On November 6, 2015, the Korea Fair Trade Commission (the “KFTC”) issued a notice to amend its substantive Review Guidelines on Unfair Trade Practices (the “Review Guidelines”). Among other things, when finally adopted, the amended Review Guidelines would revise and clarify the standard for analyzing the competitive effects of allegedly unfair trade practices by requiring market power as the initial threshold question. The Review Guidelines would also revise the standard for analyzing a party’s abuse of bargaining position by focusing on whether there is a continuing trading or business relationship between the parties so as to create a lock-in effect and a sufficient degree of dependence by the supposedly weaker party on the party with supposedly superior bargaining position. After a public comment period from November 6 to November 25, 2015, the KFTC will incorporate comments from other relevant government agencies, businesses, and consumer interest groups, and finally adopt revised Review Guidelines.
The current Review Guidelines on the types of unfair trade practices that are prohibited under Article 23 of the Monopoly Regulation and Fair Trade Act (the “MRFTA”) and Article 36(1) of the Enforcement Decree of the MRFTA have been criticized for failing to provide a detailed and practical standard for analyzing the competitive effects of allegedly unfair trade practices. In response, the proposed revised Review Guidelines would provide a more detailed standard for such analysis and also for assessing the newly added market power requirement. In addition, the revised Review Guidelines would incorporate a recent Korean Supreme Court decision (Supreme Court Decision Number 2012 Du 18325, rendered on September 10, 2015) that held that a party’s abuse of superior bargaining position against consumers should be analyzed with an emphasis on the concerned conduct’s likely consumer harm or relevance to the proper order in the marketplace. Furthermore, recognizing a general concern that some companies have abused the current high thresholds for finding unfair appropriation of another party’s technology or unfair recruiting of another party’s human resources rather than lawfully acquiring such other party’s technology and human resources by legitimate means of corporate M&A transactions, the proposed amendment would ease the thresholds for finding such unfair trade practice violations.
B. Key Components of KFTC’s Proposed Amendment to the Review Guidelines
- KFTC to clarify the standard of analysis for competitive effects of unfair trade practices by requiring market power
With regard to the types of unfair trade practices that require anticompetitive effects (i.e., unfair refusal to deal, unfair discrimination, unfair exclusion of competitors, and unfair restrictive terms of trade), the proposed revisions to the Review Guidelines would clarify and require that: (i) the definition of the term “anticompetitive effects,” which is the standard for assessing the legality of these particular trade practices, means “increased market prices or reduced overall market output;” and (ii) the anticompetitive effects should be proved only after determining whether the accused company possesses the requisite “market power,” i.e., the power to affect the result of competition in the marketplace including market prices or terms of transactions in a properly defined market.
Under the proposed amendment to the Review Guidelines, (i) a “relevant market” should be defined first before assessing the market power of the accused company; and (ii) the market share-based market power within the relevant market should be determined as follows:
<Assessment of Market Power>
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- KFTC to amend the requirements for illegal tying arrangements
In light of other major countries’ enforcement trends concerning tying arrangements, the KFTC proposes to amend the Review Guidelines to focus on the competitive effects of a particular tying arrangement on the “tied” product market. Accordingly, the proposed amendment would remove the current Review Guidelines’ ambiguous and circular requirement that a particular tying arrangement is an “unfair” method of competition, and instead would provide more useful guidance that is consistent with other jurisdictions’ modern treatment of tying. The following table summarizes the proposed revisions:
<Proposed Revisions to Requirements for Illegal Tying Arrangements>
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- KFTC to supplement the standard of analysis governing abuse of superior bargaining position
The proposed amendment to the Review Guidelines would revise the standard of analysis for assessing superior bargaining position by focusing on whether there is a continuing trading relationship between the parties so as to create a “lock-in” effect and a sufficient degree of dependence by the supposedly weaker party on the party with supposedly superior bargaining position rather than focusing on the ease of finding or switching to an alternative trading partner.
In addition, the proposed amendment to the Review Guidelines would incorporate a recent Korean Supreme Court decision (Supreme Court Decision Number 2012 Du 18325, rendered on September 10, 2015) where the Court held that a party’s alleged abuse of its superior bargaining position against consumers should be analyzed with a particular emphasis on the concerned conduct’s likely consumer harm or relevance to the proper order in the marketplace.
- KFTC to ease the requirements for unfair appropriation of technology or recruiting of human resources
The proposed amendment to the Review Guidelines would lower the thresholds for finding a violation of the ban on unfair interference with another party’s business by (i) changing the requirement for one party’s imposing “remarkable (or extraordinary or truly significant) hardship” on another party’s business activities to imposing “merely significant hardship” on the other party; and (ii) deleting an exemplary reference to the phrase “in the likely event of bankruptcy [of the other party].” As a result, under the revised Review Guidelines, it would be easier to establish a violation in cases involving misappropriation of another party’s technology or unfairly recruiting key human resources from another party.
As we reported in our Antitrust News Alert dated November 2, 2015, the KFTC recently announced a major overhaul of its enforcement procedures dubbed “Enforcement Process 3.0,” to improve the transparency, effectiveness and efficiency of its enforcement program while at the same time providing enhanced due process to targets of its investigations. The proposed revisions to the Review Guidelines may be viewed as the KFTC’s continuing efforts to bring its enforcement program closer to the global best practices. While its “Enforcement Process 3.0” may be viewed as a vast “procedural” improvement, the just announced proposed revisions to the Review Guidelines may be properly viewed as a significant “substantive” improvement of the KFTC’s enforcement program, by requiring the presence of market power and clearly articulated anticompetitive effects before finding unfair trade practices.
The revised Review Guidelines, when and if finally adopted, will likely provide a more useful and detailed standard for analyzing allegedly unfair trade practices. In turn, it will help achieve more consistent and economically sound enforcement. In particular, under the proposed new Review Guidelines, the competitive effects of allegedly unfair trade practices will be analyzed based on whether the accused has market power in the relevant market to begin with. As a result, market definition will play an increasingly important role even regarding unfair trade practices. In addition, given that the proposed amendment requires a continuing trading relationship between the parties and a sufficient degree of dependence so as to create a “lock-in” effect before finding the presence of superior bargaining position, the thresholds for establishing abuse of superior bargaining position could become somewhat stricter yet economically more sound.