The Korea Fair Trade Commission is conducting on-site inspections of the "logo royalties" conglomerates receive from affiliates, and debate continues over the "normal price," the standard used to determine whether the amount constitutes unfair support. The controversy began after Vice Chair Nam Dong-il of the Korea Fair Trade Commission (FTC) recently said there is "no standard for the normal price."
In response, the legal community noted, "If on-site inspections are conducted without fixed punishment standards, there is a legal problem." Industry officials also said, "We have no way of knowing at what level a royalty becomes a legal violation, so saying the standard was breached would be excessive."
◇ Korea Fair Trade Commission (FTC) vice chair: "Standards are often set through ex post regulation"
Vice Chair Nam Dong-il of the Korea Fair Trade Commission (FTC) made the remarks at a pre-briefing for the president's work report on the 3rd. Reporters asked, "Is it appropriate to investigate without setting a standard for the normal price of logo royalties?" Nam replied, "If such standards existed, an investigation might not be necessary," adding, "It is not absolutely necessary to have clear ex ante standards; in many cases, standards are established through ex post regulation."
Conglomerates allow affiliates to use their logos and collect trademark royalties as a set percentage of sales or operating profit. The Korea Fair Trade Commission (FTC) guidelines say that charging 7% or more of the normal price for trademark royalties, an intellectual property right, may constitute unfair support.
But because conglomerate trademarks are not traded openly in the market, it is not easy to determine a normal price. Previously, in 2017, the Korea Fair Trade Commission (FTC) reviewed investigating logo royalties but did not proceed because it could not set a normal price.
This time, the Korea Fair Trade Commission (FTC) is investigating conglomerate logo royalties based on the view that they may constitute unfair support intended to boost the revenue of holding companies in which the owner family has significant equity.
◇ Korea Fair Trade Commission (FTC): "We have internal standards" Legal community: "Punishment requires clear ex ante standards"
There is much discussion over the normal price related to logo royalties. A lawyer specializing in antitrust cases said, "Unfair support can be punished by up to three years in prison or a fine of 200 million won under the Fair Trade Act," adding, "If you are going to impose criminal penalties, you need to set in advance a clear normal price to determine whether conduct is unfair." Another lawyer said, "The reason the Korea Fair Trade Commission (FTC) did not investigate logo royalties in 2017 should be seen as a failure to secure clarity in the punishment provisions."
However, an official at the Korea Fair Trade Commission (FTC) said, "We began this investigation with internal standards for judging the normal price," adding, "It is still too early to make them public."
Lee Hwang, a Korea University professor, also said, "If the Korea Fair Trade Commission (FTC) were to publish a 'normal price,' it could amount to price control and would be undesirable," adding, "This move appears aimed at creating market rules by establishing cases that sanction corporations that charged prices notably higher than customary levels."
An industry official said, "Conglomerates have disclosed logo royalties since 2018, but the Korea Fair Trade Commission (FTC) has never set what the normal price is," adding, "There were either no standards at all or none we could know about, so it is hard to accept a crackdown now." Another official said, "Isn't the Korea Fair Trade Commission (FTC) trying to set standards ex post and then sanction a uniform percentage of the corporations under investigation?" A third official said, "Going forward, how about the Korea Fair Trade Commission (FTC) setting standards and operating the system with a set guidance period?"