SOUTH KOREA Law and Practice Contributed by: Hongki Kim, Hwijin (HJ) Choi, Kee Won Shin and Jennifer Yein Kwon, Bae, Kim & Lee LLC
share of sales and the pricing. The franchisor, in turn, is prohibited from unreasonably refusing or neglecting to engage in such consultations. Accordingly, where the franchisor utilises specific sales channels such as online platforms, franchisees or franchisee associations may request consultations. In such cases, the franchisor must participate in the consultations in good faith, but is not legally required to reach agreement on the matters under discussion. 6.5 Vertical Agreement Block Exemptions Under the Franchise Act, a franchisor may not, without justifiable cause, fix the resale prices of goods or ser - vices sold by franchisees or unfairly restrict the fran - chisees’ ability to determine such prices (Article 12 (1)2 of the Franchise Act; Enforcement Decree, Annex 2). However, the following practices are excluded from this prohibition: • recommending resale prices to franchisees; and • requiring that franchisees consult with the fran - chisor in advance when determining or changing resale prices, provided that the franchisor does not coerce compliance through such consultations. Within the scope of these exceptions, vertical agree - ments between franchisors and franchisees are per - mitted under Korean law. Separately, in assessing the competitive effects of vertical restraints in fran - chise relationships, pro-competitive effects may also be considered in theory. In practice, however, pro- competitive justifications rarely play a decisive role in enforcement outcomes. 7. Choice of Governing Law 7.1 Possibility of a Franchisor Stipulating Non-Local Law The Franchise Act does not expressly regulate the governing law of franchise agreements. Accordingly, the franchisor may stipulate the laws of its own juris - diction as the governing law of the agreement. 7.2 Local Law Requirements Korean law does not formally require that franchise agreements be governed by Korean law. Neverthe -
less, the generally accepted view, also reflected in the KFTC’s position, is that the Franchise Act con - stitutes overriding mandatory provisions. Therefore, even where the parties designate foreign law as the governing law, the Franchise Act will continue to apply to agreements with franchisees in Korea. The Franchise Act applies equally to both the intel - lectual property elements and the service elements of a franchise agreement. 7.3 Mandatory Content Mandatory Terms of Franchise Agreements Franchise agreements must include matters concern - ing the following (Article 11 (2) of the Franchise Act): • licensing and use of the franchisor’s trade marks; • terms and conditions of the franchisee’s business activities; • education, training and operational guidance for the franchisee; • payment of franchise fees and other costs; • designation of business territory; • duration of the agreement; • transfer of business; • grounds for termination of the agreement; • requirement that a franchise deposit be held in a depository for two months from the date of the franchise agreement (or until business commence - ment, if earlier), or if the franchisor maintains dam - age compensation insurance, details of the insur - ance policy; • confirmation (if consultation was obtained) that a prospective franchisee has consulted an attorney- at-law or certified franchise transaction consultant; • compensation for damages incurred by the fran - chisee due to unlawful acts of the franchisor or its executives, or acts contrary to social norms that may damage the reputation or creditability of the franchise business; • where the franchisor obliges the franchisee to transact with designated suppliers, the scope of the obligation (eg, types of real estate, services, facilities, goods, raw materials or lease arrange - ments) as well as the method of calculating supply prices; • conditions for refund of franchise fees and other payments;
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