The Supreme Court has ruled that a fine of about 1 billion won ($720,000) imposed by South Korea's Fair Trade Commission (FTC) on GS Retail, the operator of GS Home Shopping, was justified, finding that the retailer improperly returned goods to suppliers and unfairly passed on promotional costs. The confirmation of the FTC's corrective order and fine is expected to influence trade practices across the country's retail industry.
According to legal sources on the 23rd, the third division of the Supreme Court, with Justice Roh Kyung-pil as the presiding judge, upheld the lower court's ruling that had rejected GS Retail's lawsuit against the FTC seeking to overturn the corrective order and other measures.
An FTC investigation found that GS Retail violated the Act on Fair Transactions in Large Retail Business by returning about 62,000 items worth around 1.85 billion won ($1.3 million) between April 2017 and October 2019, based only on removal request forms from suppliers. Under the law, a large retailer may not return all or part of goods it has received without justifiable cause. However, in the case of direct purchase transactions, justifiable cause is presumed when a supplier voluntarily requests the return in writing before the return date, attaching objective evidence that the return directly benefits the supplier.
The commission also confirmed that GS Retail made suppliers bear the cost of sales promotion events held from January 2015 through 2018 without a prior written agreement on cost-sharing. In addition, from January 2018 to June 2020, it had professional broadcasters, entertainers and others affiliated with suppliers appear as guests or models on home shopping broadcasts without a written agreement on the terms of their dispatch. The FTC ordered GS Retail to pay a fine of 1.027 billion won and issued a corrective order.
GS Retail contested the decision and filed a lawsuit. FTC rulings such as sanction decisions carry the same effect as a court's first-instance judgment. As a result, administrative lawsuits concerning fair trade cases and the FTC begin at the Seoul High Court as the first instance, under a two-tier system that then proceeds to the Supreme Court.
In May last year, Division 6-2 of the Seoul High Court found the FTC's disposition lawful. The court held that a supplier's request for a return based on documents alone was not enough to accept it as a voluntary request. It cited the fact that GS Retail, during the FTC investigation, had signed a written statement acknowledging that suppliers had borne the cost of sales promotion events without a prior written agreement. The court also considered that 556 of the 562 supplier employees flagged by the FTC were found to have been made to work at GS Retail's own business sites in violation of the Act on Fair Transactions in Large Retail Business.
The second-instance court explained that "it is reasonable to view this as conduct in which a large retailer used its superior bargaining position to unfairly impose disadvantages, entrenching abnormal trade practices and posing a significant risk of undermining fair trade," adding that "the FTC's calculation of the fine cannot be seen as an unlawful abuse or deviation of discretion when compared with the gravity of the violations."
The Supreme Court upheld the lower court's judgment, finding "no error affecting the ruling, such as misapprehending the facts underlying the calculation of the fine or violating the principles of proportionality and equality."
The ruling confirms the fine and corrective order imposed on GS Retail. Analysts say the decision could accelerate efforts to improve unfair practices in the retail industry.
