[1] Method of determining whether an act of a franchisor to require a franchisee to purchase interior works, facilities, equipment, goods, etc. from his/her own or a person designated by him/her constitutes “an act of forcing a franchisee to trade with a specific counterpart” / Whether an act of forcing a franchisee to trade with a specific counterpart constitutes “an act of forcing the other party to trade with a specific counterpart” includes creating an objective situation in which the other party to trade with a specific counterpart cannot be purchased (affirmative), and whether a franchisee may be determined not to constitute “an act of forcing a franchisee to trade with a specific counterpart” in a case where a franchisee knew the circumstances that the franchisee should trade with a specific counterpart prior to the execution of a franchise agreement through an information disclosure statement or entered into a franchise agreement with

[2] Requirements for determining whether an act constitutes an unfavorable act under Article 12(1)3 of the Fair Transactions in Franchise Business Act (hereinafter “Fair Transactions in Franchise Business Act”) and the standard for determining whether an act constitutes an act of unfairly taking advantage of a transaction position to disadvantage the other party

[1] In light of the contents, form, system, and legislative intent of Article 12(1)2 and (2) of the Fair Transactions in Franchise Business Act, and Article 13(1) [Attachment Table 2] 2(b) of the Enforcement Decree of the Fair Transactions in Franchise Business Act, etc., whether an act of a franchisor to compel a franchisee to trade with a specific franchisee unfairly" constitutes “an act of forcing a franchisee to trade with a specific franchisee” should be determined by comprehensively considering the purpose and contents of the franchise business, the contents of the franchise agreement, the method of payment of franchise fees, and the relation between the product or service subject to the franchise business, and the facility. ① objectively, whether the facility is essential for the operation of the franchise business; ② Whether it is necessary for the operation of the franchise business; ② the franchisee to present the specifications or quality standards to secure the uniform image of the franchise business; and ② the franchisee to arbitrarily purchase or install the franchise business at his/her discretion should be determined by comprehensively considering the need for technical management, standard management, distribution management, and hygiene management.

Meanwhile, the act of coercioning a transaction with a specific trading partner includes creating an objective situation in which the other party is unable to purchase. Furthermore, even if a franchisee knows the situation of trading with a specific trading partner prior to the conclusion of a franchise agreement through an information disclosure statement and concludes a franchise agreement with a prior consent, it cannot be readily concluded that the act of forcing a franchisee to trade with a specific trading partner always does not constitute “an act of forcing a franchisee to trade with a specific trading partner.”

[2] In order to constitute a disadvantage in an act of offering disadvantages, the mere fact that the content of the act is somewhat unfavorable to the other party is insufficient. It should be recognized that one party established or modified the transaction conditions by unfairly using its transaction position to the extent that it can be the same as compulsory purchase, coercion of provision of profits, enforcement of sales target, etc. Furthermore, whether an act of offering trade position unfairly causes disadvantages to the other party should be determined depending on whether the act goes beyond normal transaction practices and is likely to impede fair trade, in light of the specific aspects such as intent, purpose, effect, and influence of the act in question, characteristics of the goods, transaction situation, degree of the superior position of the enterpriser in the market, and contents and degree of disadvantage that the other party would suffer.

[1] Article 12(1)2 and (2) of the Fair Transactions in Franchise Business Act, Article 13(1) [Attachment 2] 2(b) of the Enforcement Decree of the Fair Transactions in Franchise Business Act / [2] Article 12(1)3 of the Fair Transactions in Franchise Business Act, Article 13(1) [Attachment 2] 3(f) of the Enforcement Decree of the Fair Transactions in Franchise Business Act

[1] [2] Supreme Court Decision 2002Du332 Decided March 10, 2006 (Gong2006Sang, 621) / [1] Supreme Court Decision 2000Du9359 Decided January 25, 2002 (Gong2002Sang, 593) / [2] Supreme Court Decision 2003Du7859 Decided September 8, 2006 (Gong2006Ha, 1676)

Kapete Co., Ltd. (Law Firm LLC, Attorneys Park Gi-sik et al., Counsel for the plaintiff-appellant)

Fair Trade Commission (Law Firm, Attorneys Lee Jae-chul et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2014Nu67712 decided November 12, 2015

Of the lower judgment, the part of the corrective order and penalty surcharge payment order related to interior works and the supply of facilities, equipment, and supplies is reversed, and that part of the case is remanded to the Seoul High Court. The remainder of the appeal is dismissed.

The grounds of appeal are examined.

1. As to the construction of interior and supply of facilities, equipment, and supplies (ground of appeal Nos. 1 through 3)

A. Article 12 of the Fair Transactions in Franchise Business Act (hereinafter “Franchising Business Act”) prohibits a franchisee from engaging in an act that unfairly restricts or restricts the price of goods or services handled by the franchisee, trading partners, transaction areas, or business activities of the franchisee and that is likely to impede fair franchise business transactions (Paragraph 1 subparag. 2). Paragraph (2) of this Article, the Fair Transactions in Franchise Business Act (hereinafter “Enforcement Decree of the Franchising Business Act”) stipulates that an act of forcing a franchisee to trade with a specific trading partner (including a franchisor) in relation to the purchase, sale, lease, etc. of real estate, services, equipment, goods, raw materials, or subsidiary materials shall be prescribed by Presidential Decree (Article 13(1) and attached Table 2). According to the delegation, the Enforcement Decree of the Franchising Business Act (hereinafter “Enforcement Decree of the Franchising Business Act”) provides that the act of forcing a franchisee to trade with a specific trading partner (including a franchisor) from among “limited transactions” and the case that satisfies all

(i) that real estate, services, facilities, goods, raw materials, or subsidiary materials are objectively essential for the operation of a franchise;

2) It is objectively recognized that it is difficult to protect the trademark right of the franchisor and maintain the identity of the goods or services, if not traded with a specific trading partner.

3) A franchisor must inform a franchisee of the fact in advance through an information disclosure statement and enter into a contract with a franchisee.

B. In light of the contents, form, system, legislative intent, etc. of the aforementioned relevant statutes, whether an act of a franchisor to compel a franchisee to trade with a specific counterpart to a franchisee constitutes “unfairly compelling a franchisee to trade with the other party” should be determined by comprehensively considering the purpose of the franchise business and the content of the franchise agreement, the payment method of franchise fees, the relationship with the product or service subject to the franchise business, whether the equipment, etc. is essential for the operation of the franchise business objectively; ② the necessity of technical management, standard management, distribution management, and hygiene management to secure the uniform image of the franchise business and maintain the same quality of the products, and the omission of arbitrarily purchasing or installing the equipment or quality of the franchise business to guarantee the uniform image of the franchise business and the same quality of the products (see Supreme Court Decision 2002Du332, Mar. 10, 2006), and ③ whether a franchisee should enter into a contract with the other party to the transaction through the franchise disclosure statement in advance.

Meanwhile, the act of compelling a transaction with a specific trading partner includes creating an objective situation in which the other party cannot purchase (see, e.g., Supreme Court Decision 2000Du9359, Jan. 25, 2002). In addition, even if a franchisee knows the situation that the franchisee should trade with a specific trading partner prior to the execution of a franchise agreement through an information disclosure statement or enters into a franchise agreement under a prior agreement with the specific trading partner, it cannot be readily concluded that the act of forcing a franchisee to trade with a specific trading partner always does not constitute an “act of forcing a franchisee to trade with a specific trading partner” insofar as there are such circumstances.

C. Review of the reasoning of the lower judgment and the evidence duly admitted and examined by the lower court reveals the following facts.

1) From 2010 to 2012, the Plaintiff was a first-class entrepreneur on the basis of sales amount and the number of member stores in the coffee franchising market.

2) The Plaintiff entered into a franchise agreement with 735 prospective franchisees from November 17, 2008 to April 3, 2012, when commencing a franchise business, and agreed to entrust only the Plaintiff or a specific business operator designated by the Plaintiff with the supply of interior equipment, equipment, and supplies necessary for the establishment of a franchise store (hereinafter “△△ Design”).

3) The Plaintiff consulted prospective franchisees on the establishment of a franchise store (1). (2) The Plaintiff: (a) measured the stores that the prospective franchisee has secured before entering into the contract by means of lease, etc.; (c) prepared a “test/agreement” by calculating and aggregating the amount of facilities, equipment, and supplies; and (c) conducted an estimated slabping. The Plaintiff, when indicating the intention to establish a franchise store, was entrusted with interior works by the prospective franchisee while entering into the franchise agreement with the prospective franchisee; and (b) the franchise store was opened when the first supply of the goods, etc. is completed.

4) The interior interior works of a franchise store include wooden works, painting works, electrical construction works, lighting works and internal glass works, installation works, painting works, etc. (hereinafter referred to as “basic works”) and interior PED lighting works, external interior and external railing works, etc. (hereinafter referred to as “additional works”). In addition, with respect to facilities, equipment, and supplies, there are furnitures such as chairs, small waves, and tables, coffee sirens, coffee bags, watcher, ice display specifications, and water purifiers, etc.

5) The Plaintiff’s franchise disclosure statement contains the expenses to be borne by a franchisee prior to the commencement of business, such as expenses for interior works, to the franchisor.

6) According to the “Sample/Agreement” that the Plaintiff provided prior to April 4, 2012, the Plaintiff traded interior works only with the entire amount without specifically distinguishing them, and there was no exception to allowing other constructors to commission them to each type of work. In the case of installation, equipment, and appliances, the Plaintiff expressed only the total amount without specifying the unit price for each type of work, as in the case of installation, equipment, and appliances. Meanwhile, when concluding a franchise agreement on the additional construction work, the Plaintiff recommended prospective franchisees to request the Plaintiff or △△△ Design, and the prospective franchisees also requested the Plaintiff or △△△△ Design upon the Plaintiff’s recommendation.

7) On March 201, 201, the Plaintiff acquired a license for a specialized construction business. Before that, the construction itself entrusted to the △△ Design. Moreover, the Plaintiff and the △△ Design directly executed a part of the construction work and the rest of the construction work entrusted to another company.

8) The Nonparty, who was in charge of the Plaintiff’s work at the site director as the Plaintiff’s employee, stated that even if the Plaintiff did not directly perform the investigation and supervised, there was no problem in realizing the uniform image, and all materials were sold in the domestic market.

9) Meanwhile, on April 4, 2012, the Plaintiff amended the “stamp/agreement”, and the revised “stamp/agreement” distinguishes the category of interior works and the items of facilities, equipment, and goods, and allows franchisees to choose them by specifying the unit price. In particular, according to the internal review result that, in the case of facilities, equipment, and goods, it may be forced to purchase them en bloc from the Plaintiff, it is divided into the “essential item” and the “alternative item” and the price by item is also specified. According to the revised “stamp/agreement”, both the basic construction of interior works and additional construction works are classified as selective goods, and approximately KRW 65% of facilities, equipment, and goods are classified as selective items based on the amount.

10) The Plaintiff’s franchise business is a structure that receives an amount equivalent to a certain ratio of sales from a franchisee. Of the Plaintiff’s total sales as of 201, the share of sales related to the supply of interior works and equipment, etc. reaches approximately 50.19%.

D. On the basis of the above facts, we examine the part of the act of having the Plaintiff or the business operator designated by the Plaintiff entrust the interior of interior works.

1) Whether to recognize coercion

A) Examining the above facts in light of the legal principles as seen earlier, there is sufficient room to view that the Plaintiff’s act of having the Plaintiff entrust interior works only to the Plaintiff or △△ Design constitutes an act of coercioning transaction with a specific transaction partner. In particular, the basic construction part is more so more so. The specific reasons are as follows.

① The Plaintiff entered into a franchise agreement on condition that only the part of the basic construction work during the performance of interior works be entrusted to the Plaintiff or one business entity designated by the Plaintiff. Furthermore, if a franchisee fails to comply with the conditions after the execution of the franchise agreement, the grounds for termination of the franchise agreement occur and the franchise fee already paid may not be refunded.

② In ordinary cases, it seems unnecessary to force a franchisor to leave interior works only to the franchisor. It is difficult to view that the restriction of freedom of choice of the opposite contractual party at the time of entering into a franchise agreement and thereafter at the time of entering into a franchise agreement is general by allowing a franchisor to trade interior works entirely together with the franchisor, and not allowing a change after the conclusion of the franchise agreement.

(3) According to the proviso to subparagraph 2 (b) of attached Table 2 of the Enforcement Decree of the Franchise Business Act, even if a franchisor has notified a franchisee of the fact through an information disclosure statement in advance and concluded a contract, if other requirements under the proviso are not satisfied, it shall not be deemed an exception to the act of binding an opposite contractual party. The reason for providing an information disclosure statement is to ensure that a prospective franchisee is fully aware of the terms and conditions of a transaction with a franchisor and determines the conclusion of a franchise agreement. The reason for providing an information disclosure statement is only to ensure that a prospective franchisee is fully aware of the terms and conditions of a transaction with

④ If there was room for another customer to choose another customer at the beginning stage of transaction, unlike the abuse of transaction position at the beginning stage of transaction, it is not reasonable to pay attention to forced judgment. However, in this case, there is no choice but to distinguish the franchisors in terms of position, preference, etc. In addition, it seems that a prospective franchisee merely becomes aware of the aggregate of approximate costs through an information disclosure statement in advance, etc. and that specific information on losses or profits that may arise from such a contract was not provided. Furthermore, considering the fact that there is a large room for a franchisee to bear a relatively large amount of costs, such as expenses for interior works and purchase of equipment, etc. at the beginning stage of transaction, deeming that Article 12 of the Franchise Business Act does not apply to the act conducted at the beginning stage of transaction solely on the ground that the franchisee was provided with information and the other party was aware of the fact that Article 12 of the Franchise Business Act does not apply.

⑤ Furthermore, even if the exclusive interior work entrusted at the time when the franchise agreement was entered into, insofar as it was impossible to modify it even thereafter, it cannot be deemed that the act of coercion of transaction at the stage of commencing the transaction cannot be deemed as only formally, and rather, the compulsory performance, even after the execution of the franchise agreement, cannot be deemed as practically continuing to exist.

B) As such, the lower court should have examined whether the part of the basic construction in the interior of interior works was “an act of compelling a transaction with a particular trading partner” by distinguishing the part of the additional construction from the part of the basic construction in interior works and specifying when another company had the right to select the additional construction works. Nevertheless, the lower court erred by misapprehending the legal doctrine on the coercion of restrictive acts by failing to exhaust all necessary deliberations by failing to exhaust all necessary deliberations, on the grounds that the prospective franchisees knew of the fact that the construction of interior works should be entrusted to the Plaintiff only through an information disclosure statement at the time of concluding a franchise agreement, compared with other franchisors, and that they were able to freely leave from the Plaintiff in the process of concluding the agreement with the Plaintiff and the additional construction.

2) Whether to recognize illegality

A) Examining the above facts in light of the legal principles as seen earlier, there is sufficient room to view that the act of having the Plaintiff or △△ Design entrust interior works only to the Plaintiff or △△ Design constitutes an act of forcing a transaction with a specific transaction partner. The specific reasons are as follows.

① Although the interior work is related to the maintenance of the uniform image of the store, the Plaintiff was deprived of the freedom of choice of the franchisee by designating only the Plaintiff or △△ Design as the contractor.

② Recognizing that the Plaintiff’s measure of having the Plaintiff carry out the Plaintiff’s interior work may be a violation of the Franchise Business Act. Since April 2012, the Plaintiff classified the Plaintiff’s interior work as a whole selective item. In light of such circumstances, it is difficult to readily conclude that there was no company that implements the Plaintiff’s interior work until that time. Rather, deeming that there existed such a company prior to that time. Furthermore, even if the Plaintiff presented the criteria for interior construction and the Plaintiff’s franchisee is responsible for performing construction works to another construction company in compliance with the said criteria, it does not appear that there was an obstacle to its use or function.

③ The Plaintiff’s franchise business is a structure that receives money equivalent to a certain ratio of sales from a franchisee. Furthermore, it cannot be deemed that the existence of a franchise business is impossible if the Plaintiff entrusts interior works to another construction business entity. Nevertheless, the Plaintiff’s rate of interior works, etc. out of the total sales was relatively higher.

B) Nevertheless, the lower court determined otherwise, on the grounds that the Plaintiff had no business entity that could realize the design similar to the Plaintiff and △△△ Design at the time of the commencement of the franchise business, the illegality of all the act related to interior construction during the entire period from November 17, 2008 to April 3, 2012 was not recognized uniformly. In so determining, the lower court erred by misapprehending the legal doctrine on the illegality of the Plaintiff’s restrictive act, etc., thereby failing to exhaust all necessary deliberations.

E. Furthermore, we examine the act of having the Plaintiff entrust the supply of facilities, equipment, and supplies.

1) Examining the above facts in light of the legal principles as seen earlier, there is sufficient room to view the Plaintiff’s act of having the Plaintiff only entrust the Plaintiff with all of the facilities, equipment, and supplies to the Plaintiff as “unfairly compelling a transaction with a specific trading partner” on the following grounds.

A) Facilities, equipment, and supplies that the Plaintiff allows franchisees to purchase collectively are deemed to include facilities, etc. that are not essential to the franchise business or are difficult to maintain the identity of the franchisor’s trademark protection and goods, etc. even if the transaction is not enforced. In such a case, even if the Plaintiff presents quality standards and purchases freely a franchisee, it is difficult to deem that the use or function of the Plaintiff is hindered, barring any special circumstances.

B) Even if the Plaintiff’s amendment after April 2012 was based on the “arst/agreement” as amended, the items eligible for choice of the opposite contractual party reaches the extent of 65% of the total.

C) The Plaintiff’s franchise business is a structure that receives money equivalent to a certain ratio of sales from a franchisee, but the ratio of the supply of facilities, equipment, and supplies, etc. out of the total sales was relatively higher.

2) Nevertheless, the lower court determined otherwise, on the grounds that there is a need for equipment, equipment, and supplies to be supplied at a timely time according to the opening time of the franchise store, and that the case is not, or where it is difficult to protect the trademark rights of the franchisor and to maintain the identity of the goods, etc. without any transaction with a specific trading partner, and the specific scope of the case is not determined, the lower court did not constitute “an act of forcing a franchisee to trade with a specific transaction partner unfairly” with respect to all of the equipment, equipment, and supplies. In so doing, the lower court erred by misapprehending the legal doctrine on the illegality of the transaction partner’

2. As to the payment of partnership expenses (Ground of appeal No. 4)

A. In order to constitute a disadvantage in an act of offering disadvantages, the mere fact that the content of the act is somewhat unfavorable to the other party is insufficient. It is recognized that one party established or modified the terms and conditions of transaction by unfairly using his/her transaction position to the extent that it can be deemed identical with compulsory purchase, coercion of offering profits, enforcement of sales target, etc. Furthermore, whether an act of offering disadvantages to the other party by unfairly taking advantage of his/her transaction position ought to be determined depending on whether the act goes beyond normal transaction practices and is likely to impede fair trade (see, e.g., Supreme Court Decisions 2002Du332, Mar. 10, 2006; 2003Du7859, Sept. 8, 2006).

B. On the grounds delineated below, the lower court determined that the Plaintiff’s act of having a franchisee bear all the expenses of partnership to be borne by the Plaintiff as a partnership agreement with the KT Co., Ltd. from November 1, 2010 to July 201 did not constitute an act of unfairly taking advantage of its transaction position and giving disadvantages to the other party.

1) In order to constitute “an act of disadvantageous provision” of cost sharing due to advertising and promotional activities, it is accords with the reality to comprehensively determine by examining the overall burden between the franchisor and the franchisee rather than individually examining specific advertising and promotional activities.

2) There was a need to implement the instant partnership event as part of sales promotional activities in order to ensure the continuous growth and profitability of the Plaintiff’s franchise organization.

3) The Plaintiff revised the franchise disclosure statement prior to the enforcement of the instant partnership event, and prepared the grounds for the franchisees to bear the expenses for the instant partnership, and instead borne the expenses for accumulated points equivalent to 2% of the sales amount of the Plaintiff’s members who had already been borne by the franchisees. The expenses additionally borne by the franchisees due to the instant partnership event are 2.5% out of the sales amount, and there is no difference between the accumulated points equivalent to 2% of the sales amount borne by the Plaintiff on behalf of the franchisee and the Plaintiff. Considering the effect that the sales increase due to the instant partnership event is 30%, among the total cell phone users, it is difficult to conclude that the instant association expenses burden is economically unfavorable to the franchisees.

4) The evidence submitted by the Defendant alone is insufficient to recognize that the Plaintiff abused its superior position and obtained individual consent from, or forced consent from, its franchisees. In addition, there is no evidence to support that the Plaintiff incurred losses, such as reduction of sales or net profit, of an individual franchisee, due to the act of bearing expenses for partnership in this case.

C. Examining the reasoning of the lower judgment in light of the aforementioned legal doctrine, the lower court’s determination is justifiable, and did not err by misapprehending the legal doctrine regarding disadvantageous provision, or by failing to exhaust all necessary deliberations.

3. Conclusion

Therefore, among the judgment below, the part of the corrective order and penalty surcharge payment order relating to the construction of interior works and the supply of facilities, equipment, and supplies is reversed, and that part of the case is remanded to the court below for further proceedings consistent with this Opinion. The remaining appeals are dismissed. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee Ki-taik (Presiding Justice)