South Korea: Merger Control

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Merger Control Law


The primary merger control law of Korea is the Monopoly Regulation and Fair Trade Act (MRFTA). Article 7 of the MRFTA prohibits mergers that may restrain competition. In addition, the enforcement decree of the MRFTA, which is secondary, delegated or subordinate legislation, and the Korea Fair Trade Commission’s (KFTC) Guidelines control the proposed merger.

Triggering transactions

The statutory meaning of ‘merger’ is broader than the ordinary meaning of mergers and acquisitions. The merger triggering a reporting obligation includes:

  • acquisition of 20 per cent or more (15 per cent or more if the acquired company is being listed) of the total outstanding voting shares of another company;
  • acquisition of additional voting shares by an existing shareholder owning 20 per cent or more (15 per cent or more if the acquired company is being listed) and, as a result, the existing shareholder becomes the largest shareholder;
  • participation in the incorporation of a new joint venture as the largest shareholder;
  • acquisition of all or a substantial part of another company’s business or fixed assets;
  • merger with another company; and
  • interlocking directorates.

There are notable features from the comparative law perspective.

First, a change of control is not required to become a reportable transaction. Thus, as noted above, the acquisition of minority shares, which does not amount to a change of control, may be reportable. However, the acquisition of control is a factor to assess competitive impact under the KFTC’s Guidelines. A merger that does not involve acquisition of control generally is presumed to have no adverse competitive impact and qualifies for a short-form review, under which the KFTC must grant approval within 15 days of the filing of the merger notification. The meaning of control differs a bit dependent upon the type of merger:

  • In the case of stock acquisition and incorporating a new joint venture, a company is deemed to have sole control over the other company either when holding 50 per cent or more of the outstanding voting securities of the other company or when having the ability to exercise decisive influence over the other company, while a company is deemed to have joint control over the other company when having the ability to exercise decisive influence over the other company jointly with a co-acquiring company or the incumbent shareholding company.
  • In the case of interlocking directorates, a company is deemed to have control over the other company where the members of a company’s board of directors serve one-third or more of the members of the other company’s board of directors or one or more of the interlocking directors is appointed on the position including, without limitation, a representative director that may have considerable influence over the overall management of the other company under the Korean Commercial Act.

Second, only an incorporated joint ventures is reportable. An unincorporated joint venture that does not create a new entity is not reportable.

Third, interlocking directorates under the MRFTA do not require an interlock between two ‘competing’ companies. A reportable interlocking directorate under the MRFTA is a situation where a director, officer or employee of a large corporation serves as a director or officer of a company of non-large corporation. ‘Large corporation’ refers to a company, the worldwide asset or revenue of which is at least 2 trillion won by aggregating those of its affiliated companies. A company is deemed to be affiliated with the other company either when holding 30 per cent or more of the outstanding voting securities of the other company as the largest shareholder; or when having the ability to exercise decisive influence over the other company.

Jurisdictional thresholds

To be reportable, the proposed merger should meet the following jurisdictional thresholds:

  • a person to the proposed transaction has total worldwide assets or revenue of 300 billion won or more in the immediately preceding year; and
  • the other person to the proposed transaction has total worldwide assets or revenue of 30 billion won or more in the immediately preceding year.

The total assets or total revenue is calculated by aggregating the assets or revenue of the companies that remain affiliated before and after the proposed transaction.

Interestingly, in the case of ‘acquisition of all or substantial part of another company’s business or fixed assets’, only the asset or revenue of the other company itself is taken into account. According to the KFTC Guidelines, to qualify as a substantial part of business or fixed assets, two conditions must be met:

  • the acquired business or assets are operated as an independent business unit or such acquisition would result in substantial decrease in revenue of the transferring or acquired company; and
  • the value of the acquired business or fixed assets exceeds 5 billion won or amounts to 10 per cent or greater of the value of the total assets of the acquired company in balance sheet of the immediately preceding fiscal year.

Foreign-to-foreign and Korean-to-foreign transactions

A foreign-to-foreign or Korean-to-foreign transaction is reportable if it meets the domestic nexus requirement in addition to the triggering transaction and jurisdictional thresholds requirements. The domestic nexus requirement is not met if the Korean revenue of each of the two foreign companies in a foreign-to-foreign transaction and the Korean revenue of the acquired foreign company is less than 30 billion won. The domestic nexus is not required for a foreign-to-Korean transaction where the acquired company is a Korean company and when a foreign company participates in the incorporation of a joint venture in Korea.

In calculating the Korean revenue of foreign company, the KFTC Guidelines provide additional rules. First, the Korean revenue of the companies that remain affiliated before and after the trans­action must be aggregated. However, as noted earlier, in the case of ‘acquisition of all or a sub­stantial part of another foreign company’s business or fixed assets’, only the assets or revenue of the other foreign company itself is taken into account. Thus, even if the foreign company itself has no revenue in Korea, the domestic nexus requirement should be met if the aggregated Korean revenue is equal to or greater than 30 billion won. Second, the Korean revenue accomplished from intragroup deals must be eliminated. Third, the revenue made in Korea and the revenue that will ultimately be earned in Korea must be considered if it is not the revenue earned directly from sale of goods or services into Korea.

Intragroup transactions

Intragroup transactions occur between two affiliated companies. Generally, intragroup trans­actions are exempt from merger control or may be subject to a short-form notification (also called simplified notification) procedure depending on the type of triggering transaction. For instance, interlocking directorates are exempt from notification while mergers are reportable in accordance with the short-form notification procedure.

Filing duty

Where the proposed transaction is a triggering transaction and meets the jurisdictional thresholds, the acquiring company is obliged to file a merger notification with the KFTC. In the case of incorporating a joint venture, the largest shareholder is responsible for reporting the transaction. If a merger notification is not filed in due course or contains false or misleading information, the KFTC may impose an administrative fine of up to 100 million won.

All reportable transactions are basically reportable after closing (post-merger notification) unless one or more of the merging parties is a large corporation. Reportable transactions involving a large corporation must be notified once a definitive agreement is executed but before the closing (pre-merger notification). However, a stock acquisition by tender offer is exempt from pre-merger notification although a large corporation is involved.

Post-merger notification must be made no later than 30 days of the closing but there is no such deadline for pre-merger notification. The acquiring party may file a pre-merger notification any time after execution of a definitive agreement but must not close before the KFTC’s decision, which would otherwise constitute a gun-jumping offence.

There is no filing fee that the KFTC charges.

Review procedure

Once the merging parties file a notification, the initial 30-day review period begins. The KFTC may extend the initial review period by 90 days so that the total review period may be extended up to 120 days. In practice, the actual review period could be longer than 120 days due to the stop-the-clock rule, under which the clock stops once the KFTC issues a Request for Information (RFI) and does not restart until the merging parties provide the requested information. For example, the longest review period so far was approximately two years and seven months in the mergers of CMB cable television companies in 2007. In practice, if a reported merger does not raise competitive concern, the KFTC often approves earlier than the expiry of the initial review period; but this does not mean that the KFTC adopts an early termination notice. Furthermore, there is no such thing as a second request or Phase II review.

The KFTC may hear from stakeholders such as competitors and consumers in high-profile transactions. The KFTC often uses the stakeholders’ voices to fashion proper remedies to maintain or restore competition after the proposed merger.

It is strictly prohibited to close the transaction subject to the pre-merger notification prior to the KFTC’s conclusion (ie, gun-jumping). It is not clear whether the merging parties are free to close when the waiting period expires, but the MRFTA is interpreted to mean that merging parties must not proceed to close until receiving the KFTC’s decision, notwithstanding the expiry of the waiting period.

If after its review the KFTC finds that the proposed merger raises competitive concerns, the KFTC will prepare an examiner’s report based on its findings and submits it to the commissioners. The merging parties may submit their own opinions against the examiner’s report, and the commissioners will hold a hearing and deliberate before coming to a final conclusion. The final conclusion will be served to the merging parties.

The merging parties may appeal the KFTC’s final conclusion to the Seoul High Court for its review de novo no later than 30 days from receipt of the KFTC’s conclusion. If the merging parties are not satisfied with the Seoul High Court’s ruling, they can file an appeal to the Supreme Court, the highest court in Korea.

Substantive test

Under the MRFTA, a horizontal merger is presumed to be anticompetitive if:

  • the post-merger market share of the merged entity is 50 per cent or more (or the top three market players including the merged entity have an aggregate market share of 75 per cent or more);
  • the post-merger market share of the merged entity is the largest in the relevant market; and
  • the gap in the post-merger market share between the merged entity and the second largest competitor is equal to or greater than 25 per cent of the post-merger market share of the merged entity.

This presumption based on the post-merger market share is rebuttable. The merged entity may submit their arguments to rebut the presumption. If the KFTC is not persuaded by the rebuttal arguments, the notified merger will likely be rejected or granted conditional approval. So far, only nine transactions have been fully rejected.

The KFTC Guidelines provide safe harbour based on the Herfindahl-Hirschman Index (HHI). A horizontal merger is presumed not to be anticompetitive if:

  • the post-merger HHI is less than 1,200;
  • the post-merger HHI is 1,200 or more or less than 2,500 and the post-merger increase in the HHI is less than 250; or
  • the post-merger HHI is 2,500 or more and the post-merger increase in the HHI is less than 150.

If a proposed merger falls under this safe harbour, the KFTC will likely not challenge the merger.

If the market share test and the HHI safe harbour do not clearly resolve the issue of likely competitive impact, the KFTC will assess the reported mergers by reviewing the unilateral effect and the coordinated effect. There are two ways that a horizontal merger can harm competition by having consumers face higher prices, lower quality, reduced service or fewer choices as a result of the merger:

  • by creating or enhancing the ability of the remaining firms to act in a coordinated way on some competitive dimension (coordinated effect); or
  • by permitting the merged firm to raise prices profitably on its own (unilateral effect).

If the KFTC concludes that the reported merger does not give rise to unilateral or ­coordinated effects, the reported merger will be approved. Otherwise, the KFTC must choose rejection or conditional approval.

Further, the KFTC is likely to approve mergers when the efficiencies of the merger prevent any potential harm that might otherwise arise from the proposed merger. According to the KFTC Guidelines, the KFTC will consider efficiencies as mitigating factor but only merger-specific efficiencies (ie, only those efficiencies likely to be accomplished with the proposed merger and unlikely to be accomplished absent the proposed merger or another means having comparable anticompetitive effects).

Fashioning remedies

The KFTC may attach structural remedies and conduct remedies to maintain or restore compe­tition. Structural remedies involve the sale of physical assets by the merging parties and conduct remedies regulate the merged company’s post-merger business conduct. According to the KFTC Guidelines, structural remedies must be considered in preference to conduct remedies and stand-alone conduct remedies may be attached only if structural remedies are not feasible.

The merging parties may unofficially propose and negotiate the potential remedies at any time before the KFTC holds a hearing and makes a decision. The KFTC may request that the merging parties amend or supplement the proposed remedies if the KFTC deems the proposed remedies to be not sufficient or proper to maintain or restore competition. By contrast, the merging parties may utilise the consent decree procedure though in practice the consent decree is not often used.

The merging parties may close the transaction before or without fully complying with the remedial orders. In particular, with respect to the structural remedies, there are no such fix-it-first or upfront buyer remedies. In other words, the KFTC may issue a divestiture order but may not compel the merging parties to comply with the divestiture order within a certain time frame (or before closing).

In the case of a violation of remedial order, the KFTC may impose a daily administrative fine of 0.0003 per cent of the total transaction amount per day until the order is fully complied with. The KFTC may also impose imprisonment of up to two years or a criminal fine of up to 150 million won. To police and uncover a violation, the KFTC often includes a reporting obligation in its remedy package and used to conduct a dawn raid or issue an RFI to ensure the merging parties’ compliance with its order.

Publication of rulings

Generally, the KFTC does not publish its ruling once it has assessed the competitive impact of the notified transaction. In practice, the KFTC used to publish its ruling or issue a press release regarding transactions where the KFTC imposes remedies (ie, conditionally approves).

Voluntary preliminary filing programme

The voluntary preliminary filing programme may be used at the parties’ discretion. If the parties can demonstrate to the KFTC their intention to enter into a definitive agreement (eg, entry into a memorandum of understanding, a letter of intent or a draft of definitive agreement), the merging parties may ask the KFTC’s review of the contemplated merger even before the filing timing comes due. In particular, this programme is useful for flagging potentially competitive issues before the deal goes too far. However, the use of this programme does not confer a waiver of filing a formal notification later; a formal notification must be filed. If the KFTC finds no competitive concern in the voluntary preliminary filing, the merging parties do not have to duplicate the information they attach to their voluntary preliminary filing and the review period for the formal filing will be shortened to up to 15 days.

The review period for voluntary preliminary filing is not different from the formal merger notification review period: 30 days, which can be extended by 90 days subject to the stop-the-clock rule, under which the clock stops once the KFTC issues the request for information and will not restart until the requested information is provided. If there are no substantial changes in the transaction after the preliminary approval, the formal notification will be reviewed in accordance to the short-form review procedure.

Notable changes in 2019

In February 2019, the KFTC introduced a new set of merger review standards in connection with R&D-intensive industries and those involving big data. By this bold move, the KFTC has brought innovation market and big data issues into its merger control regime. Thus, the KFTC is likely to start actively looking at mergers with valuable data involved as well as mergers involving a company active in R&D-intensive market although the big data-owned or R&D-intensive company does not have a large revenue.

Mergers in an R&D-driven industry

The KFTC in its Guidelines has left open the possibility that the innovation market may be delineated separately or defined in a comprehensive manner with the relevant product market, especially if the nature of the industry in which the merging parties operate is such that R&D-driven innovation is critical, competition in innovation has continued, and one or more of the merging parties has played a critical role in competition in innovation. Further, the KFTC states in its Guidelines that the market concentration in the innovation market will be calculated by referring to the volume of R&D investments, innovation-specific assets and innovation capability, the volume of patent applications or the number of citations to patents, and the number of market players actively participating in innovation competition instead of the revenue. To assess competitive effects in mergers in R&D-driven industries, the KFTC sets forth the following factors to be considered:

  • whether the merging parties are significant innovators in the relevant market;
  • the proximity of innovations that have been achieved by the merging parties;
  • the number of competitors participating in the innovation competition after the merger;
  • the gaps of innovation capabilities between the merging parties and their competitors; and
  • whether one of the merging parties is a potential competitor.

Mergers involving big data owners

The KFTC defines in its Guidelines a data asset as ‘a set of data collected for various purposes and systematically managed, analyzed and/or otherwise utilized’. To analyse the potential competitive harm in mergers involving the owners of the data asset, the KFTC sets forth the following factors to be considered:

  • whether the data asset to be acquired by the proposed merger is unlikely to be acquired absent the proposed merger or another means;
  • whether the proposed merger is likely to increase the merged entity’s incentive or capabilities to have access of its competitors restricted to the potentially acquired data asset;
  • the potential competitive harm as the result of the merged entity’s potential restriction of access to the data asset; and
  • the possibility of a decrease in non-price competition in connection with collection, management, analysis and utilisation of the data asset.

These latest changes in the KFTC Guidelines are anticipated to bring a close look at mergers in R&D-driven industries and involving big data owners. This regulatory move seems like a good start to catch competitively harmful mergers that could be otherwise fumbled under the old Guidelines, but they are not specific enough to guide market players in the high-tech industries that are contemplating mergers. Thus, it would be advisable to work closely with competition lawyers and the KFTC at the early stage of preparing the merger notification if any of the merging parties is deemed to be a player in the R&D-driven industry or as having a data asset under the meaning of the Guidelines.

High profile court ruling: Qualcomm v KFTC

Qualcomm is currently under competition law scrutiny across the globe, and Korea is one of the jurisdictions taking a close look at this high-tech giant’s business practice. In 2019, the Seoul High Court released a long-awaited appellate decision on the Qualcomm’s alleged abuse of dominance in connection with its standard-essential patents (SEPs) licensing practice: Qualcomm v KFTC. The appellate court has not released the full text of its decision, but has issued a press release mostly summarising its conclusion.

Administrative ruling

The KFTC issued an administrative decision against Qualcomm on 26 December 2016, finding that Qualcomm employed an unfair business model with the licensing of its 2G (CDMA), 3G (WCDMA) and 4G (LTE) SEPs), and the sale of its baseband processors, which constitute abuse of dominance and unfair trade practice under the MRFTA. A fine of 1.03 trillion won was imposed on Qualcomm along with worldwide portfolio-wide remedial orders.

The KFTC accused Qualcomm of having engaged in the following allegedly problematic conduct:

  • licence agreements with chipset rivals on unfairly restrictive terms prior to 2008 and refusal to license SEPs to chipset rivals since 2008 (Conduct I);
  • withholding the supply of chipsets unless a handset maker agrees to license its SEPs (Conduct II); and
  • entering into licence agreements on terms unfavourable to handset makers, specifically, comprehensive portfolio licensing, charging royalty rates based on the value of the entire device, not just the component and demanding handset companies to license their patents for free (ie, without actual payment of separate consideration) (collectively, Conduct III).

The KFTC decided in its administrative ruling against Qualcomm on all counts.

Qualcomm immediately appealed the administrative ruling before the Seoul High Court. The appellate ruling was released almost three years later on 4 December 2019.

Appellate ruling

On 4 December 2019, the Seoul High Court came to conclude the case and released a brief press release focusing mostly on its conclusion. According to the press release, Qualcomm partially won but actually lost in the appellate decision. Simply put, the KFTC’s decision was upheld overall but the court rejected the KFTC’s assertion of illegality of Conduct III, denying any stand-alone anticompetitive impact of such conduct. Accordingly, the court partially cancelled the KFTC’s remedial orders but sustained the monetary fine in full.

With respect to the relevant market, the appellate court fully upheld the KFTC’s delineation. The court found that Qualcomm has a dominant position in the product market of licensing the CDMA, WCDMA and LTE SEPs owned by Qualcomm; and the sale of CDMA, WCDMA and LTE baseband chipsets. The KFTC, in its administrative decision, defined the relevant geographic market as the global market, which was upheld by the court as well.

With respect to the conduct and competitive impact elements, the court decided that Conduct I and II constitute abuse of market dominance and unfair trade practice under the MRFTA. According to the press release, the court, describing as unreasonable Conduct I, which is deviating from FRAND terms, appears to conclude that Conduct I constitutes a constructive and actual refusal to deal with competitors, which consequently foreclosed Qualcomm’s chipset rivals from the market by reducing their ability and the incentive to compete. The court appears to have found a duty of Qualcomm to deal with its competitors based upon the FRAND assurance, especially with reference to the European Telecommunications Standard Institute (ETSI). The court quashed the KFTC’s accusation of Qualcomm’s Conduct I for denial of access to the essential facilities under the MRFTA. The court explained that the SEPs owned by Qualcomm are deemed to be ‘essential input’ under the MRFTA, but Qualcomm’s chipset rivals could and would be able to manufacture competing chipsets by accessing Qualcomm’s SEPs without entering into licensing arrangements. In addition, the court found that Conduct II had enabled Qualcomm to leave its chipset rivals on a competitively disadvantageous position and to have its competitors exposed to a danger of being foreclosed from the market, which had brought anticompetitive consequence to the market. The court, at least in its press release, did not state how much the relevant market had been foreclosed as a result.

Qualcomm challenged the KFTC’s procedural due process and the scope of the remedial orders beyond Korea. The court dismissed all Qualcomm’s allegations. With respect to the KFTC’s alleged denial of Qualcomm’s due process rights, the court noted that it is true that the KFTC did not fully reveal the evidentiary materials to Qualcomm during the course of its investigation and deliberation, but that this did not amount to a violation of Qualcomm’s fundamental due process rights. The court also sided with the KFTC against Qualcomm’s assertion that the KFTC’s remedial orders applying to the licensing of patents not registered or enforceable in Korea infringe other ­countries’ sovereignty to regulate patent licensing. The court in the press release simply noted that the deference to other countries’ sovereignty does not outweigh the need for the KFTC’s global remedial orders, and this conclusion is aligned with the decision of the United States District Court for the Northern District of California, the European Commissions’ ruling, the Chinese National Development and Reform Commission’s ruling, the Japanese Fair Trade Commission’s decision and the Taiwan Intellectual Property Court’s approval of the settlement between the Taiwanese Fair Trade Commission and Qualcomm with respect to Qualcomm’s practices at issue.

Qualcomm reportedly appealed the appellate decision before the Supreme Court on 19 December 2020. The Korean Supreme Court is not under obligation to hear and review the decision of a lower court unless the case could have violated laws and regulations, could have conflicted with its precedents, could have precedential value, and any other reasons. However, as this case is drawing significant attention across the globe, the Supreme Court is likely to review this high-profile case.


As the full text of the appellate decision has not yet been released, it may be too early to question the court’s reasoning, but some questions still remain to be considered. For example, SEPs are self-declared to standard development organisations (SDOs) and no SDO generally evaluates essentiality. Further, although the potential patent holders make a good faith effort to identify SEPs in their portfolio, it is common to disclose as many potential SEPs as they can to mitigate the risk of committing the offence of patent ambush, which is prohibited in many jurisdictions. Under this situation, it is questionable to resort to the number of Qualcomm’s SEPs to calculate the market share and find dominance. It is also questionable whether the Court needed to resort to Qualcomm’s SEP assurance with SDOs, particularly ETSI, to find Qualcomm’s duty to deal with its rivals. According to the Korean Supreme Court’s en banc decision in 2007 (2002Du8626) (Posco), a market dominant firm seems to have a general duty to deal with its trading parties including competitors under the MRFTA. In Posco (2007), the Court described in its decision that Posco, a market dominant firm, had engaged in ‘refusal to deal (actually supply)’, but Posco had never supplied its hot-rolled coils before to its potential rival, Hyundai Hysco and Posco simply said no to the Hysco’s request for the supply of hot-rolled coils. The appellate court might have come to the same conclusion based on different reasoning with respect to Conduct I.

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