Fair Trade Commission Punishes Olive Young for Abuse of Power...Only 1.9 Billion KRW Fine Imposed

On the 7th, the Fair Trade Commission Sanctions CJ Olive Young for Supplier Abuse

The Fair Trade Commission's penalty fine on CJ Olive Young for its abusive practices against suppliers amounted to only 1.9 billion KRW. This is because the Commission concluded not to classify Olive Young as a ‘market-dominant business operator’ under the Fair Trade Act. If recognized as a market-dominant business operator, heavier sanctions would be imposed for the same abusive practices. The industry widely expected that Olive Young would be deemed a market-dominant business operator and face a large-scale fine.

On the 7th, the Fair Trade Commission imposed corrective orders and a fine of 1.896 billion KRW on Olive Young for forcing exclusive transactions and other acts prohibited under the Large-Scale Distribution Business Act, such as prohibiting exclusive transactions, providing disadvantages, and forcing product purchases against suppliers. The Commission also decided to file a criminal complaint against the corporation.

According to the Commission, Olive Young abused its superior bargaining position to prevent its suppliers from contracting with competitors such as Lalavla (GS Retail) or LOBS (Lotte Shopping). Specifically, from 2019 to the present, suppliers were prohibited from conducting promotional events with other competitors during the current and previous months for items promoted by Olive Young.

Additionally, Olive Young procured products at low prices from suppliers under the pretext of discount events and then sold the inventory at regular prices after the events, thereby gaining additional profits. From March 2019 to June 2021, Olive Young received products under the name of Power Pack (a monthly event where products are displayed on the most visible shelves in stores) and sold them at normal prices after the event ended without refunding the reduced supply price. It was confirmed that Olive Young unjustly received a total price difference of 804.8 million KRW from the lowered supply prices.

CJ Olive Young operating in downtown Seoul. Photo by Jinhyung Kang aymsdream@

Furthermore, it was confirmed that Olive Young continued to collect unfair fees from suppliers over about five years. From January 2017 to December 2022, Olive Young provided product sales-related information through its own IT system without suppliers’ consent and effectively collected about 1-3% of net purchase amounts from almost all suppliers under the name of ‘information processing fees.’

However, the fine imposed by the Fair Trade Commission on Olive Young was limited to 1.896 billion KRW because the Commission judged it uncertain whether Olive Young is a ‘market-dominant business operator.’ The Fair Trade Act imposes heavier sanctions with larger fines based on sales and other criteria on market-dominant business operators for the same abusive acts. The Commission explained, “We reviewed whether Olive Young’s conduct constitutes an abuse of market dominance under the Fair Trade Act but decided to conclude the review process.”

The premise for determining dominance is market definition (the process of deciding the meaningful relevant market in which a business operates). Olive Young has argued that its relevant market should be broadly defined as the online and offline distribution market. If the market is expanded to include online and offline sectors, major online companies distributing cosmetics such as Coupang, Naver, and Market Kurly would be included as competitors, which could lower the assessment of Olive Young’s market dominance.

The Commission also stated, “Considering the strengthening competition between online and offline sales channels comprehensively, the relevant market should be broader than H&B.” It judged that “at this stage, it is uncertain whether Olive Young is a market-dominant business operator.” The Commission explained that it assessed Olive Young’s conduct only under the Large-Scale Distribution Transactions Act. However, a Commission official said, “Considering the need to continuously monitor Olive Young’s impact on market competition, we decided to conclude the review process rather than dismiss the case.” Concluding the review process is a measure taken when it is difficult to verify facts or when it is necessary to defer the Commission’s judgment due to uncertainty about market conditions.

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