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. These laws comprise a substantial body of law that is consistently evolving.
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. A nuanced understanding coupled with a proactive approach to your distributors is necessary to succeed in the Korean market.
|Distribution Agreements in Korea
In general, Korea prohibits the “unfair restriction” of trade based on the territory or type of customer. However, numerous exceptions exist to this general restriction. I shall be detailing some of these exceptions over the next couple of months. Please check back regularly. The following is, only, and is, only, intended as a brief explanation of this issue.
Territory Restrictions on Trade in Korea
Korean courts and the FTC 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, knowledge of the accepted practices in Korea, and a 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 restrictions.
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 knowledge 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 when you do – keep they close.
Make sure you shop around for an attorney and make sure you find an experienced attorney in Korea with a proactive manner and a deep understanding of your industry or a willingness to understand your industry. A mere form puller – is useless in Korea.
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.
Sean Hayes 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, and IPG Legal is consistently ranked Top Dispute Resolution Law for our litigation services.
If you would like a consultation with an English-speaking lawyer in Korea, please schedule a call at: Schedule a Call with an Attorney.
Other Articles on Korean Distribution Law that may be of interest:
- Selling in South Korea: For your Sales & Marketing in Korea – Distributor Needed? by Tom Coyner
- Distribution Agreements are Your Friends in Korea
- Korean Small Business Partnerships/Joint Ventures: Pubs, Distributors, Exporters, Boutiques, Franchises and Basic Manufacturing etc.
- Basic Agreements for Doing Business in Korea
- Distributor Law in Korea: Finding your Distributor Basics
- Korean Distributor Sales Territory or Customer Restrictions in Korea: Korean Distributor law Agreements in Korea
- Distribution Agreements in Korea: Crawl before you Walk
- Drafting of Korean Distribution Agreements for your Distributor in Korea.
- Korean Jurisdiction and Choice of Law Issues in Korean Agency Agreements
- Establishing Business with Korea via an Agent: Korean Agency Law Basics
- Expiration Versus Termination of a Distribution Agreement in Korea: Korean Distributor Basics
- Korean Jurisdictional and Choice of Law Issues in Commercial Agency & Distributor Agreements with Korean-based Agents & Distributors
- Abuse of Superior Bargaining Power Notification by the Korea Fair Trade Commission: Distributor Risks in Korea
- Finding a Distributor or Agent to Sell/Market Your Products in the South Korean Market
- Privity of Contract in Franchise Agreements in Korea: Korean Franchise Law Updates