Korea: Overview

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According to the work plan for 2012 announced by the Korea Fair Trade Commission (the KFTC) on 15 December 2011, the KFTC’s overarching goal for 2012 was to establish a ‘fair market economy’ that benefits small and medium-sized enterprises (SMEs), large conglomerates and consumers. Among other goals, the KFTC’s 2012 work plan aimed to:

  • heighten monitoring of cartels;
  • streamline the merger filing review process and exercise greater scrutiny in its review of overseas transactions; and
  • adopt a compensation system for consumers harmed by anti-competitive behaviour.

In addition to the above, 2012 saw amendments to the KFTC’s guidelines on review of abuse of market dominant position and new procedural rules for the consent decree system adopted in 2011. New changes to the Monopoly Regulation and Fair Trade Law (the MRFTL) and its sub-regulations further provided the KFTC with expanded authority to enforce the MRFTL.

This article looks at key developments in Korean competition law during 2012, within the framework of the KFTC’s 2012 work plan, along with the new president-elect’s campaign promises relating to antitrust and fair trade.

Major developments in 2012

Cartel regulation

In its 2012 work plan, the KFTC announced that it would heighten its monitoring of cartels in sectors closely connected to the daily lives of consumers, such as finance and general services. As part of these efforts, the KFTC made significant changes to its cartel review regime in 2012, including amendments to the cartel leniency programme to elaborate on procedures set forth in the law, and amendments to the Cartel Review Guidelines to provide for new standards for reviewing hard-core and soft-core cartels.

Amendments to the cartel leniency programme

On 3 January 2012, the KFTC amended its notification for its cartel leniency programme (the Leniency Notification), to bring clarity to the meaning of ‘repeat offenders’ in cartel cases. This term is used in the Enforcement Decree of the MRFTL, which provides that a cartel participant will be ineligible for the benefits of leniency if it repeatedly engaged in unlawful concerted acts. The amended Leniency Notification defines ‘repeatedly’ to refer to cases where:

  • a cartel participant, subject to a corrective order and an administrative surcharge, violated the corrective order within five years of the date of the corrective order; or
  • a cartel participant that enjoyed leniency benefits in the form of a moderation to (or exemption from) the corrective order or administrative surcharge ‘newly’ engaged in cartel activities within five years from the date it received the leniency benefits.

Further, on 22 June 2012, the Enforcement Decree of the MRFTL was amended to stipulate that a ‘second’ applicant will no longer be eligible to benefit from the leniency system for cartels involving only two participants. Even in cartel cases involving three or more participants, a second applicant who files a leniency application more than two years after the date of the first leniency application will not be eligible for leniency benefits.

Amendments to Cartel Review Guidelines

On 21 August 2012, the KFTC amended its Cartel Review Guidelines to provide that a ‘general market analysis’ must be performed, at a minimum, for hard-core cartels. Before the amendments, the KFTC’s position was that a hard-core cartel whose sole purpose is deemed to restrain competition will be presumed to be per se illegal, and that an analysis of the relevant market is not necessary for such hard-core cartel cases.

In addition, the amended Cartel Review Guidelines contain more stringent standards for recognising efficiency-enhancing effects in soft-core cartel cases that involve both anti-competitive effects and efficiency-enhancing effects. This places a greater burden on soft-core cartel participants to show that there are clear efficiency-enhancing effects that outweigh any anti-competitive effects.

Merger filings

In its 2012 work plan, the KFTC announced that it would improve its merger filing review process to allow for more prompt and efficient review of business combinations. The KFTC also stated that it would closely monitor overseas transactions that may potentially cause harm to domestic consumers. To this end, the KFTC amended its Guidelines for Business Combination Reports (the Merger Filing Guidelines) and issued a Manual for Cooperation in Review of International M&A (the International M&A Cooperation Manual).

Changes to merger filing regime

On 22 June 2012, the KFTC amended the Merger Filing Guidelines to reflect the KFTC’s interpretation of rules on merger filings and to simplify the reporting format for merger filings. Under the amended Merger Filing Guidelines, only the final acquirer is required to file a report with the KFTC in the case of consecutive business combinations, such as where an acquirer acquires a target’s stock or business and subsequently sells the stock/business on the same day, or within the prescribed reporting period. Similarly, in cases where there are more than two business combinations that each trigger a merger filing obligation, but which can substantively be deemed a single legal act, only the primary business combination needs to be reported. In addition, neither (a) the appointment as director or officer at a company with annual sales or total asset value of 2 trillion won or more, of a director or officer at a company with annual sales or total asset value of less than 2 trillion won nor (b) the interlocking of outside directors will trigger the merger filing obligation under the amended Merger Filing Guidelines. The amendments also exempt the following cases from the pre-closing reporting obligation (which is applicable to business combinations involving large companies with annual sales or total asset value of 2 trillion won or more):

  • takeover bids (tender offers);
  • bequests;
  • transactions that are required by other laws to be reported to a different administrative agency through a unified filing process;
  • execution of secured interests; and
  • restoration of voting rights.

On 22 June 2012, the MRFTL was amended to require the KFTC to complete its review of a merger filing and revert to the applicant within 30 days of submission (which period may be extended up to 90 days), regardless of whether the merger filing is a pre-closing or post-closing filing. Prior to the amendments, there were no time limitations on the KFTC’s review of post-closing filings.

The Enforcement Decree of the MRFTL was also amended on the same day to increase the base fine amount for violating merger filing obligations. Under the amendments, the base fine amount has been increased by:

  • twice the amount under the previous regulations for violation of the pre-closing filing obligation; and
  • four times the amount under the previous regulations for violation of the post-closing filing obligation.

Issuance of the International M&A Cooperation Manual

In December 2011, the KFTC issued the International M&A Cooperation Manual to systematise and streamline cooperation with various overseas competition authorities when reviewing filings made in multiple jurisdictions. The number of such filings has been growing due to the increase in multi-jurisdictional and cross-border mergers and acquisitions. Through the International M&A Cooperation Manual, the KFTC expanded the scope of cooperation among competition authorities to include analysis of anti-competitive effects as well as cooperation in enforcing corrective measures. Previously, cooperation with overseas competition authorities tended to be limited to the confirmation of facts. The KFTC has been utilising the International M&A Cooperation Manual in major international M&A transactions with competition authorities in the US, the EU and other countries.

Consumer protection

In its 2012 work plan, the KFTC announced that it would focus on ensuring that consumers damaged by anti-competitive behaviour are provided with due compensation. As part of these efforts, the KFTC amended its Guidelines on Detailed Standards for Imposition of Administrative Fines for Violation of Fairness in Labelling and Advertisements Act (the Administrative Fines Guidelines) to provide for stronger sanctions, and also proposed new amendments to the Framework Act on Consumers.

Amendments to the Administrative Fines Guidelines

On 16 October 2012, the KFTC amended the Administrative Fines Guidelines in order to:

  • increase the potential maximum rate of administrative fines for misleading or deceptive labelling and advertisements;
  • encourage companies to become more consumer-friendly by imposing stricter conditions on mitigatory measures available to respondent companies; and
  • provide for heavier sanctions on companies that obstruct the KFTC’s investigations.

Under the Administrative Fines Guidelines, the maximum administrative fine rate for misleading or deceptive labelling and advertisements has increased from 1 per cent of the relevant sales revenue to 2 per cent. The base amount of administrative fines applicable in the absence of any relevant sales revenue was also increased, from 400 million won to 500 million won.

In addition, the Administrative Fines Guidelines impose stricter conditions on respondent companies wishing to take advantage of a 20 per cent reduction in administrative fines, which is available for companies that adopt the Consumer Centred Management System (the CCM System), a set of model consumer-centred corporate management guidelines. Previously, companies could enjoy a reduction in administrative fines simply by adopting the CCM System. Under the Administrative Fines Guidelines, however, they must obtain certification as ‘CCM-compliant’ from the appropriate government agency. The Administrative Fines Guidelines also impose stricter conditions for respondent companies wishing to take advantage of the 20 per cent reduction in administrative fines in exchange for adopting a self-correction remedy. In the past, companies could enjoy reductions in administrative fines simply by abandoning or correcting the labelling or advertisement at issue. Under the amended Administrative Fines Guidelines, however, companies may benefit from the reduction only if they have used actual efforts to remedy the relevant consumer loss, such as by providing financial compensation to the affected consumers.

The Administrative Fines Guidelines also provide for heavier sanctions on respondent companies that obstruct the KFTC’s investigations into misleading or deceptive labeling or advertisement. Previously, companies that obstructed the KFTC’s investigation could be subject to up to 30 per cent higher administrative fines, regardless of the type of obstruction. However, the Administrative Fines Guidelines impose different maximum rates for different types of obstructions, with up to 40 per cent higher administrative fines for companies that intentionally prevent or delay the KFTC investigators’ entry into their premises during dawn raids.

Proposed amendments to the Framework Act on Consumers

On 30 October 2012, the KFTC proposed several amendments to the Framework Act on Consumers. Among other features, the proposed revisions set forth the following changes:

  • The proposed amendments would toll the statute of limitations on legal claims that may be brought by consumers (eg, claims for damages) if a consumer makes a request for a dispute resolution. Under the current law, consumers tend to refrain from resorting to the dispute resolution process if the statute of limitations expiration is imminent, and companies intentionally delay the redress process and allow the statute of limitations to expire.
  • The proposed amendments would expand the scope of the parties who can make a mass dispute resolution request. Currently, only the central and regional governments, the Korea Consumer Agency, consumer organisations and companies may make a mass dispute resolution request. The amendment will allow consumers to do the same.
  • The proposed amendments would allow the Consumer Policy Committee (the CPC) to recommend improvements to the current laws and regulations that restrict consumer rights. The CPC, which was created within the KFTC to deliberate basic government policies relating to the enhancement of consumer rights, is co-headed by the Chairman of the KFTC and an external consumer issue expert. After the CPC recommends an improvement, the KFTC will report the recommendation to the relevant government agencies, which will then implement the recommendation, unless there are special circumstances that would make implementation difficult.

The KFTC has recently finished collecting public opinion on the proposed amendments.

Abuse of market dominance

Amendments to the Dominance Review Guidelines

On 13 August 2012, the KFTC amended its Guidelines for Review of Abuse of Market Dominant Position (the Dominance Review Guidelines), which seeks to provide detailed, substantive guidelines for the determination of ‘anti-competitive effects’. For Korean courts, this determination is a critical factor in abuse of dominance cases. The amendments are expected to better equip the KFTC to address the effects-based approach, given that future abuse of dominance cases are likely to raise more economic and technically complex issues.

The changes to the Dominance Review Guidelines provide for the addition of a new section 6, which is titled ‘Standards for Determining Anti-competitive Effects’. This section states that the following five factors must to be taken into account when analysing the anti-competitive effects in abuse of market dominance cases:

  • increase in price or restriction in output;
  • restriction of diversity in products or services;
  • harm to innovation;
  • foreclosure effects; and
  • increase in competitors’ costs.

Consent decree system

Procedural rules established for Consent Decree System

In November 2011, amendments were made to the MRFTL to introduce the consent decree system in light of the Korea–US Free Trade Agreement. Further to these amendments, on 1 April 2012, the Rules on Management of and Procedures for the Consent Decree System (the Consent Decree Rules) were established to set forth detailed procedural rules for the consent decree system.

Under the MRFTL and the Consent Decree Rules, a respondent wishing to use the consent decree system to resolve a case may propose corrective measures – such as measures to remedy harm to consumers and to compensate damages – to the KFTC. The KFTC will review the proposed measures through consultation with other interested parties, including the prosecutor general, and decide whether to close the case without making a determination of liability. Similar systems are already in place in other jurisdictions, such as the US and the EU, but the consent decree system adopted by the MRFTL will be subject to strict conditions and will have a limited scope when compared to similar systems in such other jurisdictions. The following conditions are worth noting:

  • Scope of consent decree: The consent decree system’s scope is limited to relatively minor violations of the law or cases where the underlying behavior is not a clear violation of the law. All cartel cases and other clear and material violations of the MRFTL that are subject to criminal sanctions are excluded from the scope.
  • Prior consultation with Prosecutor General: Prior to the issuance of a consent decree, the KFTC must consult with the Prosecutor General in writing.
  • Public comment period: There will be a public comment period of 30 to 60 days during which the interested parties and government agencies can submit their opinions.
  • Enforcement measures: If the respondent fails to comply with its own proposed corrective measures, the KFTC may impose an ‘enforcement fine’ of up to 2 million won per day, or may even cancel the consent decree.
  • Legal effect of consent decree: Under the MRFTL, a consent decree does not mean that liability has been found in a given case. Also, the existence of a consent decree cannot be used as evidence of liability in a legal proceeding.

The consent decree system is expected to encourage the prompt and effective remedy of harm to consumers and SMEs, and to allow the market to swiftly regain normalcy in the aftermath of

anti-competitive activities. It is also anticipated the consent decree system will allow respondent companies to save time and resources that otherwise would have been spent defending their cases, and also allow them to avoid reputational harm.

Heightened enforcement of MRFTL

Amendments to Administrative Fines Notification

On 1 April 2012, the KFTC amended the Notification on Detailed Criteria for the Imposition of Administrative Fines (the Administrative Fines Notification) to provide greater incentives for voluntary corrections and to deter violations of the MRFTL. Under the amended Administrative Fines Notification, the incentive for voluntary corrections has been increased by allowing administrative fines to be reduced by up to 50 per cent for:

  • voluntary correction of a violation that results in the price that would have existed in the absence of the violation; or
  • restoration of the damage caused by the violation.

The amended Administrative Fines Notification has also increased the base administrative fine rates applicable to different violations (eg, abuse of market dominant position, unfair trade practices) to reach the legal limit prescribed by the MRFTL. The amended Administrative Fines Notification further increases the aggravated fine rates that can be applied for verbal abuse and assault during an investigation and intentional deterrence and delay of access to the relevant site, to up to 40 per cent. A new provision was also added to allow the KFTC to increase administrative fines by up to 20 per cent for repeat offenders who commit a violation less than three years after being subjected to sanctions for a previous, identical violation.

Extended statute of limitations for MRFTL violations

On 22 June 2012, the MRFTL was amended to extend the statute of limitations for MRFTL violations from five years to seven. This period will be automatically extended for an additional five years in the event that the KFTC initiates an investigation into an MRFTL violation. The amended MRFTL also provides that interfering with an investigation through the use of abusive language or assault, or deliberately resisting or preventing officials from entering the premises during an onsite investigation, may subject the responsible individuals to imprisonment of up to three years as well as a fine of up to 200 million won. The company affiliated with the individual may also be subject to vicarious liability.

Antitrust enforcement forecast: the president-elect’s campaign promises

The recent presidential election, which took place on 19 December 2012, is expected to result in significant changes to the business and regulatory environment in Korea. The president-elect’s campaign promises on antitrust and fair trade law issues consist of:

  • stronger antitrust and fair trade law enforcement; the implications of this change may include:
  • more criminal penalties imposed for violations of the MRFTL, due to the wider scope of authorities that can file criminal complaints;
  • heightened sanctions for violation of the relevant laws, with administrative, criminal and civil proceedings being available simultaneously; and
  • an increase in the number of lawsuits relating to antitrust and fair trade, such as private actions for damages and private enforcement actions;
  • stricter sanctions and harsher penalties for illegal activities by large conglomerates (chaebols) and unfair transfer of wealth among the chaebol founders’ family members: the number of prison sentences imposed for white-collar crimes, such as embezzlement and criminal breach of fiduciary duty, may increase. The KFTC and the Prosecutors’ Office are expected to conduct more investigations into cases involving usurpation of corporate opportunities and unfair internal transactions; and
  • improvements to corporate governance: the voting rights of existing controlling shareholders may be weakened, while the role of institutional investors will be expanded. Affiliates of conglomerates will face limitations on expansion.

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