Blocking all transactions with rivals for seven years from 2019
"Recipe protection" claim... KFTC concludes "abuse of superior bargaining position"
Korea Engineering Plastics (KEP), a dominant player in the domestic plastic materials market, has been hit with sanctions by the Korea Fair Trade Commission (KFTC) after putting its business partners in chains with a "ban on transactions with competitors." It was a textbook case of "gapjil," in which the company exploited its superior bargaining position to deprive a partner of business freedom and block competitors from entering the market.
The Korea Fair Trade Commission announced on the 26th that it has decided to issue a corrective order to KEP and impose a fine of 144 million won for prohibiting a contract manufacturer from doing business with competitors over an extended period.
The case dates back to 2019. While commissioning toll processing of polyacetal (POM) resin, a high-performance plastic, KEP drew up an agreement with an existing contract manufacturer regarding the extension of their contract. KEP stipulated that the manufacturer would not be allowed to provide toll processing services to KEP’s competitors not only during the term of the contract, but also for three years after the transaction ended. As a result, from 2019 to 2026, a total of seven years, this company was effectively unable to conduct even a single transaction with any of KEP’s competitors.
During the investigation, KEP argued that its POM manufacturing recipe constitutes a core trade secret, and that the restriction was an unavoidable measure to protect it. The company claimed that doing business with competitors could lead to technology leakage. However, the Korea Fair Trade Commission concluded that this was an "unfair practice," citing the following: first, KEP used its bargaining position to change contract terms to the detriment of its counterparty during the contract period; and second, the contractual clause in question effectively prevented the counterparty from continuing to operate its POM toll processing business. The commission also dismissed KEP’s claim of "recipe protection," calling it an "abnormal practice that departs from normal business customs in the industry."
The Korea Fair Trade Commission stated that it "will continue to monitor abuses of superior bargaining position that disadvantage trading partners."
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