Essential Goods in Korean Franchise Law: Can Franchisors Require Purchases?

Essential Goods in Korean Franchise Law are an important issue when a franchisor requires franchisees to purchase products only from the franchisor or a designated supplier.

Korean franchise law generally restricts franchisors from unfairly limiting a franchisee’s choice of trading partners. However, an exception may apply when certain products are genuinely necessary for the franchise system.

Essential Goods in Korean Franchise Law and Supplier Restrictions

In one Korean franchise dispute involving a gimbap franchise, the franchisor designated various food ingredients, disposable supplies, and made-to-order products as mandatory items. The franchise agreement required franchisees to purchase these products from the franchisor.

The legal question was whether those restrictions were permissible.

Article 12 of Korea’s Fair Transactions in Franchise Business Act prohibits certain unfair practices that improperly restrict a franchisee’s business activities, including restrictions concerning trading partners.

However, not every designated-supplier requirement is automatically unlawful.

When Can Essential Goods Be Required?

For a product to qualify as an essential item, factors such as whether it is objectively necessary for operating the franchise and whether purchasing it from a particular supplier is reasonably necessary to maintain product consistency or protect the franchise brand may be relevant.

Proper advance disclosure is also important.

Pureum Law Office explains these requirements in more detail in our 2024 Franchise Business Act Update, including recent rules concerning mandatory purchases and disclosure of essential goods.

Essential Goods in Korean Franchise Law Are Decided Case by Case

The court decisions discussed in this case demonstrate why classification can be difficult.

Certain ingredients and supplies closely connected to the taste or quality of the franchise’s food were treated differently from ordinary commercially available products. Even made-to-order products could potentially qualify where brand identification or consistent quality made designated sourcing objectively necessary.

This does not mean that a franchisor can simply label every product an “essential good.”

Whether a particular item qualifies depends on the actual characteristics of the franchise business, the purpose of the restriction, brand uniformity, and other circumstances.

Franchisors should therefore carefully review mandatory purchasing requirements before imposing them. Franchisees should likewise examine whether a required product genuinely satisfies the legal requirements rather than assuming every supplier restriction is valid.

For a broader explanation of franchisee protections, see our Korean Franchise Law guide. Franchise businesses should also pay close attention to their Korean Franchise Disclosure Document, particularly where mandatory purchases and designated suppliers are involved.

At Pureum Law Office, we advise franchisors and franchisees on Essential Goods in Korean Franchise Law, mandatory purchasing arrangements, disclosure requirements, and franchise disputes.

If you have questions about whether a mandatory product or designated supplier requirement is lawful, contact Pureum Law Office or email ask@pureumlawoffice.com.

Let us help.