When may a business set a minimum resale price, and which sales figure is the fine based on? Decision 2008Du22815 on 'a justifiable reason' and 'related sales amount'

Question

The Monopoly Regulation and Fair Trade Act, as the decision cites it, prohibits unfair inducement of customers in Article 23(1)(iii), defines a resale price maintenance act in Article 2(6), and provides in Article 29(1) that a business operator shall not engage in resale price maintenance, with a proviso for maximum price maintenance acts that have a justifiable reason. The questions are what kinds of support to trade partners amount to a single act of unfair inducement of customers; which sales make up the 'related sales amount' on which the fine under Article 24-2 is calculated; and whether a minimum resale price maintenance act may exceptionally be permitted, on what criteria, and who must prove that it may.

Decision 2008Du22815 raises all three questions together. The plaintiff, a pharmaceutical company, drew up promotional plans to increase sales of its medicines and, from 1 January 2003 to 30 September 2006, made payments to and provided support for medical institutions and others. The Fair Trade Commission issued a corrective order and an order to pay a fine; the case then went to the Seoul High Court, and the Supreme Court reviewed that court's judgment of 5 November 2008 (2008Nu2462). On appeal the plaintiff contested the finding of a single act of unfair inducement of customers, the sales base and the violation period used to calculate the fine, and the treatment of its resale price arrangements with three pharmaceutical wholesalers.

Material to check

The statutes are Article 23(1)(iii), Article 24-2, Article 2(6) and Article 29(1) of the Monopoly Regulation and Fair Trade Act, and Article 36(1), Table 1, Item 4(a) of its Enforcement Decree as it stood before the amendment by Presidential Decree No. 22160 of 14 May 2010; the content of that former provision is not set out here. As the decision quotes them, Article 2(6) defines a resale price maintenance act as an act by which a business operator, in dealing in goods or services, fixes a price and forces a counterparty business operator or a business operator at the next distribution stage to sell or provide at that price, or deals with it subject to an agreement or other binding conditions for that purpose; Article 29(1) prohibits resale price maintenance, except for maximum price maintenance acts with a justifiable reason. The current Article 2 still defines a resale price maintenance act, now in item 20, while the current Articles 23 and 29 deal with entirely different matters.

The decisions are Decision 2008Du22815 (23 December 2010) and the decision it cites, Decision 2009Du9543 (25 November 2010), which held that a minimum resale price maintenance act may be exceptionally permitted where there is a justifiable reason, set the criteria for that assessment, placed the burden of proof on the business operator, held that benefits given to hospitals, clinics and pharmacies by a pharmaceutical company were unfair inducement of customers, and addressed the range of related sales amount for the fine.

Possible readings

On the decision's own reasoning, Article 23(1)(iii) treats a business operator's individual support acts as a single comprehensive act of unfair inducement of customers where the acts carry out a promotional plan drawn up at head-office level, the amounts of support are large, the targets are spread across the country, and the benefits are not excluded as ordinary courtesies. The decision found that the support fell within the category, under the former Enforcement Decree provision it names, of providing or offering benefits that are undue or excessive in the light of normal trade practices, and that the acts could attract customers of competing business operators because the doctors and institutions receiving the support decide which medicines patients buy.

A second reading comes from the decision's treatment of Article 24-2 and the fine. Where the confirmed provision of benefits carries out a head-office promotional plan aimed at trade partners in general, the sales affected by the violation, and so the related sales amount, are all sales of the medicine concerned to all of its trade partners, not only the sales to the counterparties of the specifically identified violations. The decision also accepted that the end of the period of violation could be taken uniformly as the end of the investigated period where the acts were one comprehensive violation in type, character, purpose, motive and effect.

A third reading comes from the decision's treatment of Article 29(1): even where a minimum resale price maintenance act appears to restrict intra-brand competition, it should exceptionally be permitted where there is a justifiable reason, such as where, in the specific market situation, it promotes inter-brand competition in the relevant product market and thereby increases consumer welfare. Whether there is such a justifiable reason is judged by considering together whether inter-brand competition in the relevant market is active, whether the act promotes service competition among distributors, whether it diversifies consumers' choice of goods, and whether new entrants can secure distribution networks smoothly and so enter the relevant product market easily; the burden of proof lies on the business operator. Decision 2009Du9543 states the same rule and the same burden.

What the decisions held

The Supreme Court dismissed the appeal and left the Fair Trade Commission's orders in place. It approved the court below's view that the plaintiff's various support acts to medical institutions and others were a single comprehensive act of unfair inducement of customers under Article 23(1)(iii). It pointed out that the Commission had not treated the promotional plans themselves, or all promotional conduct, as the violation, but had identified each support act by product, timing, recipient and amount, and had determined the violation period separately for each product. According to the decision, the sums spent from 1 January 2003 to 30 September 2006 were 86,482,000,000 won in cash-type support, 1,723,000,000 won in golf entertainment and 45,452,000,000 won in goods-type support, 133,657,000,000 won in total.

On the fine, the Court approved treating the total sales of each medicine to all trade partners as the related sales amount, because many of the promotional plans targeted trade partners in general and the recipients were spread across the country, so that the confirmed provision of benefits was the execution of plans drawn up at head-office level. It also approved setting 30 September 2006 uniformly as the end of the violation period for the 30 medicines: although gifts of goods continued until about October 2006 and donations until May 2007, the acts were one comprehensive violation. It further approved the view that the 1% standard rate applied to a very serious violation did not breach the principle of proportionality or the principle of prohibition of excess.

On resale price maintenance, the Court held that the arrangements with the three wholesalers were not consignment sales, since the wholesalers bore the profit and loss and the 15% allowance was merely a form of sales margin. It held that, by designating 330 won per bottle as the price at which the wholesalers resold to pharmacies and reserving a right to terminate if they sold at or below that price, the plaintiff had engaged in minimum resale price maintenance, and that there was no material showing a justifiable reason. On the separate designation of resale prices for two named products, it approved the court below's finding that means of securing compliance existed, so that the designations were not merely reference or suggested prices, and it held that the former provisions of the Pharmaceutical Affairs Act and its Enforcement Rules could not be read as permitting resale price maintenance.

Points left open

The decision states the factors for a justifiable reason and places the burden of proof on the business operator, but on these facts it found only that there was no material establishing such a reason. What evidence would suffice, and whether any concrete market situation has satisfied the test, are not decided.

The decision also leaves the boundary of the related sales amount open. It approved whole sales to all trade partners where the plans targeted trade partners generally, and it placed outside that reach cases where the plaintiff gave support expressly designated for a particular item, but it did not fix how far the sales base narrows where a violation is tightly item-specific. The Court described the court below's reasons on the resale price issue as somewhat inappropriate but upheld its conclusion, so the precise basis for judging competition-restricting effect is not settled either.

When to reconsider

This brief will be revised if a later decision shows what proof establishes a justifiable reason for minimum resale price maintenance, if a decision limits the related sales amount to sales to the counterparties of identified violations, if the Monopoly Regulation and Fair Trade Act is amended or renumbered again so that the provisions the decision applies return to the article numbers it uses, or if the standard fine rate for such violations is changed.

Statutes referred to

• 독점규제 및 공정거래에 관한 법률 제23조, 제24조의2, 제2조, 제29조
• 구 독점규제 및 공정거래에 관한 법률 시행령 제36조

Decisions referred to

• 대법원 2010. 12. 23. 선고 2008두22815 판결 · Decision ledger
• 대법원 2010. 11. 25. 선고 2009두9543 판결 · Decision ledger

Verification status

The texts for this brief were read at the National Law Information Center on 24 October 2026: the decision's published case summaries, holdings and full reasons; the cited decision's published case summaries and holdings; and the current texts of the cited articles of the Monopoly Regulation and Fair Trade Act. The current texts of Articles 23 and 29 of that Act deal with subject-matters other than those the decision applies, while Article 2 still defines a resale price maintenance act; the decision quotes the provisions it applies in its own words.