Korea: Korea Fair Trade Commission

Since the global financial crisis that began in 2008, the world has entered a ‘new normal’, represented by low growth and high unemployment.

Amid growth expectations of about 3 per cent put forward by research institutes, proactive reform of the economic structure is urgently needed. In response to this, the Korean government has pushed forward various policies that aim to improve irregular regulations and practices in order to secure the growth momentum of the economy and improve fundamentals under the motto of ‘a market economy with strong fundamentals’.

Under this policy framework of the Korean government, the KFTC has been focusing on establishing a fair competition environment by correcting unfair business practices such as cartels and improving anti-competitive regulations so that the improved regulations can support another leap forward of the Korean economy through business innovation.

Achievements in 2014

Streamlining of laws and policies

The Monopoly Regulation and Fair Trade Act (MRFTA) was enacted in 1981 and has a history of 33 years. Against this backdrop, the KFTC has worked to amend some of its provisions that did not satisfy current market situations and global standards.

By improving the regulations that treated minimum resale price maintenance (RPM) as per se illegal, the KFTC now allows minimum RPM only when the companies involved prove that the effect of improving consumer benefits outweighs the anti-competitiveness of their conducts. Along with this, the policy designating a product whose resale price is allowed to be maintained upon application was abolished as the policy had not been used since 1984.

The KFTC has improved procedural fairness by stipulating the criteria of case-handling by phases in the law. The key contents related to evidence investigation that had been stated in the Notification were legislated into law, and defendants’ right to express opinions was added to the law thus enhancing fairness and transparency of case-handlings.

The KFTC has continued to work to increase the vitality of the economy through the facilitation of mergers and acquisitions by providing exemptions to the duty to file in situations including:

  • when less than one-third of board members hold additional posts;
  • when affiliates of small companies1 are on the merger and acquisition;
  • when a company is just investing simply or in only a certain area; and
  • when one tries to set up a private equity fund.

The KFTC expects that, with such exemptions, the number of cases filed would decrease by more than 20 per cent.

Law enforcement

The correction of unfair business practices in new growth areas

The KFTC has corrected unfair business practices in new growth areas such as the IT sector by utilising its consent decree system and has come up with reasonable measures to regulate abuses of intellectual property rights (IPRs) by patent assertion entities (PAEs).

First, the consent decree system was introduced in late 2011 as a follow-up measure of the Korea–United States free trade agreement and the system was first applied to two cases in the IT sector in 2014 involving Naver and Daum,2 and SAP Korea.3 The KFTC has worked for the fast recovery of competition order by applying the consent decree in the new growth areas with rapidly changing market environment.

The KFTC amended the Guidelines for Review of Unfair Exercise of IPRs to make specific criteria of enforcing laws against patent right abuses. The new Guidelines presents five types of patent right abuses by the PAE, including:

  • imposition of excessive loyalty;
  • denial of application of FRAND terms;
  • unfair agreement;
  • reckless filing of patent suits and threat to file such suits; and
  • privateering.

The Guidelines also set out criteria for determining the illegality of injunctions filed by standard-essential patent holders.

Cartels

The incentives given to those who collude have increased as both domestic and global economies have contracted due to the aftermath of the global financial crisis in 2008. Accordingly, the KFTC has toughened its law enforcement against bid rigging in public sectors and international cartels among intermediate goods producers.

In order to root out bid rigging, the KFTC set up a bid-rigging investigation division in September 2013 and, concerning cartels that have had a severe impact, the authority has reported not only the corporations involving in cartels but also the involved individuals to prosecutors.

As a result of such effort, the KFTC spotted 56 cartels in the past year, including the rigging of bids in large public construction projects, such as:

  • bid rigging by 21 companies participating in the construction project for Incheon subway line No. 2 (February 2014);
  • bid rigging in the construction project for Honam express railway (July 2014); and
  • bid rigging in a ‘turn-key’ construction project for the Restoration of Four Rivers (November 2014).

The KFTC reported 38 cartel cases to the Prosecutor’s Office and imposed fines of more than 1 trillion won.

For international cartels, the KFTC focused more on the parts and components industry, and as a result the KFTC imposed fines of 114.6 billion won against Japanese and German automobile parts manufacturers for rigging bids on car metering devices and windshield wiper systems in December 2013. The KFTC also imposed fines totalling 77.8 billion won on Japanese and German parts and components companies in November 2014 for colluding on the price of bearings.

Cross-border mergers and acquisitions

In a bid to effectively respond to large-scale international mergers and acquisitions in a timely manner that otherwise would have a huge ripple effect on markets, the KFTC has reinforced its review process by building up cooperation with other competition authorities. In particular, the KFTC reviewed large cross-border mergers and acquisitions in the areas such as the IT, maritime shipping and semiconductor industries.

In particular, the KFTC rejected the proposed merger deal of Essilor, the No. 1 company in the glass lenses for vision correction market, to take over Daemyung Optical, the company ranked second in the industry, for concerns over its anti-competitiveness.4 The KFTC also actively cooperated with other competition authorities in evaluating the anti-competitiveness of the P3 Network, a joint corporation to be formed by the world’s top three shipping companies – Maersk, MSC and CMA CGM – to share their vessels on Asia-Europe, trans-Pacific and transatlantic routes.

The KFTC is currently reviewing proposed merger and acquisition deals in IT and semiconductor industry, such as those by Applied Materials/Tokyo Electron and Microsoft/Nokia, and has carefully handled these cases in cooperation with other competition authorities, as well as incorporating comments from the domestic industry and other stakeholders.

Sanctions against public enterprises

The KFTC conducted a fact-finding investigation via documents and ex officio investigations against counterpart companies of public enterprises to eliminate unfair business practices of using monopolistic power of the public enterprises. In particular, the KFTC strictly sanctioned Korea Electric Power Corporation, Korea Expressway Corporation, Korea Railroad Corporation and Korea Gas Corporation by imposing fines totalling 150 billion won in December 2014 for unfairly supporting their affiliates and abusing their market dominances.

Enforcement direction in 2015

Based on its achievements in 2014, the KFTC will focus on establishing order in the market economy so that competition order can help innovation of the Korean economy in 2015.

The KFTC will strengthen its oversight on abuse of market dominance and IPR abuses by existing players in newly emerging areas such as mobile platforms. In particular, the KFTC will beef up its monitoring efforts based on the Guidelines for Review of Unfair Exercise of IPRs to oversight activities such as abuse of SEPs or frivolous suits filed by PAEs.

The KFTC will increase its capability in 2015 to root out cartels that restrain competition in areas closely related to people’s daily lives such as living necessities and services. Particularly with regard to bid rigging, the KFTC plans to support ordering agencies to devise self-monitoring systems for bid rigging in an effort to increase their detection rate.

In response to economic globalisation, the KFTC will put more efforts into responding to international cartels and cross-border mergers and acquisitions that have huge impact on the market.

To gain trust from the market in terms of performing its duty as a quasi-judicial decision-maker, the KFTC will improve its hearing process by actively utilising expert witnesses and adopting a ‘hearing renewal system’,5 and will enhance transparency and procedural fairness in law enforcement throughout case-handling processes from investigation to decision-making all by working on the legislation of case handling processes without disruption.

To spread the competition culture, the KFTC will aim to improve the competition-restrictive regulations of other government bodies and local governments. In particular, the KFTC will conduct a thorough evaluation of various regulations restricting the freedom of doing business concerning authentication and permission or approval and registration, and will find out and improve anti-competitive regulations closely linked to and having huge impact on the lives of people.

Notes

  1. Companies belong to a business group whose gross asset or total sales amount to less than 2 trillion won (article 12-2 of the Enforcement Decree of MRFTA).
  2. It is this case in which Naver and Naver Business Platform (Naver) and Daum Communications (Daum), the largest and the second-largest internet portal operators in the internet search market in Korea, had displayed search results and their expert paid services together without discrimination, thus confusing users. The KFTC accepted the commitments that these two operators submitted in March 2014.
  3. Concerning prohibition on partial termination after a purchase agreement was made on the software of SAP Korea, a manufacturer and distributor of software for companies, and regarding a provision allowing SAP Korea to arbitrarily terminate its contract with partners that resell the software, in October 2014 the KFTC accepted the commitments proposed by SAP Korea.
  4. Essilor International SA, a parent company of Essilor, manufactures and sells glass lenses and is the world largest company with a market share of 47 per cent. Essilor signed an agreement to take over 50 per cent of stock of Daemyung Optical on 1 January 2013 and filed the merger with the KFTC. The KFTC concluded that the deal would form monopolistic and oligopolistic market structure that could greatly reduce competition. Therefore the authority disapproved the merger application on 17 March 2014 since behavioural remedies were not enough to dismiss the concerns posed by the merger.
  5. The hearing renewal system is a tool to facilitate the use of the ‘hearing resumption system’ by allowing commissioners who could not participate in the previous meeting to find out contents deliberated in the previous meeting and the assertion made by defendants when resuming a hearing. The ‘hearing resumption system’ is designed to grant the opportunity to fully express one’s opinion by not completing the hearing in a day and allowing it to be continued later.

Get unlimited access to all Global Competition Review content