On December 29, 2023, the Korea Fair Trade Commission (“KFTC”) issued an advance notice on a new set of proposed Guidelines for Assessing Unfair Business Practices in the Franchise Industry (“Proposed Guidelines”). The 20-day public comment period was set to end on January 18, 2024.
Notably, the Proposed Guidelines (i) specify the acceptable scope of mandatory purchase items (i.e., items designated by franchisors that are required, as an ongoing obligation, to be purchased by franchisees from the franchisor or from a third party) and (ii) make clear that unfair trade practices by franchisors regarding mobile gift vouchers could constitute a violation of their obligation to obtain franchisees’ prior consent for advertising or promotional activities or an act of abuse of superior bargaining position. Businesses are advised to take the time to carefully review the important details of the Proposed Guidelines outlined below, examine how the Proposed Guidelines will affect their franchise business once they are in effect and to review potential measures that could be taken to ensure compliance.
Key Details of the Proposed Guidelines for Assessing Unfair Business Practices in the Franchise Industry
1. |
Scope of Application |
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A detailed definition is provided for each element of the franchise business model to clearly distinguish it from similar business models (e.g., distributorship, licensing).
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Overseas franchisors that directly enter into franchise agreements with Korean franchisees are also subject to the Proposed Guidelines.
2. |
General Standards for Review of Illegality |
Illegality in general |
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Other issues |
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3. |
Examples of Each Type of Fair Franchise Transactions Act (“FFTA”) Violation |
Refusal to deal |
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Restrictive trade practices |
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Abuse of superior bargaining position |
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Imposition of unfair obligation to compensate for damages |
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Other unfair trade practices |
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Unfair demands to improve points of sale |
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Unfair restriction of business hours |
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Holding advertising or promotional activities without franchisees’ prior consent |
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Related Topics
#KFTC #Guidelines #Franchise #Antitrust & Competition #Legal Update