4/10/2017

Restriction on Sales Territories or Customers of your Korean Distributor in Korea: Korean Distribution Law Basics

Korea's Distribution Law is governed, primarily, by the Commercial Code of Korea, Monopoly Regulation and Fair Trade Law of Korea (FTL) and the, newly enacted, Fairness in Distributor Transactions Act of Korea.

The main regulatory body enforcing the FTL of Korea is the Fair Trade Commission of Korea ("FTC") .  The Fair Trade Laws of Korea, in most cases, creates the most significant risk for suppliers and manufacturers doing business with distributors in Korea.

Korean, Distribution Agreement
Distribution Agreements

General Rule
In general, Korea prohibits the "unfair restriction" of trade based on territory or type of customer. However, numerous exceptions exist.  I shall be detailing some of these exceptions over the next couple of months.  Please check back regularly.

The following is, only, a brief explanation of this issue.

Territory Restrictions on Trade in Korea
Korean courts and the FTC has deemed the restricting of a distributor from engaging in business based on territory as an "unfair restriction" on trade if the restriction imposes a severe penalty on the distributor.  Thus, if no "severe penalty" or "strict enforcement" is imposed by the supplier on the distributor the restriction may not be deemed per se illegal in Korea.

The case law on this issue is less than clear and very nuanced.  It is advisable to have someone carefully draft the "restriction," if one is necessary, with an eye to business realities, knowldge of the accepted practices in Korea and nuanced understanding of this developing body of Agency & Distribution Laws in Korea.  Additionally, a nuanced structure may be more successful in your business needs than facial contractual restriction.

Restriction on Customers
In general, a supplier may legally designate certain customers as customers that the supplier may solely deal.  However, a blanket restriction on competition with the supplier is, often, deemed a violation of the FTL.

Those in violation of the FTL may face corrective orders, administrative fines and even criminal sanctions.  A distributor may, also, prevail in a lawsuit for damages caused by the restriction.

The key in developing distributor relationships in Korea is to first consider the law with a professional with deep knowldge of your business, Korean business practices and a nuanced understanding of Korean Law, the FTC and Korean Litigation.  It is not so easy to find this type of individual and, often, because of Korean legal realities these type individuals are impossible to find in the ubiquitous Korean law firms.  Make sure you shop around.

Entering into a distributor relationship is easy - getting out of a bad relationship, in Korea, is much more difficult.  Thus, take your time in finding the right attorney and/or business professional to develop, vet and formalize the distributor relationship.
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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw.  Sean is known for his proactive New York-style street-market advice and his aggressive and non-conflicted advocacy.  Sean works with some of the leading retired judges, prosecutors and former government officials working in Korea.

Sean's profile may be found at: Sean C. Hayes

Other Articles on Korean Distribution Law that may be of interest: