Korea: private practice perspective

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Fair Trade Commission is the enforcement authority for Korea. Read their profile


Overview of the agency

The KFTC is an independent administrative authority established to enforce the Monopoly Regulation and Fair Trade Act (MRFTA), the framework competition law of Korea, 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 the 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 the 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 the case of a material violation of the MRFTA such as a hardcore cartel, the existing system remains in force.

The most recent notable event in terms of the MRFTA enforcement is 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 took 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 that is payable as a result of the merger is more than 600 billion won and if the merged company engages in substantial level of business activity in the domestic market.
  • 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 the 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

The most recent notable case in terms of merger regulation is related to M&A between Korean Air and Asiana Airlines, which are No. 1 and No. 2 airlines in Korea, respectively. On 21 February 2022, the KFTC decided to conditionally approve Korean Air’s acquisition of a 63.88 per cent stake in Asiana Airlines. After completing its review, the KFTC found that there were significant anticompetitive concerns for 26 out of 65 international routes and 14 out of 22 domestic routes in which the airlines overlap.

In the aforementioned merger case, the KFCT concluded that with respect to those 26 international routes and 14 domestic routes, there exists a high risk of anticompetitive effects considering the totality of circumstantial factors, such as the facts that, after the merger, the two companies would take up around 48.9 per cent of the international market and 62 per cent of the domestic Jeju market, thereby solidifying their position as the top airline in the Korean air transport market, that although demand-side substitutability between the two companies was high, it would not be easy for customers to divert their purchases to other airlines, that there were barriers to competitors securing traffic rights to new entry on routes that are not part of the open skies treaty (eg, United States, Canada, Spain, Japan), that economic analysis results indicated that there was a possibility of price increase on various routes post-merger, and others.

This proposed merger between the two Korean airline companies is meaningful in that it is the first-ever merger case between full-service carriers, and also for which the KFTC imposed various structural remedies. Specifically, those structural remedies imposed include, with respect to domestic and international airlines that have the possibility of restricting competitiveness, releasing and transferring slots and traffic rights for 10 years so as to enhance new entry by foreign competitors. Considering that there is no fixed period for implementing such structural remedies, the KFTC also imposed behavioural remedies, which include prohibition against increase of air fares, reduction of supplied seats, etc.

Unilateral conduct

In relation to the case involving anticompetitive acts by four companies, including Broadcom Incorporated, of abusing their superior positions in transactions, the KFTC decided to commence the procedure for issuing consent orders considering the following factors: as parts of smart devices are rapidly developing and dynamic competition arises in the relevant industry, there are great practical benefits to close the case promptly through consent orders, and in particular, the trading order can be effectively improved through consent orders since the unfair business practice in question occurred between the two business partners, each of which has a leading position in the market for the key parts and end products of smart devices, respectively.

The KFTC has been reviewing the Long Term Agreement between Samsung Electronics and Broadcom Incorporated under which Samsung was compelled to purchase from Broadcom more than US$760 million of their smart device parts for three years from 2021 using the mechanisms of ceasing to give approval on purchase order, ceasing to make shipment, ceasing to give technical support, etc, and if Samsung fails to meet the above threshold amount, Samsung is responsible for paying the differences.

Through discussion with Broadcom to supplement and concretise their corrective measures, the KFTC will prepare a tentative proposal for consent order and actively collect various opinions from interested parties for 30 to 60 days. Once a full session of the Commission passes a final decision to accept the proposal, the consent order will be finalised. However, if the KFTC decides to dismiss Broadcom’s corrective measures, then the case will be submitted to the main review through which MRFTA violations and sanctions against Broadcom will be decided.

Cartels

During 2022, the KFTC imposed a total fine of 745 billion won in 65 collective action (cartel) cases varying from companies that are directly related to the livelihoods of the public (eg, ice creams, fees for small payments via mobile phones, fresh meat, etc) to companies that weaken industrial competitiveness (eg, transportation, intermediary goods, infrastructure – steel bars, railroad cars).

As examples of major cartel cases, the KFTC imposed a fine of 135 billion won on eight ice cream manufacturing and distribution companies for their price-fixing and division of business partners; a fine of 175.8 billion won on 16 fresh meat companies that formed an agreement on price, production quantity and delivery quantity for 12 years from 2005 to 2017; and a fine of 256.5 billion won on 11 steel companies that mutually agreed on bidding price in relation to public procurement of steel products for a period of six years from 2012 to 2018.

Market investigations

On 6 January 2022, the KFTC issued an administrative notice of a legislative proposal on “Guidelines on abuse of market dominant position and unfair trade activities of online platforms”.

In order to establish such guidelines for anticompetitive behaviour of online platforms, the KFTC created and operated a public-private task force, outsourced research projects to experts to analyse overseas legislation and domestic competition law enforcement and draft guidelines. Also, international conferences and seminars as well as discussions from global competition authorities were taken into consideration to bring the domestic standard for competition law enforcement in line with global trends.

These guidelines are intended to boost the MRFTA enforcement predictability by providing criteria for market definition and domestic assessment that reflect the characteristics of online platform sector, as well as detailed examples of major types of anticompetitive conduct as references. They also reflect the balances between the concerns for anticompetition effects, such as the tipping effect, and the competition friendly effects, such as improving customer benefits, promoting innovations, in the online platform industry.

During the administrative notice period, the KFTC will finalise and enforce the proposed legislation after collecting sufficient opinions from the interested parties and the relevant authorities and through resolution by the Commission.

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

In its enforcement plan for 2023, similar to the previous year, the KFTC will plan to actively respond and regulate acts of abusing monopoly power in the digital markets, which includes both digital-based industries (eg, semiconductor or application market) and key platform industries (eg, mobility, open markets).

Moreover, the KFTC will prepare a legal basis for “the interlocking system for cost of goods delivered” to strengthen fair transaction bases among medium- and small-sized enterprises and small business owners, and will present through enforcement decrees, concrete criteria for interlocking standard, terms of agreement, so that such interlocking system can be safely applied to the market. The key points of the interlocking system for cost of goods delivered include issuance by an original contractor to a subcontractor of a written statement specifying matters relating to the interlocking such as major raw materials subject to interlocking with subcontract price, conditions for price adjustment and adjustment of subcontract price if the price of major raw materials changes by more than the agreed percentage between the original contractor and the subcontractor within a range of 10 per cent.

Furthermore, the KFTC will carry out a large-scale organisational reform. The basic approach of the reform is to clearly separate the functions of policy-making and investigation, which were spread across various bureaus and divisions within the Secretariat, and to make the Secretary General for Policy and the Secretary General for Investigation in sole charge of policy-making and investigation, respectively.

The KFTC will also state concerned allegations more specifically in the investigation notices, allow companies under investigation to officially request the return or disposal of documents unrelated to the purpose of investigations, and give them more opportunities to express their opinions during the investigation and deliberation process.

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