Legal Issue 1.
Yulchon Successfully Convinces Korean Supreme Court To Vacate KFTC Sanctions Against Life Insurance Companies
Representing KDB Life Insurance, Hanwha Life Insurance, and Heungkuk Life Insurance, Yulchon's Antitrust Group and Litigation Group lawyers prevailed in separate appeals to the Korean Supreme Court against the Korea Fair Trade Commission ("KFTC"), which had imposed sanctions on the three life insurance companies, including administrative fines for alleged price-fixing collusion. These Supreme Court decisions are noteworthy because they clarify (i) the Korean antitrust principle that information exchange, in and of itself, does not amount to collusion (i.e., an illegal cartel agreement) and (ii) the heavy burden of proof that the KFTC must satisfy to show a "meeting of minds" (i.e., an agreement), which is one of the essential elements of collusion under Korean antitrust law.
In December 2011, the KFTC imposed various corrective measures and a KRW 53.8 billion in total administrative fines on 16 Korean life insurance companies including the three represented by Yulchon and vindicated by the Supreme Court. The KFTC found that (1) from 1998 to 2000, the life insurance companies "directly agreed" to fix the discount rate for fixed-rate individual life insurance products and the reference rate for variable-rate individual life insurance products; (2) from 2001 to 2006, they "exchanged non-public information" on future discount rates and reference rates and then used such information to decide their own respective rates, thereby indirectly but nonetheless jointly fixing the rates; and (3) these two periods constituted a single continuing conspiracy.
On appeal to the Seoul High Court, Yulchon argued that while the three companies exchanged the insurance rates at issue, they did not agree to fix the rates. Accepting Yulchon's argument, the Seoul High Court noted the markedly changed nature and type of conduct in the second period as a clear break from whatever might have happened in the earlier period and in turn dismissed the first period as falling outside the statute of limitations. Regarding the alleged indirect price-fixing via information exchanges in the second period, the Seoul High Court held that the law requires not just an exchange of price information but an "agreement" to fix, maintain, or change prices. The Seoul High Court also noted that the life insurance companies used not just the exchanged information to determine their own rates but also comprehensively used numerous other critically relevant factors – such as the prime rate, going rates in the marketplace, their own return on assets ratio, level of customer recognition of each brand, their own competitive position, and the like. The Seoul High Court also noted that there was no genuine dispute as to the absence of uniformity or matching patterns in the competitors' actual discount rates. Finally, the Seoul High Court held that it was inherently inconsistent and irreconcilable for the KFTC to acknowledge that the insurance companies "individually decided their own rates" after exchanging certain sensitive information with others but also to allege that they had "jointly decided" the rates. Therefore, the Seoul High Court, in separate opinions, vacated the KFTC's sanctions on the three companies in their entirety, including the administrative fines.
On further appeal, the Korean Supreme Court affirmed the Seoul High Court's decisions, finding that the exchange of future rates at issue, without more, did not amount to collusion because there was no other evidence of an actual agreement, explicit or implicit, to jointly fix the rates.
Within the Litigation Group, senior advisor Nung Hwan Kim (a former Korean Supreme Court Justice) and partners Hai Sung Park and Sang Hyean Gwack (former Seoul High Court judges) spearheaded the matters. Within the Antitrust Group, partners Hae Sik Park, Kum Ju Son, Kyoung Yeon Kim, Sung Moo Jung, and associates Hyung Chul Moon, Yu Mi Choi, Sung Youn Hong, Chung Min Lee, and Gi Beom Park successfully handled the appeals.
Legal Issue 2.
IP Issue Update
Legal Issue: Recent Court Rulings Regarding Disputes between Online Portals and Celebrities over Right of Publicity
The Jeju District Court recently ruled that so-called "keyword advertisement services" (i.e., search terms incorporating the names of famous celebrities) provided by Daum (www.daum.net), a major online portal in Korea, did not infringe upon celebrities' right of publicity.
Plaintiffs were famous celebrities in Korea, such as Yong-joon Bae, Dong-gun Jang, Suae, and Nam-gil Kim. Plaintiffs filed an action against the defendant, Daum Communications (hereinafter "Daum"), to seek compensation for using their names for commercial purposes. Daum provided a "keyword advertisement service" through its web portal, which provided links to advertisers' websites if a user searched for the name of a celebrity in combination with a particular product (e.g., "Yong-joon Bae muffler"). Plaintiffs argued that the keyword advertisement service (i) infringed upon their right of publicity by using the plaintiffs' name for commercial purposes without authorization, and (ii) aided and abetted infringement of plaintiffs' right of publicity by the advertisers, who used the plaintiffs' names in advertising their goods. Specifically, plaintiffs argued that Daum's "keyword advertisement service" constituted (i) a joint tort (pursuant to Articles 750, 751 and 760 of the Korean Civil Act) committed by and between the Defendant and the advertisers and (ii) an act of unfair competition under Article 2.1.(j) of the Korean Unfair Competition Prevention and Trade Secret Protection Act.
The court dismissed all of the plaintiffs’ claims for the following reasons:
Article 185 of the Civil Act stipulates that no real right can be created at will other than rights specifically recognized by statute or customary law, i.e., historically recognized standards. However, there is no express statutory basis for recognizing the right of publicity, and it is difficult to recognize such right (a right that is very similar to a real right) simply because there is a perceived need for such protection.
Although right of person's name is protected under Article 10 of the Constitution, and is legally guaranteed by a general clause, such as Article 750 of the Civil Act, the scope of protection under such right is limited for people who have chosen a public profession, such as an entertainer, compared to ordinary people, due to the nature of such profession. Thus, in order to seek compensation for damages, there should be special circumstances under which the concerned person has suffered mental distress beyond acceptable limits. However, it cannot be said that the keyword advertisement service has infringed upon the plaintiffs' right of publicity or caused the plaintiffs to suffer mental distress beyond acceptable limits in view of the following facts: (i) the advertisers simply used keywords such as "Yong-joon Bae muffler" to easily name the goods that the celebrities wore; (ii) the keyword search has become a topic of conversation among people and contributed to increasing the celebrities' popularity; and (iii) the celebrities were given goods for free and the acceptance of such goods by the celebrities indicates that they intended or accepted such promotional activities.
Findings in Similar Cases
Celebrities have filed similar lawsuits against other web portals, such as Naver (www.naver.com) and Nate (www.nate.com), and the outcome has been substantially the same. The table below provides a quick summary of these cases.
Lessons and Implications
In recent years, the Korean entertainment industry has experienced tremendous growth, and celebrities have initiated numerous disputes over their rights of publicity. In addition, certain industry factors, such as the increased distribution of content through the internet and smart phones, have further diversified the ways in which photos and names of celebrities are misappropriated, thereby intensifying right of publicity disputes.
In Korea, the "right of publicity" itself is currently not explicitly defined in a statute. If such right is recognized, however, the potential damages will very likely increase compared to the current situation where only infringement upon the "right of name" is recognized. Consequently, there is a current trend for entertainment companies to file lawsuits seeking compensation for damages for infringement upon the right of publicity. However, as evidenced by the above cases, the Korean Courts have declined to recognize the right of publicity, or at least strictly limited the scope of such right.
The Korean Courts seem to consider the following factors as important in determining whether or not the right of name for a celebrity is infringed: (i) whether the celebrities have obtained benefits through sponsorship of the advertisers; and (ii) whether such benefits may be attributed to the online portals. These points will be helpful in determining the viability of future lawsuits asserting the right of publicity for celebrities.
Legal Issue 3.
Real Estate & Construction Update
Possible Revocation of the Acquisition Tax Reduction Benefit Granted to Real Estate Investment Vehicles
In Korea, real estate investors that invest in real estate via certain investment vehicles are granted several tax benefits, including an acquisition tax reduction that is granted to real estate investment vehicles (the "Tax Reduction"). Recently, however, the Korean government is moving towards abolishing the Tax Reduction. If the Tax Reduction is revoked, investors who intend to make investments in real estate via real estate investment vehicles would be directly affected by such revocation.
2. Acquisition Tax Reduction for Real Estate Investment Vehicles under Current System
Various types of real estate investment vehicles are used in Korea, and among those investment vehicles, the Tax Reduction has been granted to (i) real estate funds ("REFs") under the Financial Investment Services and Capital Markets Act, (ii) real estate investment trusts ("REITs") under the Real Estate Investment Company Act, and (iii) companies which meet the requirements set forth in Article 51-2 (1) 9 of the Corporate Tax Act (typically, such companies are called project financing vehicles ("PFVs")). The current Restriction of Special Taxation Act specifies that the aforementioned investment vehicles are given a 30% reduction of the amount of the acquisition tax which is imposed on the acquisition of real estate. Such tax benefit has been regarded as one of major reasons why investors use investment vehicles in making investments in real estate.
The Tax Reduction has been granted for over 10 years in Korea. REITs and REFs have enjoyed the Tax Reduction since 2001, and PFVs have been granted the Tax Reduction since 2004 under the Restriction of Special Taxation Act.
3. Announcement of the Korean Government Regarding Revocation of Tax Reduction
The current Restriction of Special Taxation Act specifies that the Tax Reduction applies to the acquisition of real estate by real estate investment vehicles until December 31, 2014. Granting the Tax Reduction for real estate investment vehicles with this type of deadline sunset clause was commenced in 2004, and the expiration date of the relevant sunset clause has already been extended several times through repeated amendments to the Restriction of Special Taxation Act.
However, on August 7, 2014, the Ministry of Strategy and Finance (the "MOSF") issued a legislative notice regarding partial amendments to the Restriction of Special Taxation Act, providing that there would be no clause specifying extension of the expiration date of the latest sunset clause and that the sunset clause would be deleted through such amendments.
In the event the Tax Reduction is indeed abolished in accordance with the aforementioned legislative notice, such action is likely to discourage real estate investment using investment vehicles and adversely affect the real estate investment market.
However, the Ministry of Security and Public Administration (the government agency in charge of local taxes which include the acquisition tax) issued supportive comments about the revocation of the Tax Reduction on August 17, 2014. In such comments, the Ministry of Security and Public Administration explained the necessity of the revocation of the Tax Reduction due to budget shortfalls for welfare policies, adding that it had already collected opinions from competent governmental agencies such as the Financial Services Commission and the Ministry of Land, Infrastructure and Transport and interested parties in May 2014. In addition, the Ministry of Security and Public Administration stated that concerns over the decrease of real estate investment due to the revocation of the Tax Reduction were exaggerated, given that the market for real estate funds in Korea has increased continuously despite the decrease in the amount of the Tax Reduction from 50% to 30% in 2010.
4. Response from the Market
The legislative notice regarding the proposed amendment eliminating the Tax Reduction has provoked a strong backlash from the real estate investment industry.
Real estate investment industry professionals are concerned that the revocation of the Tax Reduction would further weaken the sluggish real estate investment market due to a potential decrease in the rate of return on real estate investment. Even though the Korean government intends to collect more tax revenue through the revocation of Tax Reduction, industry watchers claim that the weakened real estate investment market would actually lead to a reduction of overall tax revenue, and since 60% of real estate invested through real estate investment vehicles is concentrated in Seoul, local governments other than Seoul would not see any dramatic increase in their tax revenue through the revocation of the Tax Reduction.
It has been reported that Korea Association of Real Estate Investment Trusts has officially requested the MOSF to reconsider the proposed amendment to revoke the Tax Reduction.
5. Future Outlook
The proposed amendment of the Restriction of Special Taxation Act specifying the revocation of the Tax Reduction has been announced by a 'legislative notice'. A legislative notice is given to collect opinions from the Korean public by announcing the contents of amendments to laws prior to submitting the bill to the legislature. The period of the legislative notice for the amendment to the Restriction of Special Taxation Act continues until September 3, 2014, and until such deadline, any person may present his/her opinion to the MOSF regarding the proposed amendment. However, as explained by the MOSF, the Korean government has continued to discuss the revocation plan with interested parties and is not very likely to change its position prior to its submission of the amendment bill to the Korean National Assembly.
We do note that it has not been determined whether or not the legislature (the Korean National Assembly) will indeed adopt the proposed amendment. Therefore, investors are recommended to stay informed of latest updates regarding this issue.
Nevertheless, since there is a strong possibility that the Tax Reduction could be revoked, any investor that intends to invest in real estate in Korea via a real estate investment vehicle is advised to make its investment within 2014 to take advantage of the Tax Reduction.