Ceragem, a manufacturer of medical devices such as massage chairs, has faced sanctions from the Fair Trade Commission (FTC) on allegations of demanding drawings from a subcontractor and handing them over to its Chinese affiliate.

The FTC announced today (August 6) that it has decided to issue a corrective order and impose a penalty surcharge of KRW 432 million on Ceragem for subcontracting law violations, including unfair special terms and the misappropriation of technology.

According to the FTC, Ceragem entrusted small and medium-sized subcontractors with the production of molds required for manufacturing medical devices like massage chairs, while setting up special terms that unilaterally vested technical data, such as mold drawings prepared by the subcontractors, to itself without fair compensation.

An agreement that unilaterally vests rights concerning a subcontractor's technical data acquired during a subcontracting transaction in the main contractor is a contract condition that unfairly restricts the subcontractor's rights, and corresponds to a representative unfair special term under FTC notifications.

In addition, Ceragem demanded and received 33 mold drawings from subcontractors in order to provide them to its Chinese affiliate, Tianjin Ceragem Medical Equipment Co., Ltd.

It was revealed that Ceragem subsequently provided 7 of the mold drawings received from them to the Chinese affiliate without any consultation with the subcontractors.

The FTC also uncovered and issued a corrective order for Ceragem's failure to issue a written document requesting technical data, which specifies the purpose of the request and other details, when demanding outline drawings and specifications for motor parts from subcontractors.

The obligation to provide a written request for technical data is a safety device under the Subcontracting Act designed to prevent misappropriation that may occur after the provision of technical data, and to minimize disputes between businesses by clarifying rights and obligations and confidentiality measures regarding technical data.

An FTC official stated, "This action detected and sanctioned unfair special terms and technology misappropriation through an ex officio investigation into the home appliance industry."

The FTC official added, "It is significant in that it confirmed that the practice of unilaterally vesting subcontractors' technical data into the ownership of the main contractor through unfair special terms without fair compensation, and demanding or providing subcontractors' technical data to a third party based on this, is illegal."

(Photo provided by Ceragem, Yonhap News)