could be eligible for a fine reduction of up to 20% only if it admitted its wrongdoing and actively cooperated with the KFTC by providing materials or statements that would assist the KFTC in determining the illegality of the conduct at issue before the conclusion of the KFTC’s investigation and deliberation. Through this amendment to the Administrative Fine Notification, the KFTC has established separate criteria for the reduction of fines by distinguishing between cooperation during the investigation stage and during the deliberation stage. Specifically, if a respondent actively cooperates during the investigation stage, it would be eligible for a fine reduction of up to 10%. If it actively cooperates during the deliberation stage and acknowledges its violation before the conclusion of the KFTC’s deliberation, it would be eligible for an additional fine reduction of up to 10%.
However, under the amended Administrative Fine Notification, respondents, while admitting their wrongdoing, must also cease the conduct in violation until the conclusion of the KFTC’s deliberation to qualify for the fine reduction under “cooperation with deliberation.” This reflects the notion that if the respondents’ violations continue despite the KFTC’s enforcement actions, the counterparties and consumers would be at risk of persistent harm, negating the view that the respondents have genuinely cooperated.
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[Korean Version]
