1. Applicable rulesDoes competition law apply to the obtainment, grant, acquisition, exercise and transfer of intellectual property rights?
The primary competition law in Korea is the Monopoly Regulation and Fair Trade Act (MRFTA). The MRFTA is applicable to the obtainment, grant, acquisition, exercise and transfer of intellectual property rights (IPR).
Article 59 of the MRFTA states:
This Act shall not apply to any act that is deemed the justifiable exercise of the right under the Copyright Act, the Patent Act, the Utility Model Act, the Design Protection Act or the Trademark Act.
As a guideline for interpreting article 59, the Review Guideline on Unfair Exercise of Intellectual Property Rights (IPRG) published by the Korea Fair Trade Commission (KFTC) states:
Whether or not it is the justifiable exercise of intellectual property rights is to be determined by: (i) whether it serves the original purpose of the intellectual property rights, which is to facilitate industrial development by protecting and encouraging invention and promoting the use of related technology; and (ii) how it affects competition and fair trade order in the relevant market.
Although the IPRG is an internal guideline and not legally binding, the IPRG sets forth the enforcement standards and priorities of the KFTC with regard to IPR.
If an exercise of IPR is deemed not justifiable, the following MRFTA articles on generally prohibited actions may be applicable:
- article 3-2, prohibition of abuse of market-dominant position (including, among others, determining, maintaining or changing unreasonably the price of commodities or services, unreasonably interfering with the business activities of other enterprises, etc);
- article 7, restriction on combination of enterprises;
- article 19, prohibition of unfair collaborative acts (including, among others, fixing, maintaining or changing the price, and determining terms and conditions for the transaction of goods or services or for payment of prices thereof, etc);
- article 23, prohibition of unfair trade practices (including, among others, unfairly refusing to enter into a transaction, discriminating against a certain transacting partner, and unfairly excluding competitors, etc);
- article 26, prohibited activities of enterprisers’ organisation; and
- article 29, restriction on resale price maintenance.
The IPRG provides guidance for determining whether an exercise of IPR constitutes a violation of the MRFTA. Specifically, the IPRG sets forth criteria for reviewing and determining an unreasonable exercise of IPRs with respect to acquisition of patents, grant-back, royalty provisions, refusal to grant licence, limitations on scope of licence and imposition of unjust conditions for grant of licence. The IPRG also addresses potentially unfair practices in the context of patent pools, cross-licensing, technology standards, use of patent infringement lawsuits and settlement agreements.
Prior to its amendment in 2014, the IPRG addressed unfair trade practices in detail, in addition to abuse of market dominance and unfair collaborative acts. However, the 2014 amendment shifted the focus of the IPRG from unfair trade practices to abuse of market dominant position. Notwithstanding this change, the IPRG review standard is expected to continue to serve as an important reference in the KFTC’s regulation of unfair trade practices involving IPR.
In March 2016, the IPRG was again amended to clarify the scope of permissible activities involving standard essential patents (SEPs) to allow justifiable exercises of patent rights. The amendment limited the definition of “standard” technology to the “standards selected by government, standardisation bodies and enterprisers’ organisations”, and SEPs was stipulated as “patents for which a party must acquire a license when it manufactures products or provides service that implement the patents, and that require the voluntary commitment by the patent owners to fair, reasonable and non-discriminatory (FRAND) terms for adoption as standard technologies”.
Further, section III.1 of the IPRG provides that “in the event of concluding a contract for selling/purchasing patent rights that represent a major part of business or of creating the same effect as such sale and purchase agreement through a contract granting exclusive licence, article 7 (Restriction on Combination of Enterprises) of the MRFTA shall apply.”
2. Competent authoritiesWhich authorities are responsible for the application of competition law to intellectual property rights? What enforcement powers do they have? Are there any special procedures for conduct that concerns intellectual property rights?
The KFTC has the exclusive authority to enforce the MRFTA. A KFTC investigation typically involves requests for information, interviews, on-site inspection(s), issuance of an examiner’s report, hearing(s) and a decision by the Commission, and no special or notable differences exist for IPR-related cases. Upon finding a MRFTA violation, the KFTC may take one or more of the following actions:
- issue a cease and desist order directing the discontinuance of the relevant practice (or, in the context of an antitrust filing associated with a M&A transaction, the KFTC may impose certain remedial measures (eg, restriction on royalty increase for IPR licences) or even block a IPR transfer if the IPR transaction is deemed to have serious anticompetitive effect);
- impose an administrative surcharge (eg, a violation of article 3-2 (Abuse of Dominance) or 23 (Unfair Trade Practices) could result in an administrative surcharge of up to 3 per cent and 2 per cent of the relevant sales, respectively; and “relevant sales” means total revenue generated during the violation period with respect to the products directly or indirectly affected by the conduct at issue); and/or
- refer a criminal violation of the MRFTA to the Prosecutor General seeking criminal sanction against both the relevant individuals and corporate entities (note that a corporate entity may be exempted from criminal sanctions upon proof of exercise of due care and supervision to prevent the MRFTA violation by its directors, officers and employees), and upon indictment, a court may order imprisonment or a criminal fine based on the penal clauses of the MRFTA.
It is worth noting that in a 2011 amendment, the MRFTA introduced the “consent decree” system under which companies subject to a KFTC investigation may propose remedial measures for voluntary termination of anticompetitive actions, redress of consumer harm and restoration of competition. The consent decree is not available for unfair collaborative acts.
The KFTC recently announced a bill for amending the MRFTA to remove the KFTC’s exclusive authority to make criminal referrals for violations of the MRFTA in the case of hard-core cartels. If the bill passes and becomes law, the Public Prosecutor’s Office will have the authority to directly investigate and prosecute allegations of cartel activity to enforce the MRFTA.
Aside from KFTC enforcement, licensees and competitors may file civil claims for damages for MRFTA violations, particularly upon a KFTC investigation or enforcement action, and an alleged infringer in a patent infringement lawsuit may in turn assert as a defence that the plaintiff’s action constitutes an act of IPR abuse in violation of the MRFTA.
3. Market definitionHow are markets involving intellectual property rights defined?
The MRFTA contains no provision defining the markets involving IPR. However, the IPRG provides that the market definition for IPR should be determined by reference to the definition and principles for a relevant market provided in the KFTC’s Merger Review Guidelines (the Merger Review Guidelines), which sets forth general rules related to M&A transactions, and the Review Standard for Abuse of Market Dominant Position. These two KFTC regulations apply the SSNIP (small but significant non-transitory increase in price) test to define the relevant product market and geographic market.
On 27 February 2019, a new set of standards for reviewing mergers in R&D-intensive industries was introduced in the Merger Review Guidelines. While maintaining its existing analytical framework for market definition, the Merger Review Guidelines add that a separate “innovation market” can be defined if the relevant industry can be characterised as an R&D-intensive industry in which R&D capacity is considered as an essential parameter of competition or the relevant market is driven primarily by continuous innovation competition, and at least one of the parties to the relevant transaction can be regarded as a significant innovator. The Guidelines also suggest that such “innovation market” may be defined narrowly to include “all overlapping and adjacent fields of R&D” or more broadly to also encompass the relevant product markets in which the relevant parties are currently active.
The IPRG, however, refers not only to product markets relevant to the exercise of IPR (which may involve a wide range of different product markets, including products manufactured with the technology related to the IPR, raw materials, components and manufacturing equipment related to the manufacture of such products, the market for products for which the relevant products are an input, etc), but also to technology markets, where the technology itself is traded through licensing, and most recently to innovation markets.
The definition of “innovation market” in the IPRG was newly introduced in the 2014 amendment of the IPRG, and states that:
An innovation market may be considered separately from product and technology markets in situations where the exercise of IPR will have an effect on competition regarding the development of new or improved products or processes. This is because it may be difficult to fully consider the competitive effects that the exercise of IPR may have on innovation based solely on an analysis of the product market and the technology market. As with the general method of defining markets, the relevant innovation market may be defined as the R&D affected by the exercise of the IPR, and R&D related to the creation of new or improved products, technology or processes that are or could be in a competitive relationship therewith.
In its decision against Qualcomm in 2009 (Qualcomm I), the KFTC examined alleged discriminatory royalty payments, and held that the relevant market for the technology at issue was “the market for the company’s entire patent portfolio declared as essential to certain mobile telecommunication standards” on the grounds that the patented technology included in the standards could not be substituted by other technologies, and therefore purchasers could not respond to its price increase, and in light of the company’s customary practice of granting licences on a portfolio basis (and not individual patents). Additionally, as there allegedly existed no substitute for the company’s technology for the standard essential patents in overseas markets, the KFTC found the relevant geographic market to be limited to the Korean domestic market.
The KFTC investigated Qualcomm again and issued another decision in 2017 (Qualcomm II) concerning: (i) refusal to provide or restrict the provision of licences for mobile communications SEPs, despite requests from competing modem chipset companies; (ii) conditioning the supply of modem chipsets on the execution of a patent licence agreement with Qualcomm; and (iii) engaging in certain licensing practices such as package licensing, unilaterally determining the royalty rate and base and demanding royalty-free cross-licences from licensees. In Qualcomm II, the KFTC held that Qualcomm was dominant in both the “mobile communications SEP licence market” and the “modem chipset market,” and, as a vertically integrated dominant enterprise, Qualcomm had greater incentive to engage in anticompetitive conduct and was under stricter obligations to comply with FRAND commitments. This case is currently pending on appeal before the Seoul High Court.
4. Acquisition and saleDoes competition law apply to the obtainment or grant and transfer or assignment of intellectual property rights?
The MRFTA is applicable to the obtainment or grant and transfer or assignment of IPRs. For example, if a technology transfer satisfies the reporting requirements for a “business combination” (essentially, an M&A-type transaction) of an enterprise, such transaction is obligated to be reported to the KFTC as a business transfer transaction in accordance with article 12 of the MRFTA.
The Merger Review Guidelines set forth detailed review standards for three types of business combinations, namely horizontal, vertical and conglomerate mergers. The factors to be considered vary depending on the type of the relevant transaction – for example, a review of a horizontal merger focuses on entry barriers and the likelihood of collusive acts, while a vertical merger review focuses on the market foreclosure effect. Irrespective of the type of transactions, the combined entity’s market share is relevant to merger review because a market share exceeding a certain threshold may call for further review of anticompetitive effects under the Merger Review Guidelines.
Meanwhile, although the MRFTA does not expressly regulate false or deceptive conduct in respect of patent transactions (eg, misrepresentations to the patent office), the IPRG addresses exercise of (known) fraudulently obtained or invalid patents through litigation as a possible abuse of patent rights.
5. LicensingHow does competition law apply to technology transfer and licensing agreements?
Generally, unfair technology transfer and licensing practices other than collusive activities may be subject to the following two main provisions of the MRFTA.
For abuse of dominant position (article 3-2), the KFTC must prove that there is a dominant position in the relevant market (defined in terms of both the product market and geographic market, or innovation market), abusive conduct, and the anticompetitive effect caused by the abusive conduct. Under the landmark POSCO decision (2007) and its progeny, the Korean Supreme Court has ruled that to find the anticompetitive effect required for an abuse of a market dominant position, the KFTC must establish (i) an objective requirement (ie, an actual or likely anticompetitive effect or reduction of competition in the relevant market) and (ii) a subjective requirement (ie, anticompetitive purpose or intent to restrain competition).
For unfair trade practice (article 23) the KFTC must prove: (i) the existence of certain conduct falling within the scope of the categories specified under the MRFTA such as discriminatory pricing; (ii) that the conduct is likely to harm fair trade; and (iii) the lack of legitimate business justification. The term “harm fair trade” indicates “restriction of competition” and/or “unfairness,” where the former refers to a significant reduction in the number of competitive businesses or market competition, and the latter refers to a potential adverse effect on fair competition through improper means other than price and quality (unfair competitive means) or hampering the counterparty’s ability to make free decisions or imposing disadvantages thereto (unfair trade terms) (section III.1 of the Guidelines for Review of Unfair Trade Practices (the Unfair Trade Practice Guidelines)).
While the Unfair Trade Practice Guidelines provide certain safe harbours (eg, exemption from KFTC review where the market share is less than 10 per cent of the relevant market or, where market share is difficult to calculate, annual revenue of the relevant company is less than 2 billion won), this does not serve as an absolute defence, and the KFTC still has the discretion to investigate conduct falling under the safe harbour.
The types of unfair exercise of IPR in the context of licensing that are expressly set forth in the IPRG include the following:
- Consideration for grant of licence:
- the act of unfairly collaborating with other enterprisers to determine, maintain or alter the royalty;
- the act of unfairly imposing discriminatory royalty rates depending on the counterparty;
- the act of unfairly demanding royalty, including royalty for the portion where the licensed technology is not used;
- the act of unfairly imposing royalty by including the period after the expiry of patent rights; and
- the act by patentees of unilaterally deciding or altering the method of calculating royalty without prescribing the calculation method in the contract.
- Refusal to license:
- the act of collaborating with competing enterprisers to refuse to grant a license to particular enterprisers without justifiable reasons;
- the act of unfairly refusing to grant a licence to particular enterprisers; and
- the act of refusing to grant a licence for unjust purposes such as refusing to grant a licence to a particular enterpriser because the patentee’s unfair terms were not accepted by the enterpriser.
- Limitation on scope of licence:
- the act of reaching an unjust agreement between a patentee and a licensee on trade volume, territory and other terms by limiting the volume, territory, period, etc, of the licence with respect to the product or technology relevant to the grant of licence; and
- the act of unfairly giving discriminatory limitation on the volume, territory, period, etc, of the licensed product or technology depending on trade counterparts.
- Imposition of unjust conditions for grant of licence:
- restriction on prices;
- restriction on selection of suppliers of raw materials, etc;
- restriction on the persons to whom a licensee can sell the licensed product;
- restriction on trade of competing products or competing technology;
- imposition of non-contestability obligation;
- restriction on research and improvement of technology;
- restriction on use after extinguishment of right; and
- unilateral termination right of the licensor.
The IPRG also addresses potentially unfair licensing practices in the context of patent pools, cross-licensing and technology standards.
In relation to collective licensing agreements, the IPRG addresses patent pools in Part III, section 4. The specific types of practice that the IPRG states are potentially unfair in the context of patent pools include:
- the act of unfairly agreeing on the conditions limiting the price, volume, territory, counterparts of the trade or technical improvement, etc, related to a patent pool in the course of the management of a patent pool;
- the act of unfairly rejecting the grant of licence to non-participants in the patent pool or concluding a licence agreement with such non-participants on discriminatory conditions;
- the act of unfairly making other enterprisers share knowledge, experience, technical achievement, etc, that they obtained independently in the course of the management of a patent pool;
- the act of unfairly including invalid patents or patents inessential for the joint working in a patent pool and requiring the taking of a licence for all technologies in the patent pool, including such invalid or inessential patents, as a package; and
- the act of making a licensee suffer excessive disadvantages by imposing a package royalty much higher than the amount of royalties for each patent in a patent pool combined.
6. Market power and dominanceIn what circumstances is the possession of intellectual property rights deemed to confer substantial market power on the holder such that the rules on unilateral conduct will apply?
A market dominant position is generally determined by considering various factors such as the IPR holder’s influence in the relevant market, the existence of competitors and their competitiveness, the possibility of substitute products or technologies to enter the market and the effects of neighbouring markets. The IPRG states that, while the IPR holder’s exclusive rights in a technology is an important consideration in determining market dominance, an exclusive right to a technology does not necessarily lead to a finding of market dominance. Accordingly, an IPR holder is not presumed to be a market dominant enterprise solely based on its IPRs.
Regarding SEPs, section II.2.C. of the IPRG provides:
If, as with SEPs, it is impossible to substitute for the technology for a certain period of time and a licence is necessary to manufacture a product, the owner of the IPR can be regarded as highly likely to have market dominance in the relevant market.
In relation to the Qualcomm I case (see question 3), the Seoul High Court affirmed the KFTC’s finding of market dominance as the company allegedly had a 100 percent market share in the relevant technology market (defined as its patent portfolio declared essential to certain mobile telecommunication standards). In Qualcomm II, the KFTC held that “considering the nature of SEPs, the patents held by the company are essential to utilising standards, and it is impossible to substitute such with the competitor’s technology.” The KFTC also held that Qualcomm had 100 per cent market share (and thus market dominance) in the worldwide licence market for all SEPs owned by Qualcomm for each of CDMA, WCDMA and LTE. Furthermore, the Seoul Central District Court in a litigation between Samsung and Apple held that Samsung was a market-dominant enterprise in the market for 3GPP (UMTS)-compliant mobile communication devices and tablet computers, as market entry would be difficult without Samsung’s standard essential patents and no substitutable patent exists.
7. Unilateral conductIn what circumstances may unilateral conduct involving the exercise of intellectual property rights be deemed to be anticompetitive (monopolisation, abuse of dominance, etc)?
The discussion under question 5 (licensing) above are generally applicable to unilateral conduct of IPR exercise as well. Both exclusionary (eg, exclusive dealing) and exploitative conducts (eg, unfair pricing and unfair output restrictions) are regulated under the MRFTA, and the exercise of IPRs is no exception.
As for a duty to license, a refusal to deal may be regulated under certain circumstances. The IPRG provides that a refusal to grant a licence without legitimate reason may be deemed to be unlawful, and notes that such a refusal is likely to be considered to be unfair where:
- the purpose of the refusal is to restrain competition;
- the refused technology is an essential element of business activities;
- no substitutable technology exists;
- the technology is extremely influential in the relevant market (eg, is a technology standard); or
- the use of the technology is excessively impeded through a refusal to grant licences even though the patent holder does not intend to use the technology.
8. Patent settlementsIn what circumstances may patent settlements be deemed to infringe competition law?
The IPRG explains that an unfair settlement of patent disputes may interfere with consumer welfare by sustaining the exclusivity of an invalid patent and by preventing competitors’ market entry. For example, agreeing to a delayed market entry as part of a settlement of patent invalidation or infringement actions is likely to inhibit competition in the relevant market, and thus may be found to be unlawful.
In February 2014, the Korean Supreme Court held that an original pharmaceutical drug company and a generic producer engaged in an unfair collaborative act in violation of the MRFTA in entering into a patent settlement agreement where the generic producer agreed to withdraw its generic drugs from the market in exchange for, among others, the right to distribute the original drugs for certain limited channels. The Court focused on whether the patentee (original pharmaceutical drug company) provided a portion of its monopolistic gains to the alleged infringer (generic producer) to maintain its monopolistic position, and whether this would have an anticompetitive effect. The Court found that the original drug company provided a significant economic benefit to the generic producer in exchange for the latter agreeing to withdraw its own generic drug from the market.
As of March 2015, a drug approval-patent linkage system for pharmaceutical products was fully implemented in Korea. The system mandates notification of settlement to the KFTC and the Ministry of Food and Drug Safety of any legal proceeding contested between an original drug patent holder and a generic producer intending to market generic drugs. The notification is required to provide details of the settlement such as the parties, terms and conditions, timing of settlement and other information regarding the settlement.
9. Merger control (jurisdiction)In what circumstances will the transfer of intellectual property rights constitute a merger for the purposes of competition law?
Intellectual property rights are regarded as assets for the purpose of merger control, and the general regulations for reporting “business combinations” (essentially M&A transactions) apply if the intellectual property right transaction meets the conditions for reporting a business combination (eg, if the transfer of IPR is part of a transaction where a company acquires or leases all or a material portion of another company’s business, is entrusted with the business management of another company or acquires all or a material portion of fixed assets of another company). However, we are not aware of any case where an IPR transfer alone satisfied the reporting conditions and was reported to the KFTC.
10. Merger control (substantive)In what circumstances will a merger involving intellectual property rights be deemed anticompetitive? Are there any special considerations for mergers involving intellectual property rights or innovation markets?
The KFTC’s Merger Review Guidelines does not provide separate standards for the evaluation of transactions involving IPR. Accordingly, the usual standards for reviewing the anticompetitive effect of ordinary M&A transactions would apply to transactions involving IPR. This means that the following should be considered in determining whether or not a proposed transaction may be anticompetitive (note that the relevant product market for the IPR may be defined as the market for the product that uses such technology):
- the potential for the acquirer of the IPR to increase its market power in the relevant technology market, unilaterally increase the royalty rate of such IPR or refuse to license the IPR based on its market-dominant position where no substitute technology exists;
- if the IPR are SEPs, whether the acquirer of the SEPs would also be bound by the transferor's FRAND commitment; and
- the potential to raise the costs of competitor products by increasing the IPR royalty rate, particularly of SEPs, where the acquirer of the IPR also engages in the manufacturing business using the same IPR, which may exclude competitor products from the relevant market.
Meanwhile, in the 2019 amendment, the Merger Review Guidelines set forth the following criteria for assessing the anticompetitive effects of mergers in innovation markets:
- whether the parties are significant innovators in the relevant markets;
- closeness of R&D competition between the parties based on their past/present R&D activities;
- whether there will be a sufficient number of players remaining in the relevant innovation market post-transaction;
- the anticipated technology gap between the combined entity and its competitors post-transaction; and
- whether the transaction would result in elimination of potential competition in the relevant product market.
11. StandardisationHow, in general, does competition law treat the development of standards in standard-development organisations (SDOs), and the exercise of intellectual property rights for technology that may be essential to a standard?
In the 2014 amendment, the IPRG redefined the concept of standardisation and provided new guidance regarding the exercise of SEPs, including injunction claims by SEP holders. The 2016 amendment further revised the concept of standard technology to refer only to standards defined pursuant to a standards setting organisation (SSO) standard-setting process, and that SEPs were patents necessary to implement a standard technology for which voluntary FRAND commitments were required from patentees.
12. Standardisation and anticompetitive agreementsHow do competition law rules on agreements, concerted practices, etc, apply to the standardisation process?
The IPRG states that, generally, standardisation can generate pro-competitive effects by promoting the use of standard technology, generating efficiency and thereby enhancing consumer welfare.
However, the IPRG states that acts that abuse the standardisation process can be unlawful. With respect to concerted actions regarding technical standards, the IPRG provides that an unfair agreement on certain terms such as price, quantity, territory, counterparts and restriction on technology improvement in discussing and selecting technical standards may be problematic.
13. Standardisation and unilateral conductHow do competition rules on unilateral conduct apply to the exercise of intellectual property rights for technology that may be essential to a standard?
The IPRG provides that the following unilateral conduct regarding standards may be unlawful:
- unreasonable avoidance or circumvention of licensing on FRAND terms to strengthen monopolistic power in the relevant market or exclude competitors;
- unreasonable refusal to grant licences for the SEP;
- discrimination of SEP licence terms or imposition of unreasonably high royalty, thereby restricting competition; or
- granting licences for SEPs while imposing a condition that unreasonably restricts the exercise of relevant patent rights possessed by the licensee or unreasonably imposing the condition that the licensee provides a cross-licence for its non-SEPs.
The IPRG separately provides with regard to injunctive relief for SEP holders as follows:
if a claim for injunction can be filed without any restriction, this may result in patent-hold up where an SEP holder files an injunction claim for the purpose of excluding its competitors from the market, interfering with such competitors’ business, or charging an excessive level of royalty to potential licensees or granting licences on unfair terms. Therefore, the act by an SEP holder, who has declared to license on FRAND terms, of filing a claim for injunction against a potential willing licensee may be deemed as being beyond the legitimate scope of patent rights and thus be deemed as an act likely to restrict competition in the relevant market.
The IPRG further elaborates that whether a SEP holder has negotiated in good faith should be determined based on factors such as whether an official proposal for negotiation was made to the potential licensee, the length of the negotiating period, whether the licensing terms offered were reasonable and non-discriminatory, and whether the parties agreed to refer the matter to a court or arbitration agency if they failed to reach an agreement. The IPRG also recognises the possibility of ‘reverse hold-up’ by ‘unwilling licensees,’ and recognises that injunctions may be allowed if a potential licensee refuses to comply with the decision of a court or arbitration panel or objectively determined FRAND conditions, or if an injunction is the only practical remedy, such as if the potential licensee is close to bankruptcy.
14. Recent cases and other developments
Recent policy developments
On 10 September 2019, Dr Sung-Wook Joh took office as the 20th Chairperson of the KFTC. Chairwoman Joh has a PhD in economics from Harvard University and previously served as a civilian member of the Economic Division of the Regulatory Reform Committee. She is also known for her expertise in econometric analysis. In Chairwoman Joh’s inaugural address given at the KFTC, she stated that the KFTC will take a more proactive role in formulating a market ecosystem that leads to innovation with the advent of the 4th Industrial Revolution. She further emphasised the KFTC’s role in facilitating innovation through individual investigations of unfair abuse by ICT companies, while exploring the possibility of inducing structural changes to the market. She noted, however, that she would be cautious in carrying out this task, so that the KFTC would not impede innovative economic activity in dynamic industries.
Since the KFTC created a new Knowledge-Industry Anti-Monopoly Division, in December 2016, it has constantly focused on monitoring and enforcement of competition laws in knowledge-based industries such as the ICT, pharmaceutical and biotechnology sectors. The Knowledge-Industry Anti-Monopoly Division issued an industry-wide survey to approximately 70 pharmaceutical companies, including 39 multinational pharmaceutical companies, in June 2017. The survey inquired on the status of contracts or disputes surrounding patents for prescription drugs sold in Korea from 2010 to 2016. As a follow on to the industry survey, the press reported the KFTC raided multinational and domestic pharmaceutical companies in late 2017 and early 2018. In September 2019, the KFTC launched a dawn raid against a major domestic pharmaceutical company. Based on media reports, the KFTC is constantly looking into possible cartel behaviour (reverse payment settlements) and unfair business practices or IPR abuse stemming from distribution and co-promotion business relationships.
On 8 March 2018, the KFTC signed off on the proposed amendment to the Guidelines on Criminal Referrals for Violations of the MRFTA, reconfirming its intention to curtail MRFTA violations by actively pursuing criminal referrals of individuals. The amended Criminal Referral Guideline entered into force on 9 April 2018. Specifically, the Amendment newly introduces a separate set of criteria for pursuing criminal referrals against individual employees, precludes consideration of the individual’s position within the company from such criteria, and makes criminal referral mandatory for an individual who reaches certain penalty points under the newly introduced criteria. This new amendment sets a lower bar for criminal referrals, which could significantly increase the likelihood of criminal referrals of individuals in future KFTC investigations.
On 29 July 2018, the Special Committee for Monopoly Regulation and Fair Trade Law Reform (Special Committee) submitted the final draft of its recommendations to the KFTC, concluding its five-month-long discussion on how to amend the MRFTA. The Special Committee of external experts was first assembled earlier this year by the KFTC and has since regularly convened to discuss key issues and to reach a general consensus among legal experts and other interested persons. Based on the Special Committee’s recommendations, the KFTC announced a draft bill in August 2018, and after receiving public feedback and comments, submitted the amendment bill to the National Assembly on 30 November 2018. The amendment bill is still pending at the National Assembly, and the new KFTC Chairperson nominee, Dr Joh, has stressed that she will make it a priority to pass the bill in its current form. The extensive overhaul, the first of its kind since the MRFTA was enacted in 1980, focuses on improving the MRFTA in the areas of enforcement procedure as well as competition law (with emphasis on conglomerate regulation).
Supreme Court Decision on the KFTC’s 2009 Qualcomm Decision
On 31 January 2019, the Supreme Court of Korea issued a decision on Qualcomm’s appeal seeking to overturn the KFTC’s 2009 decision where the KFTC concluded that Qualcomm had engaged in illegal exclusive dealing by offering ‘conditional rebates’ to Korean mobile device OEMs for purchasing Qualcomm’s modem chips and RF chips, and in illegal discriminatory conduct as well as violation of its FRAND commitment by (i) providing Korean OEMs with a lower royalty rate for mobile phones incorporating Qualcomm’s modem chips, (ii) setting a lower royalty ceiling for such mobile phones, and (iii) deducting the price of components purchased from Qualcomm when calculating the royalty base (royalty discounts).
The Supreme Court held that the royalty discounts did not constitute discriminatory conduct, but nevertheless held that the KFTC’s corrective order prohibiting the royalty discounts was justified, appearing to regard such royalty discounts as constituting exclusive dealing together with the conditional discounts. The Supreme Court did not explicit address whether there had been a FRAND violation.
Abuse of market dominance by Siemens
In April 2018, the KFTC imposed corrective orders and an administrative fine on Siemens’ Korean affiliate (Siemens) for charging customer hospitals that purchased its CT/MRI equipment or independent service organisations (ISOs) for service keys that enable access to (pre-installed/built-in) Basic Level maintenance & repair (M&R) service software (SSW). The KFTC found that (i) hospitals that signed a comprehensive M&R service agreement with Siemens were provided Basic Level service keys free of charge; while (ii) hospitals that utilised ISOs for M&R services had to purchase the same Basic Level service keys. The KFTC concluded that such conduct amounts to abuse of market dominance, as it is contrary to the normal trade practice of providing M&R software for CT/MRI equipment free of charge, and the hospitals were subjected to discriminatory treatment based on whether they had signed with an ISO. On 26 April 2018, Siemens filed an appeal for revocation of the KFTC’s decision with the Seoul High Court, where the case is still pending.
As part of the corrective orders, the KFTC ordered Siemens to provide customer hospitals when requested, absent force majeure, the service keys for the SSW necessary for the hospitals or the third party ISOs they hired to perform “assembly, installation, adjustment and testing” on the Siemens CT/MRI equipment they purchased, at the minimum administrative cost necessary to issue the service keys.
In addition, the KFTC held that Siemens’ sending of notices to its customers that the M&R services provided by ISOs for Siemens CT/MRI equipment could constitute infringement of Siemens’ IPR constituted unfair customer solicitation and sanctioned Siemens for the conduct.
Corrective order by the KFTC regarding the Qualcomm-NXP business combination
In January 2018, the KFTC imposed the following corrective orders in its review of Qualcomm’s acquisition of NXP Semiconductors on the basis that Qualcomm has market dominance in the baseband chipset market and NXP has market dominance in near-field communication (NFC) chip market, secure element (SE) chip market and SE operating systems market as incorporated into mobile devices: (i) to sell NFC SEPs and system patents held by NXP; (ii) for other NFC patents held by NXP, to prohibit exercise of patent rights and provide royalty-free licence on a stand-alone basis; and (iii) to provide NFC SEPs held by Qualcomm on FRAND terms and not to link sale of NFC ships with provision of licences. The KFTC explained that corrective orders (i) and (ii) were intended to address the concern that Qualcomm might change NXP’s NFC patent licence policy in an anticompetitive manner after acquiring NXP. Further, it appears that the KFTC added corrective order (iii) owing to concerns that Qualcomm, which only owned NFC patents, would become a vertically integrated enterprise by acquiring an NFC chip business from the merger. The KFTC appears to have attempted to maintain consistency in its enforcement of corrective orders it imposed on Qualcomm II for abuse of market dominant position. The Qualcomm-NXP business combination was voluntarily terminated in July 2018 following difficulties obtaining regulatory approval in China for the combination.
Abuse of dominance by Qualcomm (2017)
In January 2017 in Qualcomm II, the KFTC imposed various corrective orders and an administrative fine of almost US$1 billion against Qualcomm. According to the KFTC, Qualcomm abused its market dominant position as a holder of SEPs for mobile telecommunication standards such as CDMA, WCDA and LTE and as a manufacturer and seller of modem chipsets, in violation of FRAND commitments to international standardisation organisations such as ITU, ETSI, etc (note: the case is currently on appeal before the Seoul High Court). Specifically, the KFTC found that Qualcomm: (i) refused to provide or restricting the provision of licences for mobile communications SEPs, despite requests from competing modem chipset companies; (ii) conditioned the supply of modem chipsets on the execution of a patent licence agreement with Qualcomm; and (iii) engaged in certain licensing practices such as package licensing, unilaterally determining the royalty rate and base, and demanding royalty-free cross-licences from licensees. The KFTC imposed the following corrective orders (among others):
- engage in good faith negotiations for a patent licence agreement if requested by a modem chip manufacturer;
- prohibit forcing of patent licence agreements by withholding the supply of modem chipsets and modify/delete related contractual provisions; and
- prohibit forcing of unfair contractual terms in patent licence agreements with mobile phone companies, and renegotiate existing patent licence agreements if requested by mobile phone companies.
The corrective order will apply to transactions with the following companies that affect the domestic market.
Mobile phone companies:
- mobile phone manufacturers headquartered in Korea;
- manufacturers and sellers selling mobile phones to Korea;
- businesses supplying mobile phones to businesses selling mobile phones in Korea;
Modem chipset companies, including:
- chipset manufacturers headquartered in Korea; and
- businesses supplying modem chipsets to the relevant mobile phone companies discussed above.