Improvement of Criteria for Calculating Related Sales Amount
Supplementing Reduction Requirements for Cooperation in Caution and Deliberation Classification
The Fair Trade Commission (FTC) will revise the penalty standards to prevent repeated cases where violations of the Act on Labeling and Advertising result in relatively small fixed fines due to difficulties in calculating related sales revenue.
The FTC announced the administrative notice of the revision to the "Penalty Standards for the Act on Labeling and Advertising" on the 1st.
In June last year, the FTC imposed a corrective order and a fine of 286 million KRW on Champ Study, the operator of Hackers, which is famous for public official exam textbooks and online lectures, for false and exaggerated advertisements such as "No.1 in shortest pass time" over several years.
Champ Study generated annual sales of approximately 123.1 billion KRW (as of 2022) through such unfair advertising for at least nine years since April 2014, but only a fixed fine within the 500 million KRW limit was imposed. Previously, Eduwill also faced sanctions from the FTC for similar unfair advertising, but the amount of the fine was much smaller than initially expected.
To prevent such cases, the FTC clarified the grounds for reasonably calculating sales revenue through objective data for businesses violating the law. Objective data includes performance before and after the violation, total sales during the relevant period, the sales ratio of related products, and market conditions.
If sales revenue cannot be calculated even by this method, a fixed fine will be exceptionally imposed, but the amount must not exceed the maximum amount that could be imposed assuming a proportional fine. The standard was revised so that the amount does not exceed the total sales during the violation period multiplied by the highest penalty rate according to the severity of the violation type.
Additionally, the revision stipulates that regarding the cooperation mitigation system, the violating business must "cease the relevant act" until the FTC's review is completed to ultimately receive a reduction in fines.
If the violating business actively cooperates with the investigation, the fine will be reduced by 10%, and if they actively cooperate during the deliberation stage and admit the facts of the act until the conclusion of the review, an additional 10% reduction will be applied. Furthermore, the standard was strengthened so that fines can only be reduced if the relevant act is ceased until the FTC's review is completed.
This is based on the consideration that if the violation continues despite the FTC's measures, damage to trading partners or consumers may persist, making it difficult to regard the violating business as genuinely cooperative.
The FTC stated, "Through this revision of the penalty standards, objective and reasonable imposition of fines will be possible, and the effectiveness of law enforcement is expected to improve through the refinement of the cooperation mitigation system."
The FTC plans to finalize and implement the revised notice after collecting opinions from stakeholders by the 21st and going through related procedures such as a plenary meeting resolution.
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