Korea: Abuse of Dominance
This is an Insight article, written by a selected partner as part of GCR's co-published content. Read more on Insight
Posco was a landmark Supreme Court case in 2007 that crystallised the two elements of the offence of a dominance abuse (namely, the anti-competitive intent and the anti-competitive effect) and the enforcement agency’s burden to prove both. This year has seen the Supreme Court hand down two important judgments (namely, Gmarket1 and Melon2) that shed further light on the current body of law on both exclusionary and exploitative abuses. Both judgments echoed the Posco standard on exclusionary abuses. In addition, in Melon, the case that also implicated an exploitation issue (specifically, consumer harm), the Supreme Court applied a legal standard that contains the additional element of significant degree of harm to consumer welfare.
Overview of dominance abuses in Korea
The Monopoly Regulation and Fair Trade Act (MRFTA), the governing antitrust statute, enumerates the general categories of prohibited abuses in its article 3-2, section 1. These general categories are:
- price abuse;
- output restriction;
- hindering the business of other enterprises;
- foreclosing new entrants from the market; and
- excluding competitors from the market, or significantly injuring consumer welfare.
Each of these general categories is then further sub-categorised and elaborated in an increasingly detailed fashion, first by the Enforcement Decree of the MRFTA and then by the Guideline on the Examination of Abusive Acts of Dominant Position issued by the Korea Fair Trade Commission (KFTC). A violation triggers a remedial order that will include a surcharge payment (up to 3 per cent of the relevant revenue over the violation period) as well as a cease-and-desist order tailored to remedy the competitive injury.
Posco implicated ‘refusal to deal’, which is within the general category of an abuse by ‘hindering the business of other enterprises’. With this, the Supreme Court of Korea ruled that, to condemn a dominant enterprise’s conduct for being an abuse by ‘hindering the business of other enterprises’, the regulatory agency must prove both the anti-competitive intent and the anti-competitive effect. The Posco standard was repeated in TBroad-I3, Nonghyup4, Hyundai Motors5 and KIA Motors6, and was applied to cases implicating various types of abuses other than refusal to deal. On exploitation abuse, the Supreme Court applied a legal standard that additionally scrutinised the extent of the exploitation, specifically whether the harm to the consumer welfare was significant (in addition to the elements of the anti-competitive intent and the anti-competitive effect as stated in Posco). The Supreme Court addressed the legal standard on exploitation in CJ Hellovision7 and TBroad-II8 in 2010, and once again this year in Melon.
Decisions in 2011
With its decision on Gmarket, the Supreme Court cancelled the KFTC’s decision to condemn Gmarket’s exclusive dealing that had later been affirmed by the Seoul High Court. Specifically, the Supreme Court cited the lack of the anti-competitive effect required under Posco and remanded the case to the Seoul High Court. In Melon, a case that implicated both exclusion and exploitation issues, the Supreme Court rejected the exclusion claim for lack of anti-competitive intent and also rejected the exploitation claim for lack of significance of harm.
Gmarket, dominant in the ‘internet open market’, asked the seven sellers who were selling through both Gmarket’s website and a rival’s website (Mple) to stop selling through Mple or otherwise risk having their goods taken off of the main screen of Gmarket’s website. The KFTC condemned it as an abuse, committed specifically in the form of exclusive dealing (namely, the act of dealing with the counterparty only if the counterparty does not deal with the rival). Hearing this case on appeal, the Seoul High Court affirmed it. Later, the Supreme Court overruled and remanded the case back to the Seoul High Court, citing the lack of anti-competitive effect. Specifically, the Supreme Court pointed to the lack of evidence to show that Gmarket’s acts were enough to harm the market as a whole or even only that single company, Mple.
A few months after the foregoing case was remanded to it, the Seoul High Court decided another case also implicating Gmarket’s exclusive dealing for requiring the sellers to stop dealing with its rival (this time, 11St.) if they wanted to qualify for Gmarket’s promotion that would prominently display their goods on the first page of Gmarket’s website. Following the Posco standard, the Seoul High Court cancelled the KFTC’s decision for failure to prove the anti-competitive effect.
In Melon, SK Telecom (SKT), the defendant company that is a prominent wireless carrier that also runs a music website called Melon, embedded SKT’s self-developed DRM (namely, digital rights management designed to prevent copyright infringements) in its MP3 phones and the music files sold on Melon. Consequently SKT’s MP3 phones could play only the music files downloaded from Melon and not from any other sources unless the users of SKT’s MP3 phones were registered members at Melon and converted their music files. The KFTC condemned this as both an abuse by ‘hindering the business of other enterprises’ (exclusionary abuse) and an abuse by ‘significantly injuring consumer welfare’ (exploitative abuse) committed in the market for ‘MP3 file download services’.
Hearing the case after the KFTC’s appeal from the Seoul High Court’s judgment in favour of SKT, the Supreme Court affirmed the Seoul High Court’s judgment. On the exclusion issue, the Supreme Court found no abuse, citing the justifications that DRM had for protecting copyrights by preventing unauthorised downloads and the lack of anti-competitive intent (despite finding some anti-competitive effect). On the exploitation issue, the court used the same elements and the standard it used in CJ Hellovision and TBroad-II. Among other things, the Supreme Court concluded that the inconveniences suffered by the consumers, as long as MP3 file download service enterprises owe no legal obligation to standardise the DRM technology, only seemed inevitable and therefore not significant.
Posco laid out the legal standard for assessing exclusionary abuses, and CJ Hellovision and TBroad-II did the same for exploitative abuses (specifically, on abuses by ‘significantly injuring consumer welfare’). Although in recent years there has been a decline in the number of dominance abuse cases from both the courts and the KFTC, this trend will not, perhaps, be lasting.
- Gmarket: Supreme Court of Korea (10 June 2011) Case No. 2008Du16322.
- Melon: Supreme Court of Korea (13 October 2011) Case No. 2008Du1832.
- TBroad-I: Supreme Court of Korea (11 Dec 2008) Case No. 2007Du25183.
- Nonghyup: Supreme Court of Korea (9 July 2009) Case No. 2007Du22078.
- Hyundai Motors: Supreme Court of Korea (25 March 2010) Case No. 2008Du7465.
- KIA Motors: Supreme Court of Korea (8 April 2010) Case No. 2008Du17707.
- CJ Hellovision: Supreme Court of Korea (25 March 2010) Case No. 2008Du16407.
- TBroad-II: Supreme Court of Korea (27 May 2010) Case No. 2009Du1983.