The Supreme Court ruled that the Korea Fair Trade Commission's corrective order and a 1 billion won penalty surcharge against GS Retail for unfairly shifting expense to suppliers were justified.
The Supreme Court's Third Division (presiding Justice Noh Kyung-pil) said on the 23rd that on the 9th it finalized a lower court ruling dismissing GS Retail's suit to cancel the corrective order against the Korea Fair Trade Commission. GS Retail absorbed GS Home Shopping in Jul. 2021. The transaction at issue occurred at GS Home Shopping.
Home shopping companies sell products to consumers through broadcasts. When consumers who watch the broadcasted product sales place orders with a home shopping company, the company asks a supplier to deliver the product to the consumer. The home shopping company deducts part of the payment made by the consumer as a sales commission and pays the remainder to the supplier.
However, the Korea Communications Commission, to expand sales channels for small and midsize enterprises, evaluates the share of direct purchases of SME products when a home shopping company seeks renewal of its program provider license. Because of this, home shopping companies directly purchase SME products and, when orders arrive, deliver them to consumers. In this case, the inventory burden falls on the home shopping company, not the supplier.
From Apr. 2017 to Oct. 2019, GS Retail returned 62,399 directly purchased products from eight SMEs. The purchase amount was 1.85622 billion won. GS Retail did not specifically agree on return conditions when contracting with suppliers.
Of the returned products, GS Retail sent back 6,001 items after receiving only a take-out request from suppliers. It returned 56,398 items after receiving a take-out request and documents that included a resale plan.
Also, from Jan. 2015 to Nov. 2018, GS Retail conducted sales promotion events—such as free gift promotions and product review events—while selling products supplied by 26 SMEs through broadcasts. At that time, GS Retail made suppliers bear the sales promotion expense.
Additionally, from Jan. 2018 to Jun. 2020, while airing 505 broadcasts for products supplied by 144 SMEs, GS Retail had 562 people—supplier-affiliated employees or hired professional broadcasters, entertainers, models, and sales experts—work in its broadcast studio.
For these reasons, the Korea Fair Trade Commission (FTC) found that GS Retail violated the Act on Fairness in Large Retail Business and in Jan. 2022 imposed a corrective order along with a 1.027 billion won penalty surcharge. GS Retail filed an administrative suit, arguing the disposition was unjust.
In court, GS Retail argued, "Suppliers voluntarily requested returns in writing, attaching objective supporting materials that returns would benefit them." It also said it did not pass on sales promotion expense to suppliers, and that suppliers had their employees appear on home shopping broadcasts for their own benefit.
The Seoul High Court dismissed GS Retail's claim. The panel said that in direct-purchase transactions, for returns, suppliers must refund payments already received, incur additional distribution expense, and then resell the products, adding that "suppliers have very little incentive to request returns." It continued, "Based solely on the evidence GS Retail submitted, it is insufficient to find that suppliers voluntarily requested returns."
The panel also ruled on the disposition imposing a 1.027 billion won penalty surcharge, saying, "GS Retail's act of prohibiting product returns involves a violation amount of 1.8 billion won, which is by no means small," and "the calculation of the penalty surcharge did not deviate from or abuse discretion compared with the seriousness of the violation."
The Supreme Court dismissed GS Retail's appeal, finding the lower court did not misapprehend the legal principles.