Plaintiff (Law Firm Han, Attorneys Jeong Sung-won et al., Counsel for the plaintiff-appellant)

Fair Trade Commission (Attorney Noh Byung-hee, Counsel for defendant-appellant)

September 19, 2007

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

The Defendant’s corrective measures and penalty surcharge payment order stated in paragraph (4) among the corrective measures and penalty surcharge payment order stated in attached Form 1, which the Defendant issued a decision No. 2006-241 on October 26, 2006 against the Plaintiff (the Plaintiff changed the purport of the claim in the application for amendment of claim No. 2007, Mar. 23, 2007 to seek cancellation of the penalty surcharge payment order issued by the Defendant on February 7, 2007, but the Defendant merely reduced part of the penalty surcharge amount under the penalty surcharge payment order issued by the decision No. 206, Oct. 26, 2006, the Plaintiff is deemed to seek cancellation of the penalty surcharge payment order corresponding to the remaining part after the reduction as above in the original decision).

1. Progress of the instant disposition

The following facts are not disputed between the parties, or can be acknowledged in full view of the purport of the whole pleadings in the entries in Gap evidence Nos. 1, 2, and 3.

A. The general situation of the plaintiff

The plaintiff is a person who establishes, manages, and operates a multi-level marketing organization to engage in multi-level marketing as a business, and falls under multi-level marketing business entities under Article 2 subparagraph 6 of the Door-to-Door Sales Act (hereinafter referred to as the "Door Sales Act"), and the general status of the plaintiff is as shown in attached Table 1.

â………§ 1) The general status of the plaintiff

(as of the end of December 2005, units: Won, name

On March 22, 1993, the capital of the number of full-time employees and multi-stage salesmen of major financial status of the business type included in the main sentence, sales of total assets of the multi-stage sales business 5413 854 49,049

(b) Market structure and actual conditions;

(1) The general situation of multi-level marketing industry

As of the end of 2004, multi-level marketing companies in Korea are estimated to have approximately KRW 4.47 billion in total as of the end of 2004, and two large five companies account for 80% in market share. The current status of multi-level marketing sales as of the end of December 2004 is as shown in Table 2.

Table 2: Current status of sales of major enterprises

(as of the end of December 2004, units: 00,000 won)

Plaintiff 1, 679, 418.6 2, 37.6 2 (State) Nonparty 3 (State), Nonparty 4, 223,967 May 05, 144, 363.2, 363.2, 565, 47.7 Other companies 906,504.3

Multi-level marketing business is in line with the distribution structure that sells goods through multi-level marketing organizations composed of multi-level marketing salespersons, and imports from foreign countries or sells goods supplied by domestic manufacturers. Multi-level marketing business is characterized by multi-level marketing sellers to gain retail profits by purchasing goods from multi-level marketing business operators and selling them to consumers, on the other hand, taking economic profits by receiving bonuses from multi-level marketing business operators according to the sales performance.

(2) The actual status of the payment of bonuses (Dissemination of points marketing).

Some multi-level marketing business entities adopt the “point marketing” method, which is the type of multi-level marketing franchise, to promote sales, and thereby adopting the same method. Representatively, enterprises, such as non-party 1 corporation and non-party 3 corporation, are allowed, and most of the other companies are also partially adopting. The points marketing method can lead to mass purchase of salespersons, as it presents the possibility that many bonuses can be paid only by the purchase records of multi-level marketing salespersons.

The existing multi-level marketing scheme is a scheme in which bonuses are paid according to the performance results of subordinate salespersons managed by the salesperson and its subordinate salespersons, or points marketing (one-name "share marketing") is a scheme in which the performance results of the entire salespersons belonging to multi-level marketing companies are paid as bonuses according to the points of individual salespersons.

C. Former record of violation of the Door-to-Door Sales Act by the Plaintiff

(1) The plaintiff's act

(A) Violation of the duty of prior notice when calculating and paying support allowances are changed

The plaintiff revised the calculation and payment criteria of bonuses as of January 10, 2005 and June 2, 2005, and revised and implemented the calculation and payment criteria of bonuses with the consent of 30 salespersons as of January 9, 2005 and the consent of 41 salespersons as of June 1, 2005 as of June 1, 2005.

(B) An act in excess of the payment ratio of statutory bonus;

The Plaintiff paid the bonus of KRW 64.875 million equivalent to 44.93% of the total value of goods, etc. (including value-added tax) supplied to multi-level marketing salespersons belonging to the Plaintiff during the period from January 1, 2004 to December 31, 2004.

(C) Differential payment of bonuses at the time of advance payment

In order to promote the increase of sales through the recruitment of new salespersons from April 2005 to September 2005, the Plaintiff first paid bonus to some sellers (4,628).

(2) The defendant's disposition

The defendant acknowledged that the act of violating the obligation of prior notice at the time of changing the calculation and payment standard of support allowances of the plaintiff is an act violating Article 20(2) of the Door-to-Door Sales Act, Article 20(3) of the Act on Door-to-Door Sales, and Article 20(5) of the Act on Door-to-Door Sales, and Article 20(3) of the Act on Door-to-Door Sales, and Article 20(5) of the Act on Door-to-Door Sales, and Article 20(5) of the Act on Door-to-Door Sales, and Article 20(5) of the Act on Door-to-Door Sales, and Article 20(3) of the Act on Door-to-Door Sales, if the plaintiff intends to change the calculation and payment standard of support allowances, he shall notify the multilevel salesman of the ground and the date of application of new standard to the multilevel salesman three months before the applicable date.

C. The plaintiff's act

(1) Issuance of a false multi-stage salesman pocketbook

The Plaintiff issued a pocket book (No. 12 and No. 13) manufactured in 2006 to multi-level marketing salespersonss without indicating the time of production.

(2) Violation of the procedure to change the calculation and payment standards of bonuses

In addition, on March 6, 2006, the Plaintiff changed the calculation and payment criteria of support allowances, and the above changed details were changed disadvantageously to multi-stage salesmen, such as reducing the SLIS allowances and SL recommendation title allowances and closing SH grade position position position position workers. However, the Plaintiff implemented the revised contents with the consent of the salesman from March 11, 2006 to April 3, 2006, without giving notice to multi-stage salesmen three months, or obtaining consent from all members.

(3) An act exceeding the payment ratio of statutory bonuses;

From January 1, 2005 to December 31, 2005, the Plaintiff paid the bonus of KRW 61.715 billion equivalent to 66.2% of the aggregate of the prices of goods, etc. (including value-added tax) supplied to the multi-level marketing salesperson belonging to the Plaintiff during the period from January 1, 2005 to December 31, 2005.

D. The defendant's disposition of this case

(1) The initial corrective order and penalty surcharge payment order

After the Defendant determined that the above acts of the Plaintiff were in violation of the Door-to-Door Sales Act as follows, the Defendant issued a corrective order and a penalty surcharge payment order (the amount of the penalty surcharge ordered at the time was KRW 469,00,000,000, and the first disposition of this case was referred to as “the first disposition”).

(A) The act of the Plaintiff’s delivery of a membership pocket book (No. 12 and 13) manufactured in 2006 to multi-stage salesmen without indicating the time of production is in violation of Article 15(5) of the Door-to-Door Sales Act and Article 18 subparag. 2 of the Enforcement Rule of the same Act, where the multi-stage salesman’s multi-stage salesman’s delivery of multi-stage salesman’s pocket book, which states that the multi-stage salesman’s pocket book is multi-stage salesman’s multi-stage

(B) The Plaintiff’s act of obtaining the consent of the salesperson from March 11, 2006 to April 3, 2006 when entering into force on March 6, 2006, when the multi-level marketing business entity changes the calculation and payment standards of the bonus to the multi-level marketing salesperson disadvantageously to the multi-level marketing salesperson, violates Article 20(2) of the Door-to-Door Sales Act and Article 26(1) of the Enforcement Decree of the said Act, which provides that the multi-level marketing business entity shall notify the multi-level marketing salesperson of the calculation and payment standards of the bonus three months in advance or shall be enforced with the consent

(C) Even though the total amount of bonuses that a multi-level marketing business operator can pay to a multi-level marketing salesperson should not exceed 35% of the total amount of goods, etc. supplied to a multi-level marketing salesperson (including value-added tax), the Plaintiff’s payment in excess is in violation of Article 20(3) of the Door-to-Door Sales Act and Article 27

(2) Criteria for calculation of penalty

At this time, the defendant decided to impose a penalty surcharge in accordance with the provisions of Article 44(1) and (2) of the Door-to-Door Sales Act and Article 54 subparag. 1 of the Enforcement Decree of the same Act considering that the defendant's corrective measures against the act exceeding the payment ratio of bonuses are repeated despite the defendant's corrective measures against the defendant, and it is difficult to prevent damage to consumers only by taking corrective measures. The defendant calculated the penalty surcharge of KRW 469,00,000 in accordance with the following criteria:

(A) Calculation of basic penalty surcharges

Considering the Plaintiff’s excessive ratio (31.2%) to the Plaintiff’s bonus payment (31.2%), the amount of KRW 745,000,000, which is the amount calculated by applying 0.8% of the base rate to the sales during the period of the violation (93.23 billion won) shall be deemed to be “a serious violation.”

(b) Calculation of the adjusted penalty surcharge

The Plaintiff shall take into account the scale of benefits acquired by the act of violation such as the occurrence of net loss at the end of 2005, and shall determine 670,000,000 won as a penalty surcharge by reducing 10/100 from the basic penalty surcharge by taking into account the degree of consumer damage caused by the act of violation, degree of effort by the business operator to compensate for consumer damage, details, period, frequency, etc.

(C) Calculation of a penalty surcharge

The penalty surcharge imposed on the plaintiff shall be reduced by 30/100 from the adjusted penalty surcharge (670,000,000 x 70%), taking into account the actual ability of the plaintiff, such as the total amount of liabilities in 2005 exceeds the total amount of assets, etc.

(3) Change of the amount of penalty surcharge upon the Plaintiff’s objection

(A) The Plaintiff filed an objection against the Defendant’s initial corrective order and penalty surcharge payment order. ① The amount of the bonus must be excluded from the bonus payment because it was paid in advance at the request of multi-level marketing operators, ② the rate of the payment of the bonus was high as the allowance already paid in the process of returning the allowance was not recovered properly. ③ The bonus paid in January 2005 for the sales in December 2004 should be excluded from the bonus in 2005, and the bonus paid in January 2006 for the sales in December 2005 should be included in the bonus in 2005, and accordingly, the bonus paid in January 2006 should be reduced by the rate of violation of the law.

(B) The Defendant’s above (1) and (2) dismissed the Plaintiff’s assertion without merit; (3) accepted the Plaintiff’s assertion as to the sales in January 2004, and calculated the bonus paid in January 2005 as to the sales in December 2004, to be reverted to the bonus in 2004, and the bonus paid in January 2006 as to the sales in January 2005, by calculating the amount of the bonus paid in 2005, to be reverted to the bonus in 2005, and then calculated the Plaintiff’s sales (93.234 billion won) as KRW 57.95% in sales (9.4 billion).

Furthermore, considering the fact that the excess payment rate of bonuses in the initial disposition is 31.2%, unlike the fact that the defendant accepted the plaintiff's claim as of the end of 2005 and the excess payment rate of bonuses in violation of the law has decreased to 22.95%, it is reasonable to view the plaintiff's act as a serious violation and impose a basic penalty surcharge of KRW 559,000,000, which is the amount applying the imposition rate of KRW 0.6% to the sales during the period of the violation (93.234.00,000,000, which is the amount applying the imposition rate of KRW 0.6% to the sales during the period of the violation. In other words, the adjusted penalty surcharge is to be imposed at KRW 503,00,000 by reducing the basic penalty surcharge as of the end of 205 and the amount of penalty surcharge is to be imposed at KRW 500,500,000,000,000 (hereinafter referred to as above).

2. Whether the instant penalty surcharge payment order is lawful

A. The plaintiff's assertion

For the following reasons, the Plaintiff asserts that the Defendant’s order to pay the penalty surcharge of this case is unlawful as it deviates from or abused discretion.

(1) The penalty surcharge imposed on the violation of the Door-to-Door Sales Act is monetary sanction imposed for the purpose of depriving the economic benefits obtained by the violation of the Act, and thus, the size of the benefits acquired by the Plaintiff should be taken into account. Although the Plaintiff did not have, or is minor, the gains acquired

(2) If a violation of the Door-to-Door Sales Act is repeated or corrective measures alone are deemed difficult to prevent consumer damage, a penalty surcharge may be imposed on the Plaintiff. Thus, it cannot be deemed that the violation of the Act is repeated, and it is also difficult to prevent consumer damage.

(3) Although the Plaintiff did not have the ability to pay the penalty surcharge at the time of the first disposition, the Defendant did not take such circumstances into account.

B. Relevant statutes

Attached Form 2 shall be as shown in attached Table 2.

C. Determination

According to Article 44(1) of the Door-to-Door Sales Act, in case where the act of violating Article 20 of the Door-to-Door Sales Act is deemed to be repeated or it is deemed difficult to prevent consumer damage only by taking corrective measures despite the corrective measures under Article 42 of the Act on Door-to-Door Sales, the defendant may order the suspension of all or part of the business for a fixed period not exceeding one year as prescribed by the Presidential Decree, or in lieu of such order, impose a penalty on the relevant special sales business operator within the scope not exceeding the sales amount related to the act of violating Article 20 of the Door-to-Door Sales Act. According to the purport of the above provision, the penalty surcharge imposed on the act of violating Article 20 of the Door-to-Door Sales Act is an administrative sanction for the act of unfair trade under Article 44(1) of the Act on Door-to-Door Sales and Door-Door Sales and the specific amount is within the scope not exceeding the ceiling (the amount not exceeding the sales amount related to the act of violation as prescribed by the Presidential Decree).

First of all, as to whether the violation of the above Act is repeated despite the corrective measures under Article 42 of the Door-to-Door Sales Act against the plaintiff's act or it is difficult to prevent consumer damage by only taking corrective measures, comprehensively considering the whole purport of arguments in the statement Nos. 4, 5, and 6, as to whether the violation of the above Act is repeated or the corrective measures are considered to be difficult, the plaintiff proposed to make and produce the membership pocket book to change the marketing franchise on Apr. 3, 2006 and obtained approval from the vice-chairperson of the next day. The plaintiff was a multi-level marketing business operator as of Aug. 9, 2007. As seen above, it is difficult to view that the plaintiff's act of violating the law, such as the payment ratio of legal bonuses, from Jan. 1, 2004 to Dec. 31, 2004, even if the defendant's act of violating the above disposition exceeds the legal support rate, it is reasonable to view that it is difficult to repeatedly pay the plaintiff's bonus to the defendant's act of violation.

Furthermore, according to Article 54 subparag. 1 of the Enforcement Decree of the Door-to-Door Sales Act, the term “the extent of not exceeding the amount of sales related to the violation prescribed by the Presidential Decree” under the former part of Article 44(1) of the Door-to-Door Sales Act is “the amount equivalent to 10% of the sales from the time of the violation in question to the time of the completion thereof if the violation in question is not a direct cause for sale or consumer damage.” As seen earlier, the Plaintiff has five market shares among multi-level marketing businesses with approximately 140 billion as of the end of 2004; the Plaintiff’s payment of bonuses in excess of the statutory payment rate of KRW 90 billion to increase the amount of sales in excess of KRW 00,000,000,000,000,000,000,0000,000 won, which is more than KRW 10,000,000,000,000.

Therefore, the plaintiff's assertion that the order to pay the penalty surcharge of this case is beyond or abused discretion is without merit.

3. Conclusion

Therefore, the plaintiff's claim of this case is dismissed as it is without merit. It is so decided as per Disposition.

Judges Cho Jong-jin (Presiding Judge)