2014Du1871 Corrective order and revocation of penalty surcharge payment order

Punga Co., Ltd.

Fair Trade Commission

Seoul High Court Decision 2012Nu25936 Decided December 19, 2013

December 24, 2014

The appeal is dismissed.

The costs of appeal are assessed against the Plaintiff.

The grounds of appeal are examined.

1. As to the determination of the relevant commodity market

A. In order to determine whether a product constitutes an unfair collaborative act under each subparagraph of Article 19(1) of the Monopoly Regulation and Fair Trade Act (hereinafter “Fair Trade Act”), the scope of the relevant product market should first be determined in detail with respect to a certain business area in which competition relations may arise (hereinafter “related product market”). Here, the scope of the relevant product market refers to the scope of the products in competition. In determining the scope of the relevant product market, the price of the product related to the transaction, functions and utility similarity, purchaser’s awareness of substitutiveness, and related purchase behavior, as well as the supplier’s awareness of substitutiveness, form of management decision related thereto, homogeneity and similarity of business recognized socially and economically. In addition, the determination should also be made in full view of the situation of the other product necessary for the production of the product, and the market situation of the product manufactured based on the product, the easiness of substitution in terms of time, economic and legal aspects, etc. (see, e.g., Supreme Court en banc Decision 2002Du86219, Nov. 22, 2007).

On the other hand, considering the diversity of unfair collaborative acts and the efficiency and rationality of regulations, the defendant does not necessarily require empirical economic analysis in defining the relevant market for goods of one collaborative act. Even if the defendant did not undergo such analysis, the relevant goods market can be defined in light of the type and details of the collaborative act at issue, the economic effect which can be inferred from the contents itself, the general transaction reality of the goods or services subject to the collaborative act.

B. (1) The reasoning of the lower judgment and the evidence duly admitted reveal the following.

(A) General chemical fertilizers: The NACF determines the estimated purchase volume of chemical fertilizers by identifying the demand for the following year from the regional unit cooperatives at the end of each year; determines the estimated purchase volume of fertilizers by bidding for each non-type; and each unit cooperative shall purchase fertilizers from fertilizer suppliers and supply them to farmers according to its price and distribute them by the so-called "purchase system" method. The tobacco producer's association (hereinafter referred to as the NAF) shall also play the role of the National Agricultural Cooperatives Federation and distribute them according to such system purchases.

(B) As a result of the NAF’s delegation of authority to a fertilizer support project by the Government to select fertilizers eligible for a subsidy and determination of the amount of subsidy, the price competitiveness of the fertilizers sold without going through the NAF became an exclusive consumer in the general chemical fertilizer distribution market. As of 2009, the NAF’s share in the general chemical fertilizer distribution market was at least 99%, and the market share of the NAF’s 13 chemical fertilizer manufacturers and sellers including the Plaintiff (hereinafter referred to as “Plaintiffs et al.”) was 100%.

(C) From November 1, 1994 to June 14, 2010, the Plaintiff et al. agreed on the 8-type chemical fertilizer bid made at the end of each year by the NACF et al. as follows (hereinafter “instant collaborative act”);

① The National Agricultural Cooperatives Federation: (a) the 21-17-17 fertilizer group, component fertilizer group, NK fertilizer group, bean fertilizer group, bean fertilizer, salt calis, and customized fertilizer group; (b) the bidding process is that the bidding process is conducted in such a way as to determine the bidder as the successful bidder in the order of the bidders presenting the minimum unit price among the bidders of the unit price not exceeding the estimated purchase price if the bidder participating in the bidding submitted together the quantity and unit price that he/she wishes to be awarded a successful bid; and (c) the Plaintiff et al. agreed in advance on the bid price and quantity by bidding participants until the arrival of the estimated purchase price.

② The Agricultural Cooperatives Federation: (a) did not specify the unit price bid with respect to BB Fertilizer Group and NK Fertilizer Group in 2010; (b) determined only the unit price for the supply, i.e., the unit price for the supply; (c) the bidding participants conducted a bid with only the bid price and the bid participants who participated in the bid at the lowest price among the bidding participants. The Plaintiff et al. agreed to the bid price in advance.

③ At the beginning of each year, a cooperative held a bid in the form of “minimum price bid” for fertilizers for the purpose of beginning a year, i.e., the total volume of expected transactions to be conducted by a participant in the bidding by being awarded a successful bid for the entire expected volume. In the bidding, the Plaintiff et al. agreed that the participant, in advance, shall determine the bid price by bidding participants and allow a specific project operator to be awarded a successful bid, and allocate part of the bid price to the project operator who excluded from the bidding in the bidding, and that the project operator may supply raw materials necessary for manufacturing the allocated volume to the project operator who does not participate in the bidding.

(D) Each fertilizer, the object of the instant collaborative act, has different uses in detail, but is basically a chemical fertilizer for agricultural crops, and has a complementary function in light of its ingredients, utility, and usage.

(마) 단일성분으로 제조된 단비(單肥)는 복합비료 제조의 원료가 되기도 하고, 21-17-17 복합비료 생산자는 그 생산 공정 및 생산 원료 등에 비추어 염화가리와 요소비료 생산자로 전환될 수도 있다.

(F) In the bidding of some fertilizers, such as dynasium, before, the enterprisers who did not participate in the bidding of the fertilizer were trying to participate in the new bidding, but the enterprisers, such as the plaintiff, etc. who participated in the bidding of the fertilizer were willing to participate in the bidding of the non-identical bidding produced by the enterprisers who want to participate in the bidding of the fertilizer.

(2) The facts and the following circumstances revealed from this fact, ① the market for which the instant competitive bidding was conducted is not the market for direct sales of farmers who are final consumers of non-identical species, but the NAC, etc., which exclusively purchases each non-identical kind of fertilizer in a lump sum based on an annual supply and demand plan against many manufacturers and sellers. ② The instant collaborative act is not classified by non-type, but is intended to maintain the previous market district and prevent new competitors from entering the market in order to maximize their mutual interests in mind with the whole of non-type chemical fertilizer markets. ③ In light of the legal principles as seen earlier, it cannot be deemed unreasonable to determine the entire market for the instant collaborative act as a bidding-related product fertilizer.

(3) To the same purport, the lower court determined that one collaborative act was established with respect to the bidding of the entire chemical fertilizers as to the entire bid of the entire chemical fertilizers, not a non-type bidding market for the goods market related to the collaborative act of this case. On the premise that the market for the entire chemical fertilizers should be distinguished by non-type, it is justifiable in its conclusion that the Plaintiff did not accept all the Plaintiff’s assertion that the part of the collaborative act of this case is in the first and the second investigative partner with respect to the part of the bean fertilizer among the collaborative acts of this case. In so doing, it did not err by misapprehending the legal doctrine on defining the relevant goods market, thereby affecting the conclusion of

2. As to whether competition restriction exists

A. Whether a collaborative act restricts competition as provided by Article 19(1) of the Fair Trade Act should be determined by examining whether the collaborative act causes or is likely to cause impacts on the determination of price, quantity, quality, and other terms and conditions of trading by reducing competition in a particular business area due to the collaborative act in question, in light of the characteristics of the relevant product, consumers’ standard for choosing products, and the impact of the relevant act on the market and enterprisers on the competition. Furthermore, the act of jointly determining or changing the price by the enterprisers brings about a situation in which the act of reducing price competition within the scope of the said act causes or is likely to cause impacts on the free price determination to a certain extent according to their intent. Thus, such collaborative act by the enterprisers is deemed unfair, barring special circumstances (see, e.g., Supreme Court Decision 2008Du20376, May 5, 2011)

B. The lower court determined that: (a) although the price of the purchase of the agricultural cooperative, etc. was the upper limit for system purchase, which is not entirely open to the fertilizer business entities; (b) the price was planned to allow the Plaintiff and other business entities to freely compete; (c) the bidding participants, including the Plaintiff, to repeat bid and bid bid through prior agreement, thereby finally setting the system unit price at almost the same price as the purchase price; (d) compared with the bid participants’ participation in the bidding at an independent price without prior agreement and at the lower price within the scope of the estimated price, the price competition among the bidding participants is clearly restricted; and (b) even if the unit price of the agricultural cooperative, etc. applied to BB fertilizer and the NK fertilizer tender in 2010 did not grant exclusive rights to supply or preferential rights to supply to the successful bidder, it is inevitable to determine that the price would have been reduced by taking account of the price increase within the scope of the estimated price of the agricultural cooperative, etc.’s price increase, and thus, it would not have any effect on the market price of the agricultural cooperative, etc.

C. Such determination by the lower court is justifiable in light of the legal doctrine as seen earlier, and it did not err by misapprehending the legal doctrine on competition restriction of unfair collaborative acts or by omitting judgment.

3. As to the relevant sales amount

A. Article 19(1) of the Fair Trade Act provides that an enterpriser shall not agree with other enterprisers to jointly engage in any of the following acts that unfairly restrict competition (hereinafter referred to as "unfair collaborative act") or allow other enterprisers to engage in such act, by contract, agreement, resolution, or any other means. The prohibited act provides that an act of determining, maintaining, or changing the price under subparagraph 1 in the type of prohibited act, an act of restricting the production, shipment, transport, or transaction of goods or the transaction of services under subparagraph 3, an act of restricting the production, shipment, transport, or transaction of goods under subparagraph 3, and an act of deciding successful bidder, successful bidder, bid price, successful bid price, successful bid price or auction price and other matters prescribed by Presidential Decree.

On the other hand, Article 22 of the Fair Trade Act provides that when there is an act in violation of Article 19(1) of the Fair Trade Act, the defendant may impose a penalty surcharge on the enterpriser concerned within the extent not exceeding the amount obtained by multiplying the turnover determined by the Presidential Decree by 10/100. According to delegation, Article 9(1) of the Enforcement Decree of the Fair Trade Act (amended by Presidential Decree No. 23864, Jun. 19, 2012) provides that "the turnover determined by the Presidential Decree" refers to the turnover of related goods or services sold in a particular business area during the period of the violation or the amount equivalent thereto. However, if the violation is "tender collusion or any other similar act", it refers to the contract price.

B. In addition to the form, content, and structure of the above provision as to the type of unfair collaborative act and the basis for imposing penalty surcharges therefor, ① where an agreement is reached to determine, maintain, or change the price in a bidding method (hereinafter “price collusion”) or an agreement to restrict the transaction of goods or service, etc. (hereinafter “trade restriction agreement”), a collaborative act under Article 19(1)1 or 3 of the Fair Trade Act is also established as well as a collaborative act under Article 19(1)8 of the Fair Trade Act. ② The proviso to Article 9(1) of the Enforcement Decree of the Fair Trade Act provides that the contract amount may be calculated as related sales if the act of violation is “tenders and similar acts” without distinguishing the types of violations, and ③ Article 9(1) proviso to Article 9(1) of the Enforcement Decree of the Fair Trade Act provides that the contract amount may be calculated as related sales if the agreement on the bidding method or the agreement on the bidding method under Article 19(1)8 of the Fair Trade Act applies to the bidding method or the agreement on the bidding method under Article 19(1) of the Fair Trade Act.

C. The lower court rejected all the Plaintiff’s assertion that: (a) although the Defendant stated the terms of the instant penalty surcharge payment order in Article 19(1) subparag. 1 and No. 3, rather than Article 19(1) subparag. 8 of the Fair Trade Act; (b) however, insofar as the content of the instant collaborative act was agreed on the bid price and the quantity distribution in the chemical fertilizer bid market ordered by the NACF, etc.; and (c) otherwise, since it does not require only a fertilizer manufacturer and seller assigned to oneself as a result of the bidding conducted by the NAF, the Plaintiff’s purchase of fertilizers from another fertilizer manufacturer and seller did not cause any difference between the actual supply price and the actual supply quantity under the relevant supply contract and the actual supply quantity of fertilizers supplied by the Plaintiff, it should be deemed that the actual sales amount should be deemed as not the contract price, or that the sales incentive that the Plaintiff paid in the process of supplying fertilizers to the NAF should be excluded from the relevant sales amount.

Such determination by the court below is just in accordance with the legal principles as seen earlier, and there were no errors by misapprehending the legal principles as to the calculation of related sales.

4. As to the deviation and abuse of discretionary power

Examining the reasoning of the lower judgment in light of the relevant legal principles and records, the lower court is justifiable to have determined that the calculation of the penalty surcharge in this case was difficult to be deemed to have violated the law of deviation and abuse of discretionary power, and there was no error by misapprehending the legal doctrine on deviation and abuse of discretionary power in

5. Conclusion

Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Park Poe-young

Justices Min Il-young

Justices Kim Shin

Justices Kwon Soon-il