Fair Trade Commission: "LY Entertainment Concealed 'Youngja Club' Trademark Dispute from Franchise Applicants... Reported to Prosecutors"

[Asia Economy Reporter Joo Sang-don] The Fair Trade Commission announced on the 27th that it has detected LY Entertainment's violation of the Franchise Business Act and decided to issue corrective orders and file criminal charges (against the corporation, CEO, and inside director). LY Entertainment is a franchisor operating a franchise business under the trade names 'Youngja Club' and 'Lucid,' providing consumers with device usage services such as massage devices and beverage sales services.

According to the Fair Trade Commission, LY Entertainment did not disclose the fact of an ownership dispute over the Youngja Club trademark with another business operator when signing franchise contracts with prospective franchisees in September 2017. Since the ownership dispute concerning the trademark use with another business operator is a matter that significantly affects the decision to enter into a franchise contract, concealing this fact violates the Franchise Business Act, which prohibits deceptive information provision.

LY Entertainment also provided false and exaggerated information regarding sales figures. LY Entertainment informed prospective franchisees via KakaoTalk in 2018 that the monthly sales of Youngja Club Nonsan A branch were 10.06 million KRW, Ansan B branch 21.16 million KRW, and Mokpo C branch 15.62 million KRW. However, the sales information provided to prospective franchisees was false and exaggerated without objective evidence. The actual average monthly sales were 7.85 million KRW for Nonsan A branch, 6.68 million KRW for Ansan B branch in 2017, and 11.46 million KRW for Mokpo C branch.

Additionally, LY Entertainment signed franchise contracts or received franchise fees (55 million KRW) from prospective franchisees within 14 days of providing the disclosure documents between January and June 2018. This violates the Franchise Business Act, which prohibits concluding franchise contracts or receiving franchise fees without providing disclosure documents or within 14 days of providing them.

Furthermore, LY Entertainment failed to provide necessary support for franchise operations without justifiable reasons and forced the purchase of goods unrelated to franchise operations.

A Fair Trade Commission official stated, "This action rectifies unfair trade practices by franchisors occurring at the franchise recruitment and establishment stages and the concealment of information significantly affecting franchise contract decisions, which hindered the reasonable judgment of prospective franchisees. By also filing charges against Mr. Lee, the actual CEO of LY Entertainment and an inside director who continued similar franchise businesses under another person's name, we have meaningfully suppressed the possibility of similar damage cases occurring."

This content was produced with the assistance of AI translation services.