- Corrective measures and fines imposed for forcing the purchase of kitchen equipment and consumables exclusively from the franchisor, and a warning issued for providing incorrect nearby franchise information.
The Korea Fair Trade Commission (Chairman Han Ki-jeong, hereinafter referred to as the "KFTC") has decided to impose corrective measures and a fine of 2.136 billion KRW on BR Korea Co., Ltd. (hereinafter referred to as "BR Korea"), the franchisor of the donut and coffee brand Dunkin’/Dunkin’ Donuts, for forcing franchisees to purchase 38 designated essential items, including kitchen equipment and consumables, exclusively from the franchisor. Additionally, a warning was issued for providing incorrect nearby franchise information.
BR Korea designated 38 items, including kitchen equipment and consumables, as essential items based on its disclosure documents and required franchisees to purchase them exclusively from the franchisor, thereby restricting the franchisees’ choice of suppliers.
Essential items refer to items that a franchisor compels franchisees to purchase from the franchisor itself or a designated supplier.
Under the Franchise Business Act, the designation of essential items by a franchisor is lawful only if:
- The items are essential for operating the franchise.
- They are necessary for trademark protection and maintaining product consistency.
- The requirement is clearly disclosed in the disclosure document prior to the signing of the franchise contract.
However, the 38 essential items designated by BR Korea were not directly related to the taste or quality of Dunkin’/Dunkin’ Donuts products. Furthermore, it was difficult to objectively justify that purchasing these items exclusively from BR Korea was essential for franchise operations. As a result, BR Korea excessively restricted the franchisees’ freedom of choice.
Provision of Incorrect Nearby Franchise Information
According to the Franchise Business Act, franchisors must provide franchise applicants with a document listing the 10 nearest franchise stores to the prospective store location during the contract process.
However, BR Korea failed to include closer franchise locations in nine franchise agreements, instead listing more distant stores in the nearby franchise information document. This misrepresentation hindered franchise applicants from making informed decisions.
Significance of This Decision
This decision strictly sanctions the unjustified imposition of essential item purchases on franchisees, raising awareness among franchisors and preventing excessive restrictions on franchisees’ purchasing choices. It also contributes to establishing fair trade practices in the franchise sector.
Furthermore, franchise applicants are now expected to receive accurate nearby franchise information, allowing them to make more informed decisions regarding franchise establishment.