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Winning of a lawsuit in a claim for cancellation case including corrective measures related to multi-level sales, etc.

Failing to register as a multi-level sales business, Company C sold cosmetics under a system in which ① a sales representative of Company C recruits another person as a sales representative, and such other sales representative recruits another person as a sales representative again, and ② Company C makes payments such as team commissions and mentor bonuses to a sales representative based on his sales results and those of subsequently recruited representatives. The Fair Trade Commission issued an order of corrective measures to Company C, the client, for the suspension of multi-level sales under Article 13, Paragraph 1 and Article 42, Paragraphs 1 and 2 of the Door-to-Door Sales Act on the grounds that Company C’s sales system of Company C constituted multi-level sales as provided by Article 2, Subparagraph 5 of the Door-to-Door Sales Act.

 

Shin & Kim, representing Company C, argued that its sales activities do not constitute an act of multi-level sales under the Door-to-Door Sales Act based on the fact that Company C’s sales representatives had registered as sales representative without purchasing the products of Company C as consumers.  The Fair Trade Commission argued that Company C’s sales activities constituted an act of multi-level sales because a person who purchases goods from a multi-level sales business to become a multi-level sales representative also falls under the category of consumers under the Enforcement Decree of the Fair Trade Act. Shin & Kim convinced the court that the clause in the Enforcement Decree of the Fair Trade Act about the concept of a consumer, which had been cited by the Fair Trade Commission as a basis for its argument, should not be considered in determining whether Company C had been engaged multi-level sales in light of the purpose of such clause.  The court ruled accepted Shin & Kim’s argument and Company C won the lawsuit. This case is highly significant in terms of defining the scope of application of the Door-to-Door Sales Act on multi-level sales Given that it is a new case in which the court, without many precedents on the concept of multi-level sales under the Door-to-Door Sales Act, ruled that a defendant’s act does not constitute an act of multi-level sales.

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