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KFTC imposes corrective measures on Medtronic Korea for abusing its superior bargaining position.
Including a corrective order and a penalty surcharge of KRW 270 million

The Korea Fair Trade Commission (led by Chairperson Sungwook Joh, hereinafter referred to as the "KFTC") decided to impose corrective measures on Medtronic Korea for forcing domestic dealers to selling only to hospitals and in areas designated by it, and for forcing them to disclose information on prices sold to hospitals and purchasing agents. The measures include a corrective order and a penalty surcharge of KRW 270 million. Medtronic Korea is the largest importer of medical devices in Korea in terms of amount. It imports surgical devices from its US parent company and supplies them to hospitals directly or through domestic dealers.

□ Act of designating and restricting dealers’ trading areas and counterparts

From October 2009 to April 2017, Medtronic Korea allocated hospitals to a total of 145 dealers which supplied 63 medical devices related to minimal invasive treatment and heart and vascular reconstruction treatment. When signing a contract with the dealers, Medtronic Korea established contract terms and conditions that allow it to terminate the contract or reject the after-sales service if the dealers do sales activities to hospitals allocated to other dealers or outside the designated sales areas. As a result, the dealers supplied Medtronic Korea's devices only to hospitals and in areas allocated to them, and this restricted competition by depriving the hospitals of opportunities to choose their suppliers which compete on the merits.

Of the 19 devices related to minimally invasive treatment provided by Medtronic Korea, its market shares of 8 devices stood at over 50%. Therefore, if competition among the dealers was restricted, the users' opportunity to purchase medical devices at a low price could be also restricted. Since Medtronic Korea's conduct violated Article 23 (1) 5 (Binding conditional trade) of the MRFTA and Subparagraph 7 (b) of Table 1-2 of the Enforcement Decree (Restriction of trading
area or trading counterparts), the KFTC imposed a corrective order (restraining further violations of law) and a penalty surcharge of KRW 270 million.

□ Act of forcing the dealers to submit pricing information

From December 2016 to October 2017, Medtronic Korea required a total of 72 dealers supplying 24 medical devices related to minimally invasive treatment to submit information on prices sold to the hospitals and purchasing agents. Medtronic Korea took the following measures to make the dealers submit pricing information.

- It made it mandatory for the dealers to submit pricing information.
- The contract included a clause requiring that if the dealers didn't submit information or the accuracy of the information was less than 85% for 3 consecutive months, it can immediately terminate the contract by sending a written notice.
- The contract also included a clause that whether the dealer submitted information at the right time when Medtronic Korea required it is reflected in the dealer's performance evaluation.

Medtronic Korea is a leading company in the medical device market. While it is in a position to easily switch its trading counterparts, the dealers can't find another supplier if Medtronic Korea terminates the transaction with them. Therefore, Medtronic Korea has a superior bargaining position against the dealers. When pricing information is disclosed to the head office, the dealer's margin rate is also disclosed. This may put the dealer in a weaker position in negotiating prices with the head office. Therefore, pricing information is a trade secret worthy of protection. Although there was no legal ground for requesting pricing information under any related laws including Medical Devices Act, and such information had nothing to do with its after-sales service and marketing activities, Medtronic Korea forced the dealers to submit it. This conduct unfairly restricted the autonomy of business activities of the dealers.

The KFTC's decision makes it clear that a dominant company restricting its dealers' trading counterparts or area is a violation of the law, raising a warning flag to those trying to justify such anti-competitive conducts as business practices. In addition, it also clarifies that requiring and forcing dealers to disclose a trade secret including pricing information may be a violation of Fair Agency Transactions Act (enforced on December 23, 2016). This will contribute to eradicating the act of the head office reflecting such information in setting the supply price for dealers.