"'Distribution 3 Laws' Fine Calculation Methods Differ... Need to Consider Adjustments"

Sogang University ICT Center Hosts 'Distribution Regulation Improvement Forum'
"Questioning Whether the Current Calculation Method Aligns with Legislative Intent"

Voices from academia have emerged suggesting the need to reconsider the penalty calculation methods under the so-called 'Three Distribution Laws'?the Large-scale Distribution Business Act, the Franchise Business Act, and the Agency Act?established to prevent unfair trade practices by major distribution conglomerates. The penalty system was legally designed to recover unjust profits and impose financial sanctions, but there are doubts about whether it functions properly when calculated based on different criteria such as sales revenue.

On the 21st, the Sogang University ICT Law and Economics Research Institute held a 'Distribution Regulation Improvement Forum' at the seminar room of the law firm Bae, Kim & Lee in Jung-gu, Seoul. Professor Park Jun-young of the Department of Law at Gyeongsang National University, who presented on the topic of 'A Critical Review of the Penalty System under the Three Distribution Laws,' stated, "The current penalty calculation base variables are set differently as delivery payments, related sales revenue, and violation amounts, respectively. It is necessary to examine whether these are set in accordance with the legislative intent of the Three Distribution Laws."

The Sogang University ICT Law and Economics Research Institute held the "Distribution Regulation Improvement Forum" on the 21st at the seminar room of the law firm Kwangjang in Jung-gu, Seoul. Hong Dae-sik, director of the ICT Law and Economics Research Institute (professor at Sogang University Law School), and lawyers specializing in fair trade law are conducting a special roundtable discussion. Photo by Seongpil Jo @gatozz

The current Three Distribution Laws each operate penalty systems separately from the Fair Trade Act. The Large-scale Distribution Business Act calculates penalties through Article 35 based on the ratio of related delivery payments, related rental fees, and violation amounts. The Franchise Business Act also stipulates related sales revenue as the calculation basis in Article 35. Additionally, the Agency Act calculates violation amounts under Article 25. Professor Park noted, "The penalty calculation is excessively complex, and it is possible to question whether the penalties align with the legislative intent of each law."

The legislative purpose of the Three Distribution Laws is commonly to establish a fair trade order and to enable large-scale distributors and suppliers, or franchisors and franchisees, to develop complementarily on an equal footing, thereby contributing to balanced growth and development of the national economy, as explicitly stated in Article 1 of each law. Furthermore, according to academic consensus, penalties legally serve the dual purpose of recovering unjust profits and imposing financial sanctions in line with legislative intent. The Supreme Court also ruled in a 2000 precedent that although penalties have a punitive character, they are fundamentally imposed to deprive unlawful economic benefits.

Professor Park pointed out, "Using related sales revenue as the basis for penalties can be interpreted as having a punitive character, while using violation amounts emphasizes the recovery of unjust profits. The current penalty calculation methods under the Three Distribution Laws are difficult to see as fulfilling both functions." He added, "When based on related sales revenue, the basic calculation standard tends to be large, which needs to be considered as it results in excessively high penalty amounts."

Industry representatives also argued that there are contradictions in the current penalty system under the Three Distribution Laws. An industry official attending the seminar said, "The distribution industry essentially operates on a structure where manufacturers supply products for distribution, and the margins are quite low. It raises doubts about whether it is appropriate to impose penalties based on the total sales of products."

As a systemic improvement measure, Professor Park diagnosed the need to pursue uniformity in the penalty system under the Three Distribution Laws. He explained, "Considering the proportionality of penalty amounts and the principle of prohibition of excess, it is necessary to consider unifying the basis to violation amounts. It would also be possible to uniformly regulate the basic calculation standards and penalty rates."