The Korean Supreme Court recently announced three important opinions. In the first two cases announced on the same day, the Court clarified the proper analytical mode and sequence for concerted conduct. The Court ruled that the rule of reason applies to all concerted conduct cases in Korea, including even those commonly recognized as per se illegal horizontal price fixing cases in the United States. 2 In the third case, the Court rejected a defense theory that would have amounted to the Noerr-Pennington doctrine in the United States. It remains to be seen how these rulings will affect the courts and Korea Fair Trade Commission (“KFTC”) in their interpretation, application and enforcement of the Korean antitrust laws and help further develop Korean antitrust jurisprudence.

No Per Se Illegal Concerted Conduct in Korea

On April 26, 2012, the Korean Supreme Court issued two decisions that shed light on the proper analytical framework for concerted conduct cases under Article 19(1) of the Monopoly Regulation and Fair Trade Act (“MRFTA”). In Kolon Glotech et al. v. KFTC (Supreme Court judgment No. 2010Du18703 delivered on April 26, 2012) (the “BMW” decision), the Court clarified the correct sequence of Article 19(1) analysis by holding that, first and foremost, a relevant antitrust market must be defined based on a correct set of relevant factors before competitive effects can be ascertained. In D & T Motors et al. v. KFTC (Supreme Court judgment No. 2010Du11757 delivered on April 26, 2012) (the “Lexus” decision), the Court reconfirmed that Article 19(1) offenses are not per se illegal but rule of reason offenses and that the KFTC has the burden of proof in establishing a properly defined relevant antitrust market and anticompetitive effects within the properly defined market.

In the BMW decision, the Second Department of the Korean Supreme Court decided that the KFTC incorrectly analyzed an alleged agreement among certain BMW automobile dealers in Korea. The Court held that the KFTC should define a relevant antitrust market first and then assess anticompetitive effects, if any, within the properly defined market. In the Court’s opinion, the failure to employ the correct analytical steps and methodology tainted the rest of the Seoul High Court’s decision (Seoul High Court judgment No. 2009Nu9873 delivered on July 22, 2010) that affirmed the KFTC’s initial determination. Therefore, the Court reversed and remanded the case to the Seoul High Court for further consideration consistent with the Supreme Court’s instructions.

In 2008, the KFTC alleged that certain BMW automobile dealers in Korea agreed among themselves to protect their sales margins in violation of Article 19(1) Item 1 of the MRFTA, which prohibits an agreement to undertake unfair concerted actions or an action directing others to engage in such conduct that fixes, maintains, or changes prices. The KFTC imposed an administrative fine of Korean Won 14,259 million. On the BMW dealers’ appeal, in 2010 the Seoul High Court sided with the KFTC. However, in its April 26, 2012 decision, the Supreme Court ruled that the KFTC and the Seoul High Court should have defined a relevant market by undertaking a comprehensive review of all of the factors that are relevant for market definition, and then assessed anticompetitive effects, if any, within the properly defined market. Instead, in the Court’s view, the KFTC and the Seoul High Court relied on incorrect and incomplete set of factors that are more relevant to competitive effects analysis but not as relevant to or appropriate for market definition. The Court admonished that such an incorrect analytical framework would unfairly and inappropriately define a self-serving market.

Specifically, the KFTC asserted that market definition can vary depending on the types of potentially anticompetitive conduct, i.e., the commonly used distinction between hardcore and softcore agreements. The KFTC then relied on the following factors to allege an “imported new BMW automobiles in Korea only” market:

  1. The subject of the concerted conduct and the intent of the actors – the BMW dealers in Korea agreed to limit the discount range and other sales conditions;
  2. The scope or area of the concerted conduct – the concerted conduct here is limited to “intrabrand” competition and cannot be said to affect “interbrand” competition against other brands of imported automobiles;
  3. The methods of the concerted conduct – it is not a direct restriction on the consumer purchase price, but rather the BMW dealers in Korea could only employ a very limited method of adjusting the sales margins within the range of margins available to them; and
  4. The effects of the concerted conduct – the concerted conduct directly affects “intrabrand” competition, especially “intrabrand ‘price’” competition.

The Court overruled the KFTC’s “imported new BMW automobiles in Korea only” market definition. The Court held that these factors are not factors for market definition as a threshold matter, but rather they are factors for assessing potential anticompetitive effects after a relevant antitrust market has been properly defined.

In remanding the case, the Court instructed that the factors that are relevant to and should be comprehensively examined for market definition include: (1) similarities or dissimilarities of product functions and uses; (2) consumers’ perception of interchangeability or substitutability; and (3) sellers’ business decision making processes and types in response to consumers’ such perception on the substitutability. In the process, the Court strongly indicated that the evidence of “interbrand competition,” i.e., substitutability among different brands, should not be lightly dismissed in favor of “intrabrand competition” in the market definition phase of a properly constructed antitrust analysis.

In the Lexus decision decided on the same day as the BMW case, the First Department of the Korean Supreme Court reviewed the history of Article 19(1) of the MRFTA and reconfirmed that it proscribes “unfair” concerted conduct under the rule of reason analysis rather than a per se illegal treatment. Therefore, the Court observed that the necessary first step is to define a relevant antitrust market and discussed the relevant factors for market definition in greater detail.

While noting that the Seoul High Court was correct in engaging in market definition first, the Court ruled that there was insufficient evidence to support the Seoul High Court’s actual market definition. More specifically, the KFTC argued that either the conduct at issue was a per se illegal offense and thus no market definition was necessary or, alternatively, the relevant market was “imported Lexus sales in Korea only.” On the other hand, the Lexus dealers in Korea asserted that the market should include all imports and luxury Korean automobiles. After considering various relevant factors, the Seoul High Court adopted the Lexus dealers’ market definition.

On appeal, however, the Supreme Court noted that the evidence before the Seoul High Court simply consisted of (1) the KFTC’s investigation report and Commission Opinion; (2) a study on the effect of Korean car taxes or sales trends of domestic cars; and (3) mere registration records of each brand of imported automobiles. The Court determined that this was insufficient evidence to support the Seoul High Court’s market definition. By pointing out the inadequacy of the proffered evidence in the proceedings below, the Court provided further guidance on the types of evidence that may be required to support a properly defined antitrust market. Furthermore, the Court unequivocally stated that the KFTC has the burden of proof to establish and justify its “imported Lexus sales in Korea only” market. As it did in the BMW case, the Court remanded the case to the Seoul High Court for reconsideration consistent with the Court’s instructions.

On August 20, 2012, pursuant to its already existing review and update schedule, the KFTC revised the 2007 version of its internal Concerted Conduct Analysis Guidelines (“KFTC Concerted Conduct Guidelines”). In response to the Supreme Court’s BMW and Lexus rulings, the KFTC deleted references to the “hardcore v. softcore concerted conduct” distinction found in the 2007 KFTC Concerted Conduct Guidelines.3 Moreover, in the 2012 version, the KFTC kept the 20% market share safe harbor rule from the 2007 Concerted Conduct Guidelines, but without the clause specifically limiting the safe harbor rule to softcore concerted conduct only.4 While the KFTC kept the qualifier “in the absence of special circumstances,” under the new 2012 Concerted Conduct Guidelines5 effective August 21, 2012 through August 20, 2015, arguably even what is commonly deemed as a hardcore price-fixing agreement may not be automatically ineligible for a safe harbor treatment.

It remains to be seen whether the KFTC will start losing an inordinate number of horizontal price-fixing cases due to its supposedly increased burden of proof on market definition and competitive effects, and if so, whether that would prompt legislative action to codify the concept of hardcore concerted conduct or price-fixing cartels.

No Noerr-Pennington in Korea

On May 24, 2012, the Third Department of the Korean Supreme Court in essence ruled that there is no Noerr- Pennington doctrine in Korea. In Samsung Fire & Marine Insurance Co., Ltd. v. KFTC (Supreme Court judgment No. 2010Du375 delivered on May 24, 2012) (the “Samsung Fire Insurance” decision), the Court held that even if competitors’ concerted attempt to influence government policy or law enforcement were their exercise of the constitutionally protected rights to free speech and to petition government, this alone would not mean such concerted conduct is exempt from the reach of antitrust law.

The KFTC characterized the ruling as the Korean judiciary’s first explicit opinion that rejected in Korea the judicially created Noerr-Pennington doctrine of the United States. Until this Samsung Fire Insurance opinion, it was not clear whether competitors’ individual or concerted efforts to petition government and agreements for such joint petitioning were exempt from the reach of antitrust as an exercise of the constitutionally protected right to free speech. Previously, it was suggested that in certain situations the Noerr-Pennington doctrine may shield from antitrust liability an otherwise illegal competitor agreement. The Samsung Fire Insurance decision seems to reject such an exception to antitrust law and clarifies that the rights to speech and petition alone will not save companies from a potential violation of the ban on price-fixing agreements among competitors.

In the Samsung Fire Insurance case, through over twenty meetings, fourteen life insurance companies and ten casualty insurance companies agreed to reduce discount rates for preferred corporate clients, reduce or eliminate premium refund rates, jointly determine risk rates in connection with their group casualty insurance business. The KFTC ordered corrective measures and imposed substantial administrative fines. The Seoul High Court affirmed.

On appeal, the Supreme Court affirmed the lower court’s decision. First, the Court agreed with the lower court that the defendants’ concerted conduct went beyond simply collecting and expressing opinions to the Financial Supervisory Service for its policy formulation. Second, the Court held that the Financial Supervisory Service did not directly and specifically command the defendant insurance companies to agree to reduce discounts on group insurance premiums and to agree to reduce or eliminate refunds of premiums. The Court also determined that the underlying insurance laws and regulations did not provide an exception to the reach of antitrust. This part of the opinion could be understood as the Court’s determination that Korean Congress did not displace competition with regulation for the group casualty insurance market.

On the Noerr-Pennington type defense argument, the Seoul High Court ruled that the insurance companies’ concerted conduct was a per se illegal direct restraint on price and as such could not be viewed as an exercise of the constitutionally protect right of free speech. Without much elaboration, the Supreme Court ruled that a company’s exercise of the constitutionally protected rights to free speech and petition government does not in and of itself remove the conduct from the reach of antitrust.

Nonetheless, the Court also observed that in this case the defendant insurance companies did not engage in the prohibited concerted conduct for the (presumably legitimate) purpose of influencing the Financial Supervisory Service’s policy formulation. Thus, it remains to be seen whether the Court will recognize a rare but appropriate occasion for according immunity in the future when companies are indeed engaged in concerted conduct for the legitimate purpose of influencing or petitioning government.