[Sunwoon Law Firm]
Sunwoon Law Firm, on behalf of the Korea Franchise Association, has filed an application for intervention with the Supreme Court panel handling the appeal in the Pizza Hut differential franchise fee litigation (claim for return of unjust enrichment).
The Association has applied for intervention to directly represent the franchise industry, citing that if the appellate court’s decision, holding that all differential franchise fees not specified in the September 2024 contract constituted unjust enrichment and ordering Korea Pizza Hut LLC to return KRW 21 billion, were to be affirmed, it would cause significant disruption and harm across the entire franchise industry. Sunwoon Law Firm is representing the Association in these legal proceedings.
In its application, the Association explained that the domestic franchise industry has long relied on the practice of differential franchise fees due to Korea’s compact territory, which allows for efficient logistics, the prevalence of small franchisors, and the practical difficulties in adopting a royalty-based model for trademark use. It also noted that the risk of sales underreporting and royalty evasion has made the differential franchise fee model a natural and prevailing practice. Furthermore, the Association emphasized that margin-taking has long been treated as trade secrets and, therefore, has historically not been expressly stated in franchise contracts.
The Association argued that the differential franchise fee model has become an established commercial practice and that it is a basic principle of commerce for distributors to retain a certain margin in the distribution process. However, the lower court did not recognize such practices as constituting implied consent. The Association warned that, if the judgment is upheld, most franchisors would face related lawsuits, inflicting substantial damage on the entire industry. In particular, given that 74.5% of restaurant franchisors operate fewer than 10 outlets, an order to return differential franchise fees could threaten the very survival of the industry while undermining long-standing legal stability.
The Association further noted that, following last year’s amendment to the Franchise Business Act, all franchisors are already required to disclose differential franchise fee arrangements in their contracts. It expressed its intention, if the intervention is granted, to provide the Court with thorough input from industry stakeholders and experts, thereby contributing to the stability of the domestic franchise sector.
Sunwoon Law Firm, representing the Association in this intervention procedure, plans to respond proactively in order to minimize the legal uncertainty and systemic disruption currently facing the domestic franchise industry, and to contribute to the industry’s stability.
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