[edit] Supreme Court Decision 99Du6514, 6521 delivered on March 15, 2002 [Revocation of a Corrective Order, etc.]

【Main Issues】

[1] Facts presumed in Article 19 Paragraph (5) of the Monopoly Regulation and Fair Trade Act (MRFTA) (=existence of an agreement between enterprises); and the scope of indirect facts that needs to be proved for such presumption (=external conformity of action and restriction on competitiveness)

[2]Meaning and standard of finding 'restriction on competitiveness' of an action that needs to be proved in order to presume the existence of an agreement between the enterprisers under Article 19 Paragraph (5) of MRFTA

[3]A case holding that where two enterprises who amongst themselves divide the domestic coffee manufacturing and distributing market competitively increased the prices of their coffees, there exists no 'restriction on competitiveness' taking into consideration the special circumstances of the domestic coffee market at that time when cheaper coffee did not sell as much as higher priced coffee of a competing enterprise

【Summary of Decision】

[1] To find the existence of an unfair collaborative action, the Fair Trade Commission needs to prove that the concerned action has been conducted under an explicit or a tacit agreement between the enterprisers inter alia, although it is not easy to prove the existence of such an agreement in a covert unfair collaborative action. So, Article 19 Paragraph (5) of MRFTA providing "where two or more enterprisers are committing any of the acts listed in each Item of Paragraph (1) which practically restrict competition in a particular business area, they shall be presumed to have committed an unfair collaborative act despite the absence of an express agreement to engage in such act." is legislated for efficient regulation of unfair collaborative actions. The Act required the Fair Trade Commission to prove only two indirect facts, the fact that "two or more enterprisers are committing any of the acts listed in each item of Paragraph (1)" (hereinafter referred to as 'external conformity of action') and the fact that they are "acts which practically restrict competition in a particular business area" (hereinafter referred to as 'restriction on competitiveness'). Therefore, in accordance with Article 19 Paragraph (5) of the Act, proving 'external conformity of act' and 'restriction on competitiveness' is sufficient to meet the presumption of an 'agreement between the enterprises', and there is no need to present additional circumstantial evidence to trigger the presumption of either an agreement of enterprises or a tacit understanding between the enterprises.

[2] In addition, the 'restriction on competitiveness' of the concerned action that needs to be proved to presume the existence of an agreement between the enterprisers under Article 19 Paragraph (5) of the MRFTA indicates 'restriction on competitiveness' in a condition existing prior to the presumption of an agrement, and therefore, the existence of a 'restriction on competitiveness' must be determined under the presumption that an agreement between enterprisers does not exist.

Specifically, in order to determine whether a concerned act in itself possesses a 'restriction on competitiveness', various elements such as the characteristics of the concerned product, the criteria of the consumers' choice of products, the action's effect on the market and the competition between the enterprises, etc., need to be taken into consideration to examine whether there is an actual or potential danger of a certain enterprise or a group of enterprises freely influencing (to a certain extent) the determination of price, quantity, quality or other business conditions, etc. due to the reduction of competition in a particular business area (see Article 2 Item 8-2 of the Act).

[3] A case holding that where two enterprises who amongst themselves divide the domestic coffee manufacturing and distributing market competitively increased the prices of their coffees, there exists no 'restriction on competitiveness' taking into consideration the special circumstances of the domestic coffee market at that time when cheaper coffee did not sell as much as higher priced coffee of a competing enterprise

【Reference Provisions】[1] Paragraph (1) and Paragraph (5) of Article 19 of the Monopoly Regulation and Fair Trade Act (MRFTA) / [2] Item 8-2 of Article 2, Paragraph (1) and Paragraph (5) of Article 19 of the MRFTA / [3] Item 8-2 of Article 2, Paragraph (1) and Paragraph (5) of Article 19 of the MRFTA

Article 2 of the Monopoly Regulation and Fair Trade Act (Definition) The definition of terms in this act is as follows.

1~8. <omitted>

8-2. The term "practices practically suppressing competition" means practices which cause or threaten to cause impacts on the determination of price, quantity, quality, or other terms or conditions of trading by intent of a certain enterpriser or an enterprisers organization, because of reduced competition in a particular business area; and

Article 19 of the Monopoly Regulation and Fair Trade Act (Prohibition of Unfair Collaborative Acts) (1) No enterpriser shall agree with other enterprisers by contract, agreement, resolution, or any other means, to jointly engage in any of the acts falling under any of the following items, which unfairly restrict competition (hereafter referred to as the "unfair collaborative acts"):

1. An act of fixing, maintaining or changing price

2. An act of determining terms and conditions for the transaction of goods or services, or payment of prices thereof

3. An act of restricting production, delivery, transportation, or the transaction of goods or services

4. An act of limiting the territory of trade or customers

5. An act of preventing or restricting the establishment or extension of facilities or the installation of equipment necessary for the production of goods or the rendering of services

6.An act of restricting the types or specifications of goods at the time of production or transaction of goods

7. An act of establishing a company, etc. to jointly carry out or manage the main parts of business

8.Any practice which practically suppresses competition in a particular business area by means of interfering or restricting the activities or contents of business by other persons.

(2)~(4) <omitted>

(5) Where two or more enterprisers are committing any of the acts listed in each Item of Paragraph (1) which practically restrict competition in a particular business area, they shall be presumed to have committed an unfair collaborative act despite the absence of an express agreement to engage in such act.

【Plaintiff, Appellant-Appellee】Dong-Suh Food, Inc. and 1 other (Law Firm Barun Bubryul and 4 others, Counsel for plaintiff & appellant- appellee)

【Defendant, Appellee-Appellant】Fair Trade Commission (Law Firm Eulji, Attorney Kim Young-eun, Counsel for defendant & appellee- appellant)

【Judgment of the court below】Seoul High Court Decision 98Nu10686, 98Nu11214(Joinder) delivered on April 28, 1999

【Disposition】The part of the judgment of the court below against the plaintiff shall be reversed and the corresponding part of this case shall be remanded to Seoul High Court. The defendant's appeal shall be dismissed.

【Reasoning】1. The plaintiffs' grounds for appeal are examined as follows.

A.The court below has found the facts as follows: plaintiff Dong-Suh Food, Inc. (hereinafter referred to as 'Dong-Suh Foods') and plaintiff Nestlé Korea, Inc. (hereinafter referred to as 'Nestlé Korea'), are "enterprisers" who divide the domestic coffee manufacturing and distributing market described under Article 2 Item 1 of Monopoly Regulation and Fair Trade Act (MRFTA); between July 1, 1997 and January 12, 1998, when Nestlé Korea increased the prices of their coffee products, Dong-Suh Food increased the prices of their own products to match the price of Nestlé Korea products, and in turn Nestlé Korea raised the prices of each of their products two or three times, and Dong Suh Food raised the prices of each of their coffee products in turn, three or four times. The court below, has also found the following circumstantial facts that show the possible presumption of the existence of an agreement or at least a tacit consent between plaintiffs regarding the plaintiffs' actions of increasing their prices. ① Even though there is a difference between the two enterprises' imported prices and exchange rates of their original coffee beans, and even though there is a difference in factors constituting the original cost such as manufacturing expenses, the two companies set their prices to be equivalent to each other; ② Dong-Suh Food who had increased their prices following the price increase of Nestlé Korea, did not submit their internal examination data, market analysis data, etc. that had been used for determining their price increases during the defendant's process of investigation; ③ as stated in the holding, the plaintiffs used each of their subsidiary organizations to exchange informations on price increments via fax several times, for example on August 19, 1997, when Hyun Dong-Hoon, a Nestlé Korea marketing employee in the Kangbuk Area of Seoul, reported the Dong-Suh Food's list of price increases that had been delivered by fax from Byon Heon-Shik, a Dong-Suh Food's marketing employee, to the head office.

The court presumed, in accordance with Article 19 Paragraph (5) of the Act, that plaintiffs have conducted unfair collaborative actions which unfairly restrict competition in the domestic coffee market as stated in Article 19 Paragraph (1) and thus held that the corrective order of the present case was legal.

B. To prove the existence of an unfair collaborative action, the Fair Trade Commission needs to prove the concerned action has been conducted under an explicit or a tacit agreement between the enterprisers inter alia, although it is not easy to prove the existence of such an agreement in a covert unfair collaborative action. So, Article 19 Paragraph (5) of MRFTA providing "where two or more enterprisers are committing any of the acts listed in each Item of Paragraph (1) which practically restrict competition in a particular business area, they shall be presumed to have committed an unfair collaborative act despite the absence of an express agreement to engage in such act." is established for efficient regulation of unfair collaborative actions. It asks the Fair Trade Commission to prove only two indirect facts, the fact that "two or more enterprisers are committing any of the acts listed in each item of Paragraph (1)" (hereinafter referred to as 'external conformity of action') and the fact that they are "acts which practically restrict competition in a particular business area" (hereinafter referred to as 'restriction on competitiveness').

Therefore, in accordance with Article 19 Paragraph (5) of the Act, proving 'external correspondence of act' and 'restriction on competitiveness' is sufficient to presume an 'agreement between the enterprises', and there is no need of additional circumstantial evidence to prove either an agreement of enterprises or a tacit understanding between the enterprises.

However, the court below assumed that in order to presume the plaintiffs' agreement under Article 19 Paragraph (5) of the Act, circumstantial facts that allow the presumption of either an agreement or a tacit understanding between the enterprises must be proven. It is clear that the court below presumed the existence of an unfair collaborative action under the same Article based on the discovered circumstantial facts above, and therefore in the court below's reasoning there is a reversible error in misunderstanding the legal theory on the object of presumption under Article 19 Paragraph (5) or the scope of indirect facts to be proven for that presumption.

C. If either an agreement or a tacit understanding between the plaintiffs can be presumed through the circumstantial facts provided in the original judgement, there would be no need to rely on legal presumption under Article 19 Paragraph (5), so it would fall under the so called 'factual presumption'; however, it is clear that the defendant has applied legal presumption under Article 19 Paragraph (5) instead of factual presumption. Therefore, even though the defendant has brought up the aforementioned circumstantial facts, there was no need for the court below to further examine whether they exist or whether an agreement or a tacit understanding between the plaintiffs could be factually presumed. Furthermore, all of aforementioned circumstantial facts are not sufficient to presume the existence of an agreement or a tacit understanding between plaintiffs for the following reasons.

First of all, in an oligopolistic market, enterprises tend to appropriately deal with the prices fixed by the competing enterprise and if the enterprise decides that imitating the price of the competing enterprise is to their benefit, they can independently execute such an action without any mutual agreement or understanding, therefore the fact that the price of the competing product is equal or similar in an oligopolistic market in itself is not sufficient to presume either the existence of an agreement or a tacit understanding between the enterprisers.

Secondly, according to the records, the plaintiff, Dong-Suh Food, whose market share rate declined from 77.5% in 1990 to 56% in 1996, assessed the reason for the decline to be due to the fact that the prices of their products had been fixed somewhat lower than those of their competing enterprises, giving the impression that their products are of lower quality, and on April 7, 1996, they increased the price of their main product, the 200g 'Maxim Original' (hereinafter referred to as 'Maxim') from 4,350 won to 4,750 won, fixing the price 300 won higher than the price of the Nestlé Korea's 175g 'Taster's Choice'(hereinafter referred to as 'Choice'), which was 4,450 won. As a result, the market share rate of the plaintiff, Dong-Suh Food started to increase for the first time in seven years, significantly increasing to 61.1%, while the market share rate of the plaintiff, Nestlé Korea, which had until then kept increasing, started declining, dropping from 44% in 1996 to 38.3%.

Accordingly, Nestlé Korea repeatedly increased the price of their 175g 'Choice' on 14 April, 1997 and on 2 June, 1997, finally setting the price at 4,950 won which was 170 won higher than the 200g 'Maxim'. In turn, Dong-Suh Food reduced the amount of 'Maxim' from 200g to 180g and dramatically increased the price per gram from 23.9 won to 27.5 won, fixing the price of their 180g 'Maxim' to be exactly the same as the price of 175g 'Choice', in order to prevent the market share rate from declining again. After that, it is clear that there had been a series of competitive price increases where Nestlé Korea increased the price of 'Choice' higher than that of 'Maxim' and Dong-Suh Food set the price of 'Maxim' to be the same as that of 'Choice'. In the abovementioned situation, it is not mandatory for Dong-Suh Food to write up an independent internal assessment data or market analysis data, etc. to decide the scope of their price increase that follows the price increase of Nestlé Korea, and therefore it is difficult to presume the existence of an agreement or a tacit understanding between the plaintiffs from the mere fact that Dong Suh Food had failed to submit such data.

Thirdly, it is difficult to presume the existence of an agreement or a tacit understanding between the plaintiffs merely from the fact that there had been an exchange of the above fax because of the following reasons: according to the record, although it is evident that the contents of the price increase in this case had been partially exchanged via fax around three times between the employees of the two plaintiffs' branch offices, the contents of fax document shows that the plaintiffs had individually decided the increments of their prices at different times beforehand and the information had been written to notify their clients, with the branch office as the sender and the client as the recipient, therefore the purpose of the above actions does not seem to be that of prior information exchange to confer prearranged prices; all of the fax exchanges between the employees of the branch offices had occurred on the days after the price had increased or after the price increase had been decided, and therefore the information had already been openly released to the branch offices or the clients; while it is unnatural to presume that the plaintiffs ordered an employee at a branch office to exchange informations instead of an employee at the head office, it will be more natural to assume, in accordance with the plaintiffs' explanation that for the sake of convenience or in order to impress their superiors by presenting the price of the competing enterprise before the other employees, the employees of both the enterprises had used their personal ties to exchange documents that had already been released to them by the head office.

Accordingly, in presuming that there existed an agreement or a tacit understanding between the plaintiffs based on the facts stated above, there is reversible errors in interpreting and evaluating the meaning or value of evidence in unjustifiable ways against the rules of evidence.

D. In addition, the 'restriction on competitiveness' of the concerned action that needs to be proved to presume the existence of an agreement between the enterprises under Article 19 Paragraph (5) of the MRFTA, indicates 'restriction on competitiveness' in a condition prior to the presumption of an agreement, and therefore the existence of a 'restriction on competitiveness' must be determined under the presumption that an agreement between enterprisers does not exist.

Specifically, in order to determine whether a concerned act in itself imposes a 'restriction on competitiveness', various elements such as the characteristics of the concerned product, the criteria of the consumers' choice of products, the action's effects on the market and competition between the enterprises, etc., need to be taken into consideration to examine whether there is, or whether there is a danger of a certain enterprise or a group of enterprises freely exercising influence (to a certain extent) on determination of prices, quantity, quality or other business conditions, etc. due to reduction of competition in a particular business area (see Article 2 and Article 8 Item 2 of the Act).

According to the record, there had been special circumstances in the domestic coffee market at that time where the normal principle of demands rising when prices decrease did not apply, and the coffee products had the characteristic of being differentiated according to the products' taste, fragrance, the brand's image, etc. rather than the price: the plaintiffs reflected the abovementioned special circumstances of the market and the characteristic of the products in their marketing strategy, which brought about the competitive price increases of this case, in order to give consumers the impression that their products were of higher quality than the other; so the increase in prices of the present case appears to have been the result of reflecting the plaintiffs' competition in the domestic coffee market with special circumstances at that time in which the products did not sell well when the price was cheaper than those of the competing enterprise, and therefore it is difficult to conclude that the competition in a particular business area, namely the coffee market, had been restricted.

Accordingly, presuming an agreement between the plaintiffs according to Article 19 Paragraph (5) of the Act, to regulate their actions as unfair collaborative actions when it is clear that there was a lack of 'restriction on competitiveness' in the present case's price increases, cannot be justified.

Nevertheless, the court below did not take into consideration the special circumstances of the market, the special characteristics of the product or the effects of this case's price increases upon the market and the competition between the plaintiffs, etc. when presuming the existence of an agreement or a tacit understanding between the plaintiffs without justifiable grounds as has been examined above, and the court below saw the present case's act of increasing prices as 'restricting competitiveness' under the premise that the act of the plaintiffs had been committed with the existence of an agreement or a tacit understanding between the plaintiffs, thereby judging that the plaintiffs are presumed to have committed an 'unfair collaborative act' under Article 19 Paragraph (5). Therefore, the court below's reasoning is not only unjustified in the way previously described, but is also unjustified in misunderstanding legal theories regarding 'restriction on competition' prescribed under Article 19 Paragraph (5) of the Act, which affected the conclusion of the judgment. Therefore, the plaintiff's ground for appeal pointing that an agreement between plaintiffs cannot be presumed is justified.

2. On the ground for appeal by the defendant

As long as it is apparent that price increase in the present case is not 'an unfair collaborative act', even though the court below judged this case's order to pay a fine as illegal under different premise than the one above, the conclusion of it judgment is justified. The defendant's ground for appeal disputing this part cannot be accepted.

3.Therefore, we reverse the part of the judgment of the court below against the plaintiff, and remand the corresponding part of this case to the court below for retrial and determination and dismiss the defendant's appeal. This decision is delivered with the assent of all Justices who heard the appeal.

Justices Son Ji-yol (Presiding Justice)

Cho Moo-jeh

Ryu Ji-dam (Justice in charge)

Kang Shin-wook

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