Dunkin' franchisor loses battle over 2.1 billion won fine for forcing purchases on franchise owners

Dunkin's Korea franchisor lost a court battle Monday over a 2.1 billion won ($1.4 million) fine for forcing franchise owners to buy donut trays, display cases and other supplies exclusively through the company.

The Seoul High Court ruled against BR Korea, Dunkin's franchisor in Korea, in a lawsuit the company filed against the Korea Fair Trade Commission (FTC) seeking to overturn a corrective order and penalty payment order, per legal sources on Monday.

The FTC issued the corrective order along with a fine of 2.1 billion won against BR Korea in March last year, saying the company had excessively restricted franchise owners' freedom of choice.

At the time, BR Korea had designated 38 items, including kitchen equipment such as donut trays and donut display cases, as well as sandwich boxes, as mandatory items that franchise owners could only purchase through the company.

The FTC determined that BR Korea had violated the Fair Transactions in Franchise Business Act by restricting where franchise owners could buy the items, even though the products were not directly necessary for maintaining the taste and quality of Dunkin's products.

BR Korea contested the ruling, arguing that it "never forced franchise owners to purchase the items" and that the measures were "necessary steps to unify the brand image and maintain the quality of products such as donuts."

But the court rejected the company's arguments.

The court said the contract stipulated that "franchise owners could face disadvantages, including contract termination, if they purchased the 38 items from other businesses without the plaintiff's approval," adding that "regardless of whether such disadvantages actually occurred, franchise owners had no choice but to give up purchasing through other suppliers."

The court also found it difficult to conclude that the items BR Korea forced franchise owners to buy had a direct impact on the taste and quality of key products such as donuts and sandwiches.

"Kitchen equipment is simply workspace for storing raw materials, hall equipment is for storing and displaying finished products, and consumables serve only an ancillary purpose in storing and displaying donuts," the court said.

BY JUNG SI-NAE [[email protected]]