Korea: private practice perspective

Overview of the agency

In 2021, the Korea Fair Trade Commission (KFTC) commemorates the 40th anniversary of its establishment and the enactment of the Monopoly Regulation and Fair Trade Act (MRFTA), the framework competition law of Korea.

The KFTC is an independent administrative authority established to enforce the MRFTA and other laws and regulations relating to competition and fair trade. The KFTC’s enforcement scope is not limited to competition – it also covers consumer protection, subcontractor protection, fair labelling and advertisement, franchise, large-scale retail stores, e-commerce, standard terms and conditions, etc.

Similar to the Fair Trade Commission of the United States, the KFTC has both investigative and enforcement power. If the KFTC officials find a violation of the aforementioned laws and regulations through investigation, they can bring a case against the violator before the Commission (which comprises nine commissioners including the chairperson and the vice-chairperson). Depending on their type, volume and severity, cases brought to the Commission are categorised into cases to be reviewed by the full Commission and cases to be reviewed by sub-Commission (which comprises three commissioners). If the Commission or its sub-Commission finds a violation of law, it may issue an order against the violator in the form of a corrective order, an administrative fine or filing a criminal complaint with the Prosecutors’ Office.

In case of a violation of the criminal provisions of the MRFTA, the Prosecutors’ Office under the Ministry of Justice can investigate and bring in an indictment against violator. However, unlike the US Department of Justice Antitrust Division, the Prosecutors’ Office cannot commence an investigation on its own initiative, but instead, their investigation must follow a formal criminal complaint filed by the KFTC. Despite the fact there was substantive discussion by the National Assembly during the preparation and review process for the recent complete amendment of the MRFTA on the need for abolition of the KFTC’s exclusive authority to bring a formal criminal complaint (which would result in the expansion of the authority and involvement of the Prosecutors’ Office in antitrust cases) in case of a material violation of the MRFTA such as a hard-core cartel, the existing system remains in force.

The most notable event in terms of the MRFTA enforcement in the near future will be the recent complete amendment of the MRFTA. Following several years of effort by the KFTC to amend the MRFTA, the very first overall amendment to the MRFTA since its initial enactment was passed by the National Assembly on 9 December 2020 and will take effect from 30 December 2021. The important changes under the amendment are as follows.

  • The maximum amounts of an administrative fine to be imposed for a violation of the MRFTA will be raised to twice of the amount under the existing system – more specifically, 10 to 20 per cent of the relevant sales for cartel, 3 to 6 per cent of the relevant sales for abuse of market-dominant position, 2 to 4 per cent of the relevant sales for unfair trade practices.
  • In the case of a merger filing, since the threshold that triggers an obligation to report a merger to and obtain approval of the KFTC is determined based on the relevant company’s sales or total assets under the current system, an acquisition of or merger with a small target company with a substantial potential for growth which may have an anticompetitive effect on the relevant market would not be subject to a filing obligation. To prevent this loophole, the amendment requires merger filing for small target companies (whose sales or total assets are less than 30 billion won) if the transaction value is more than a certain threshold amount, which will be later determined by the President’s enforcement decree of the MRFTA.
  • Pursuant to relevant court precedents, exchange of information between competitors is not sufficient to constitute a cartel prohibited under the MRFTA. Under the amendment, an act of exchanging certain information that may restrain competition, such as information on price or production quantity, will be explicitly prohibited, and an agreement on collective action will be legally presumed if such exchange of information between competitors is corroborated by an appearance of competitor’s concurrent activities (eg, increase in consumer price by similar margin in similar times).

Furthermore, there are some notable changes in private enforcement. The key points addressed in the amendment in relation to private enforcement are as follows:

  • the addition of a provision permitting the damaged party to file a lawsuit with a court seeking an injunction to prohibit or prevent unfair trade practices;
  • the addition of a provision allowing the court in a lawsuit seeking damages caused by unfair collective action (ie, cartel) or unfair trade practices to issue an order against a party-entity to submit a certain document and to prohibit it from refusing to submit the document if it is necessary to prove damages or the amount thereof despite the fact that such document can be protected as trade secrets; and,
  • the addition of a provision permitting the court, when the aforementioned court order to produce a document containing trade secrets is issued, to issue a separate order against the receiving party and its attorney not to use said trade secrets except for the purposes of carrying out the lawsuit or not to disclose to anyone except the party who received the order to keep confidentiality thereof.

To address the present rapid growth of online platform business, the KFTC prepared a bill to enact the Act on Fair Intermediary Transactions on Online Platforms in September 2020, and the Korean government officially proposed the National Assembly to enact the above act. This act is proposed to regulate certain ‘online platforms’ so that Apple App Store, Google Play, open market or e-commerce platforms such as e-Bay, applications for arranging food delivery, hotel services and transportation, which exceed certain criteria in terms of size of business, are expected to fall into the scope of these regulations. The proposed bill will give a business entity doing its business on or through such online platform a right to seek damages in case of a violation of the Act by an online platform business operator, the details of which will be governed by the existing provisions of the MRFTA. But, as the proposed bill still has to go through the deliberation and resolution of the National Assembly for enactment, the development and progress thereof needs to be closely observed.

Recent developments

Mergers

On 28 December 2020, the KFTC approved Delivery Hero’s acquisition of 88 per cent shares in Woowa Brothers Corp subject to certain conditions. Delivery Hero operates Korea’s No. 2 food ordering and delivery platform called Yogiyo and No. 3 food ordering and delivery platform Baedaltong, while Woowa Brothers operates Korea’s No. 1 food ordering and delivery platform, Baedal Minjok.

In the aforementioned merger case, the KFTC concluded that there exists a high risk of anticompetitive effects such as a reduction in consumer benefits and an increase in restaurant fees if head-to-head competition between the No.1 and No. 2 players in the food ordering and delivery platform industry is removed as a result of the merger. Based on the transaction value in 2019, the merging parties have the highest combined market share of 99 per cent in the relevant market, and the two companies have firmly maintained their market shares for the past five years, while there has been no new player that has succeeded in achieving a market share of 5 per cent or more despite many entrants’ attempts.

The KFTC characterised its decision on this case as ‘approval of merger subject to conditions’ and evaluated that it does not only protect competition and consumer welfare in the relevant market by maintaining the competition between Baedal Minjok and Yogiyo, but also allows the merging parties to achieve synergetic effects that can be expected from the combination of Delivery Hero’s technology and Woowa’s marketing capabilities. On the other hand, the KFTC’s decision was also evaluated as ‘blocking’ the merger in substance because the conditions imposed by the KFTC for allowing the merger included divestiture of Yogiyo, the No. 2 platform, which Delivery Hero has operated for many years before the merger, so it hindered the innovation of the highly dynamic food ordering and delivery platform industry. In any event, the parties are currently proceeding with the sale and acquisition of shares in compliance with the KFTC’s order to divest Yogiyo.

Unilateral conduct

In recent years, the KFTC’s enforcement focus has been on the unilateral conducts of multinational big tech companies.

Google

The KFTC has completed its investigation and review of a case concerning whether Google has abused its market-dominant position in the mobile operating system (Android) and Android application market by interfering with its competitor’s market entry, thereby causing anticompetitiveness in the relevant market. After three hearings for this case were held in 2021, the KFTC ruled that Google’s acts violated the MRFTA and issued a corrective order together with an administrative fine of 207.4 billion won.

It is considered exceptional for the KFTC to hold three hearings for one case. It appears that the KFTC has considered the fact that the acts in question have continued in the global market for a considerably long period of time and thus there are many complex issues to be reviewed in order to determine the legality of such acts.

Apple

On 27 January 2021, the KFTC finalised the consent order procedure with Apple Korea. The KFTC investigated Apple Korea’s abuse of market-dominant position in relation to its (i) act of receiving money from mobile carrier companies as advertising fees for mobile phones and warranty repair promotion fees, (ii) act of including clauses in the relevant contract granting Apple Korea a royalty-free patent licence and allowing Apple Korea to unilaterally terminate the contracts, and (iii) act of determining retail prices for mobile phones in lieu of the mobile carriers and involving their advertising and promotional activities. In June 2019, Apple Korea filed for a consent order.

The aforementioned consent order includes the corrective measures to improve trade order and the coexistence measures to increase customer benefits and support small and medium-sized businesses. The corrective measures include the following measures: (i) to exclude, in part, parties to which adverting funds can apply; (ii) to remove clauses that require mobile carriers to pay warranty repair costs or allow unilateral termination of contract by Apple Korea; (iii) to introduce a mutually beneficial system that can prevent patent disputes; and (iv) to adjust minimum subsidies to correspond to the discounts on mobile bills. Additionally, as the coexistence measures, Apple Korea vowed to offer 100 billion won to establish research and development centres, to establish Apple Developer Academy, to support digital devices to public education facilities, and to provide discounts on warranty repair costs for Apple devices and AppleCare+.

Apple Korea will comply with the corrective measures for the next three years, and the KFTC will appoint a watchdog to conduct an audit on Apple Korea’s compliance on a quarterly basis.

Cartels

In January 2021, the KFTC issued a corrective order together with a fine of 300 billion won against seven steel manufacturing companies for their collective action (cartel) to form an agreement and execute this agreement on the range and timing of changes in the standard price of steel scraps, which are raw materials for steel products such as steel bars, for a period of eight years from 2010 to 2018.

The above order was the fourth-largest fine imposed by the KFTC for a single case. Also, the KFTC paid a reward of 1.7 billion won to the whistle-blower, which is the largest reward amount paid in the history of KFTC cases. The whistle-blower submitted evidentiary materials that can prove the background facts, including the list of persons involved in the alleged cartel, the substance of the agreement among those persons, and the KFTC uncovered the alleged cartel based on the submitted materials.

The reward system for whistle-blowers for MRFTA violations was introduced in 2005 and has continued to expand the scope of applicable MRFTA violations (currently, rewards are offered for 15 types of violations for six fair trade related laws and regulations) as well as the maximum reward amount. The largest rewards offered for the past five years are all related to cartel cases. Through the press release issued by the KFTC for this case, it has expressed its firm intention to actively operate this rewarding system for detection of cartels going forward.

Market investigations

In June 2021, the KFTC announced its plan to conduct market investigations into digital advertisements. As the influence of platform companies having the advantage of using collected user data on the customised advertisement market expanded substantially, the KFTC declared that it will take actions against platform companies’ acts of forcing the consumer to use unnecessary services while providing advertising platform services, hindering competition by interfering with competitors’ business transactions, and fraudulently collecting, connecting or combining user data to use it for customised advertisements. Moreover, the KFTC will promote commissioning research services to understand the market structure for the digital advertising market and the realities of related transactions and to analyse the issues of restricting competition and unfair trade, and will also analyse the reports on dealing with cases against major digital advertising companies in foreign countries such as the United States and in the European Union, as well as the reports on their current market status.

Procedure

The KFTC issued amendments to the Rules on the KFTC’s Operation and Case Handling Procedure and the Rules on Operation and Procedures of Consent Order which took effect as of 20 May 2021.

The amendments specify (i) the date on which the statute of limitations period begins to run, (ii) rights of respondents to demand access to evidence, (iii) the obligation to provide notice on the result of the KFTC’s investigation to respondent, and (iv) limitations on investigative activities during the KFTC’s deliberation states. In addition, the amendments aim to enhance procedural transparency and effectiveness by expanding the scope of parties subject to notice on the KFTC’s initiation of investigation, diversifying the means of notification and rationalising the time and scope of participants for full and sub-Commission hearings.

The amendments also contain provisions that designated the Korea Fair Trade Mediation Agency and the Korea Consumer Agency as trustees to monitor compliance with consent order, and provisions specifying the KFTC’s authority to oversee and supervise the trustees’ monitoring activities and the trustees’ obligation to report to the KFTC in writing on the compliance status.

In December 2020, the KFTC newly adopted the ‘system allowing limited access to materials (dataroom)’ by enacting the Guidelines on Access to and Copying Materials for the purpose of providing protection for the alleged violator’s right to defend. This system was used in the aforementioned Google Android OS case for the first time.

In the past, in cases where the KFTC’s evidentiary material contains another company’s trade secret, the KFTC had to be rather passive in disclosing such material because there is a concern that the interest of another company may be damaged from such disclosure. To resolve this issue, the KFTC prepares a room allowing limited access to materials (dataroom) with CCTV cameras and only an outside attorney who represents the alleged violator-company is allowed to enter the room. The attorney must submit a written statement undertaking not to disclose any trade secrets. The violator-company must also submit a written consent not to request or be provided with any trade secrets from the attorney. Through this system, the attorney for the violator-company can confirm the evidentiary materials submitted by the KFTC that may be considered as another’s trade secret and properly exercise its right to defend, and as a result, the alleged violator’s procedural rights have been reinforced.

The year ahead

Like the competition agencies in other countries, it is anticipated that the KFTC will focus on regulating big tech companies and platform businesses.

The KFTC announced in its action plan for 2021 that in order to maintain the innovation of the market through regulating monopolistic platform businesses’ acts of restricting competition, it will demarcate the market for platform industry, definitise the standard for determining the abuse of monopoly power by platform entrepreneurs, and establish a ‘guideline on evaluating unilateral acts in the field of online platforms’. As of now, the KFTC is operating a task force for establishment of such evaluation guideline and the legislative bill on fairness in online platforms is waiting to be passed by the National Assembly, but aggressive enforcement thereof is anticipated to be followed.

Meanwhile, as Google has expanded the compulsory application of its ‘In-App Purchase’ service to all applications and services, the amendment bill to the Telecommunications Business Act was proposed to prevent such compulsory application and is currently under review by the National Assembly. According to this amendment bill, application market entrepreneurs are prohibited from compelling mobile contents companies to use a specific payment method unfairly using their superior market position.

However, this amendment bill explicitly authorises the Korea Communications Commission (KCC) to conduct investigations and make determinations on unfair trade practices of application market companies. So the KFTC opposes the delegation of such authority to the KCC on the grounds that the KCC’s regulation would overlap with the authority of the KFTC since the KFTC has already initiated the procedures for investigating Google’s acts of restricting the mobile OS market and application market, imposing conditions on application developers to exclusively deal with Google and not to launch products and services with its application market competitors. As such, the National Assembly’s examination procedure needs to be closely observed.

Furthermore, the presidential election will be held in March 2022 and the term of office of the current chairperson of the KFTC will be completed in September of the same year. Thus, such political and governmental changes as well as changes to the composition of the KFTC may influence the KFTC’s competition policy in the future.

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