I ENFORCEMENT POLICIES AND GUIDANCE
The Monopoly Regulation and Fair Trade Act (MRFTA) is the primary Korean competition statute. It was enacted on 31 December 1980 and became effective on 1 April 1981. The MRFTA prohibits conduct that is generally prohibited in other countries, including cartel activities, abuse of dominance, and anticompetitive mergers and acquisitions. The Enforcement Decree of the MRFTA (the Enforcement Decree) is a presidential decree setting forth specific standards and procedures to enforce the MRFTA.
The Korea Fair Trade Commission (KFTC), established pursuant to Article 35 of the MRFTA, is the primary competition enforcement agency in Korea. The KFTC possesses quasi-judicial and investigative authority. As such, it investigates alleged violations of the MRFTA and imposes sanctions, including fines and corrective orders, on violators. The KFTC also exercises quasi-legislative authority by issuing notifications and guidelines. While the KFTC does not have the authority to impose criminal sanctions, it may refer cases to the Prosecutor's Office for criminal proceedings.
Cartel enforcement has been one of the KFTC's enforcement priorities since its establishment in 1981. Article 19 of the MRFTA prohibits improper concerted conduct (i.e., cartels). Specifically, Article 19(1) of the MRFTA prohibits businesses and individuals from agreeing with one another to unfairly restrain competition or from requiring others to engage in such collusion. Article 19(1) of the MRFTA expressly prohibits nine types of concerted conduct:
- price-fixing agreements;
- agreements on transaction conditions;
- output restriction agreements;
- market allocation agreements;
- agreements that restrain or interfere with the establishment of facilities or equipment used to produce goods or to provide services;
- agreements that restrict certain types or specifications of goods or services;
- the establishment of a company to carry out concerted sales practices;
- bid-rigging agreements; and
- other agreements that restrain or interfere with business practices.
Among the notifications issued by the KFTC regarding concerted conduct, the most important are the Concerted Conduct Review Guidelines and the Notification on Implementation of a Leniency Programme. These two notifications establish the general principles and procedures concerning the evaluation of concerted conduct and the treatment of leniency applicants.
As the implementation of cartel activities has become more sophisticated in response to heightened cartel enforcement, it has likewise become increasingly difficult to prove the existence of an agreement – the most critical element of improper concerted conduct. Thus, in the absence of direct evidence, the KFTC at one point resorted to the Article 19(5) legal presumption to challenge parallel conduct. After suffering several setbacks in court, however, the KFTC has shied away from relying on this provision. Instead, it has been treating parallel conduct and exchange of sensitive information (i.e., price) as strong circumstantial evidence of collusion as part of its prima facie case, rather than relying on the Article 19(5) presumption.
More generally, the KFTC's Concerted Conduct Review Guidelines state that the following non-exhaustive list of conduct constitutes circumstantial evidence that may be used to presume the existence of an agreement:
- evidence, whether direct or indirect, evincing an exchange of information or intent between businesses, including similar entries in business logs, parallel conduct subsequent to meetings or other communications between competitors, and the presence of competitors' confidential information in a company's internal reports;
- when certain conduct is beneficial to businesses only through concerted conduct or, if engaged in individually, can only be deemed to go against the benefit of the individual businesses, including cases in which prices are raised simultaneously despite the absence of an increase in raw material costs, excessive supply, reduced demand or an inventory build-up;
- when certain competitors' parallel conduct cannot be explained by the market situation, such as when the degree of pricing change is the same for the competitors even when their respective demand or supply conditions, geographical locations and raw material costs are different, or when, without concerted conduct, prices cannot be raised to such a high level within a short period; and
- when suppliers engage in parallel conduct despite market circumstances that make it difficult for the suppliers to engage in parallel conduct, such as in markets with differentiated products, low transaction frequency and consumers with professional knowledge.
II COOPERATION WITH OTHER JURISDICTIONS
Article 36-2 of the MRFTA provides the statutory basis of cooperation between Korea and other jurisdictions for competition enforcement. Under Article 36-2(1), the Korean government may enter into an agreement with the government of another jurisdiction for the purpose of enforcing the MRFTA, so long as the agreement does not contravene the laws or interests of Korea. Under Article 36-2(2), the KFTC may assist the counterparty government's enforcement of its laws. Furthermore, Article 36-2(3) provides that, even in the absence of a formal agreement, the KFTC may, upon the request of a foreign government, assist that government in enforcing the latter's laws, as long as it guarantees reciprocal assistance in identical or similar matters.
Moreover, the Korean government has made various efforts to enhance cooperation with the competition authorities of other jurisdictions. In recent years, the KFTC has held bilateral conferences with the competition authorities of the United States, the European Union, Japan, Russia and China. Notably, in 2009, Korea entered into an agreement concerning cooperation on anticompetitive activities with the European Union, the first of its kind between Korea and a foreign jurisdiction. In September 2015, Korea entered into a memorandum of understanding (MOU) with the US Department of Justice and Federal Trade Commission, raising the total number of MOUs with foreign jurisdictions to 15.
The KFTC successfully cooperated with foreign competition authorities for the first time in 2006 in the international Air Cargo cartel case. In that case, 21 air cargo carriers from 16 countries colluded on air cargo rates on various routes, including outbound routes from Korea and inbound routes to Korea (from Japan, Hong Kong and Europe) between December 1999 and July 2007. The KFTC planned and conducted a dawn raid in coordination with the US Department of Justice and the European Commission. Since then, the KFTC has continued to conduct a number of dawn raids in close coordination with foreign competition authorities in such matters as the CRT cartel case in 2009 and the Automotive instrument panel clusters case in 2012.
In Korea, there is no mechanism that allows foreign competition authorities to request confidential information obtained by the KFTC through, for instance, its leniency programme, nor is there a US-style discovery system that provides access to other parties' information. Indeed, Article 22-2(3) of the MRFTA prohibits disclosure of information obtained by the KFTC from leniency applicants or investigation targets cooperating with the KFTC, except where the initial information provider has consented to disclosure or the information is needed for the purposes of related litigation. Thus, Article 22-2(3) may be used by the KFTC as a statutory basis for refusing to comply with other jurisdictions' requests for information.
On the other hand, Korean law provides for the extradition of criminal offenders either through individual treaties with foreign jurisdictions or through the Extradition Act. Where an extradition treaty with a foreign jurisdiction is in effect, that treaty supersedes the Extradition Act. In the absence of an applicable extradition treaty, the Extradition Act applies, irrespective of whether the Korean government is making an extradition request with a foreign government, or vice versa. However, this statute applies only where the underlying crime is punishable by imprisonment for more than one year under the laws of Korea and the other jurisdiction at issue.2 In addition, the statute provides for the extradition of only those offenders who have been found guilty, are under investigation or are on trial in the jurisdiction requesting extradition. The Ministry of Justice and the Prosecutor's Office may request the Seoul High Court to review and approve extradition requests.
III JURISDICTIONAL LIMITATIONS, AFFIRMATIVE DEFENCES AND EXEMPTIONS
Under Article 2-2 of the MRFTA, the Act applies to all conduct that has an effect on the Korean market. Thus, when a foreign entity's conduct has an effect on the Korean market, the MRFTA applies even when the foreign entity has no presence in Korea or the conduct at issue did not take place in Korea.
Even prior to the enactment of Article 2-2 in December 2004, the KFTC followed the international trend of extraterritorial application of competition law by finding in several cases that price-fixing conspiracies carried out by foreign entities outside Korea affected competition in the Korean market. Thus, the KFTC imposed corrective orders and administrative fines in the 2002 Graphite Electrodes cartel3 and the 2003 Vitamins cartel.4 On appeal, Korean courts upheld the KFTC's decisions in both cases.5
A participant in an overseas cartel may advance an affirmative defence that the relevant overseas conduct did not have any effect on the Korean market. However, there is no Korean Supreme Court decision that provides a bright-line test for evaluating effects on the Korean market. An analysis of the KFTC's various international cartel cases reveals that an international cartel is deemed to have had an effect on the Korean market where there was a specific pricing agreement regarding the Korean market and the agreement was implemented by, for instance, selling the products or services at issue at the agreed price on the Korean market. In particular, the higher the dependence of Korean consumers on the imported products or services at issue, the greater will be the likelihood of an effect on the Korean market (e.g., the 2002 Graphite Electrodes case and the 2009 Marine Hose case). In the 2014 Air Cargo cartel decision, the Supreme Court narrowed the scope of the 'effect on the Korean market' under Article 2-2 to a 'direct, substantial and reasonably foreseeable effect' on the Korean market.6
Under Article 19(2) of the MRFTA, certain types of anticompetitive concerted conduct are permitted if they promote economic or industrial policies, meet the special requirements set forth in the Enforcement Decree and are approved in advance by the KFTC at the parties' request.
Under Article 58 of the MRFTA, legitimate business activities conducted pursuant to laws or those conducted pursuant to orders issued pursuant to laws are exempt from sanctions otherwise provided for under the MRFTA. In response to some cartel participants' assertion that they simply followed a supervisory agency's administrative guidance, the KFTC grants exemptions only in those cases where the administrative guidance at issue is based on express statutory provisions. If the administrative guidance at issue is not based on express statutory provisions or is based on a comprehensive supervisory authority granted under Korean laws governing administrative organisation, the KFTC does not grant exemptions under Article 58. This interpretation of Article 58 tends to be supported by case law.
IV LENIENCY PROGRAMMES
The Korean leniency programme has been in effect since April 1997. Its purported goal is to erode trust among cartel participants and to induce voluntary reporting by cartel participants by granting exemptions from or reductions in administrative fines. This goal has been codified into Article 22-2(1) of the MRFTA. Article 35(1) of the Enforcement Decree provides the specific criteria governing exemptions from or reductions of sanctions. The KFTC has also issued a notification regarding its leniency programme (the Leniency Notification) to establish the specific procedures of the programme.
Under Article 35(1) of the Enforcement Decree, to benefit from the Leniency Notification, a leniency applicant must satisfy the following requirements: (1) at the time the applicant reports the cartel activity at issue, the KFTC has not received any information about the cartel activity or has not obtained sufficient evidence to prove it; (2) the applicant reports the cartel activity and fully cooperates with the KFTC by submitting relevant information throughout the investigation; and (3) the applicant has ceased its involvement in the cartel.
The applicant that reports its cartel activity before the commencement of the KFTC's investigation and is the first to provide sufficient evidence of that cartel will be granted an exemption from administrative sanctions, such as corrective orders and administrative fines, and from a criminal referral to the Prosecutor's Office. Even when the KFTC has already begun its investigation, the first applicant to present sufficient evidence of the cartel and fully cooperate with the KFTC's investigation will be granted an exemption from administrative fines and referral to the Prosecutor's Office, and exemption from corrective orders. The second-in-line applicant to present sufficient evidence of the cartel and fully cooperate with the KFTC will be granted a 50 per cent reduction of the administrative fine and exemption from a criminal referral.7 If a prior applicant withdraws its leniency application or if its provisional leniency applicant status is not finally recognised, then a later applicant will succeed the prior applicant in the order of acceptance, but only if the later applicant satisfies the requirements of the prior applicant's leniency status.
However, the foregoing benefits are subject to the following restrictions under Article 35(1)(6) of the Enforcement Decree: (1) in a two-party cartel, while the first leniency applicant is still eligible for an exemption from sanctions, the second leniency applicant is not automatically eligible for any reduced sanctions; and (2) once two years have passed since a member of a cartel filed the first leniency application with the KFTC or began to cooperate with the KFTC as the first party providing cooperation with respect to the cartel, no other member of the cartel is eligible for reduced sanctions.8
Moreover, to prevent leniency applicants from abusing the Leniency Notification and to deter repeated violations, Article 22-2(2) was enacted on 29 March 2016 and came into effect on 30 September 2016. Under this provision, if a leniency applicant obtains an exemption from, or a reduction of, an administrative fine but subsequently engages in a new cartel activity, the applicant cannot receive any benefits from the Leniency Notification within five years of the date the exemption or reduction was granted.
The revised Leniency Notification of 15 April 2016 imposes on a leniency applicant a duty to cooperate in good faith, including an appearance of the applicant's officers or employees at the KFTC hearing. Under this revised Leniency Notification, the KFTC considers the performance of the applicant's duty to cooperate, such as the attendance of the applicant's officers or employees at the KFTC hearing, when deciding whether to grant benefits of the leniency programme. The Supreme Court recently held that, although the duty to cooperate in good faith is in principle triggered only upon the filing of a leniency application, if the applicant destroys any evidence of the cartel activity at issue before the leniency filing, as a result of which the applicant is deemed to have supplied insufficient evidence at the time of the filing, the filing as a whole may be deemed not to be in good faith and, therefore, may be deemed insufficient for the purposes of leniency credit.9
Furthermore, under the Leniency Notification, the applicant will not be eligible for leniency if the applicant, without the KFTC's prior consent, discloses the fact of its application or its cartel activities to a third party before the completion of the KFTC's review process in violation of its duty to cooperate. However, there are two exceptions to the non-disclosure obligation for a leniency applicant (1) whose disclosure of the fact is required under relevant laws or regulations or (2) who must inform a foreign government of its leniency application to the KFTC (e.g., when the applicant is also applying for leniency in a foreign country).
In addition, under the Korean amnesty plus programme under Article 35(1)(4) of the Enforcement Decree, if a party in one cartel qualifies as the first party to report another cartel to the KFTC or to cooperate with the KFTC's investigation of the second cartel, and if the size of the second cartel (the cartel that was voluntarily reported through the amnesty plus programme) is equal to or smaller than the first cartel (the cartel already under KFTC investigation), then that party may be granted a mitigation of corrective order and an additional maximum 20 per cent reduction of the administrative fine for the first cartel activity in addition to any other credit it may be eligible for in connection with the first cartel. On the other hand, under Article 13 of the Leniency Notification, if the magnitude of the second cartel activity is greater than the first then, depending on how much larger the second cartel is, the party may be eligible for a 30, 50 or even 100 per cent reduction of the administrative fine for the first cartel.10 Regarding the amnesty plus programme, the revised Leniency Notification that took effect on 30 September 2016 provides that, in assessing the magnitude of the first cartel and the second cartel if there are multiple cartels within the first and second cartel, the aggregated magnitude of the multiple cartels shall be compared in deciding the level of reduction. The level of reduction will be applied uniformly to all the cartels. However, even if a party meets the requirements for the Leniency Notification and the amnesty plus programme, it will lose that status if it has forced another party to participate in, or prevented another party from discontinuing, the cartel activity, or if that other party has been a repeat offender of Article 19(1) of the MRFTA within the past five years.11
Under the original Leniency Notification, if a prior applicant withdraws its leniency application or the prior applicant's leniency status is not recognised, a later applicant will succeed the prior applicant in the order of acceptance. However, to prevent a possible free ride by the later applicant who made no additional contribution to the exposure of collusion, the revised Leniency Notification provides that the later applicant's succession will be recognised by the KFTC only if the later applicant satisfies the requirements of the prior applicant's leniency status.
In 2002, the KFTC also introduced a whistle-blower programme that provides a monetary reward to the first informant who presents sufficient evidence of a cartel. It was introduced to encourage market participants, individuals employed by cartel participants and the general public to report cartels. On 6 November 2012, in an effort to further promote the whistle-blower programme, the KFTC increased the maximum monetary reward from 2 billion won to 3 billion won. Between 2002 and 2016, the KFTC awarded a total of approximately 2.54 billion won to whistle-blowers in 76 cases.
Under Article 7 of the Leniency Notification, in principle, a leniency application must be prepared and submitted by using the KFTC's leniency application form. If the applicant needs a substantial period of time for collecting evidence, or if there are special circumstances preventing the applicant from submitting evidence at the same time as the application, the applicant may submit an informal application. Under Articles 7 and 10 of the revised Leniency Notification, in principle, a leniency application must be filed by visiting the Cartel Policy Division of the KFTC, or by fax or email dedicated exclusively for the submission of leniency applications. For oral submission of a leniency application, an order of acceptance is determined at the time of voice recording or video recording. However, the applicant must submit a revised application within 15 days of the submission of the informal application. At the request of the applicant demonstrating justifiable grounds for further extension, such as collection of evidence, the KFTC may extend the deadline for a revised application submission by up to 60 days under Article 8 of the Leniency Notification. The KFTC also has discretion to grant extensions of more than 60 days in exceptional cases, if the KFTC acknowledges the necessity for such extensions (e.g., in international cartel cases).
The MRFTA provides for corrective orders, administrative fines and criminal sanctions.
i Corrective orders
Under Article 21 of the MRFTA, the KFTC may order cartel participants to terminate their participation in the cartel at issue, to publish the order and to implement other necessary measures, including rescission of the illegal agreements and disqualification from future bidding. Pursuant to its Corrective Measure Guidelines, the KFTC may not only issue an order prohibiting certain conduct but may also issue an order to perform certain remedial actions, including modification or deletion of a contractual provision and rescission of agreement.
ii Administrative fines
The KFTC may impose an administrative fine not exceeding 10 per cent of the relevant sales turnover as determined pursuant to the Enforcement Decree. However, if no relevant sales turnover was generated, or if it is difficult to calculate it, the KFTC may issue an administrative fine not exceeding 2 billion won under Article 22 of the MRFTA. Under Article 9(1) of the Enforcement Decree, 'relevant sales turnover' refers to the number of sales that the offender generated in a certain transaction area by selling the relevant products or services during the cartel period; the purchase price of the products or services at issue, if the cartel activities were carried out in relation to the purchase of products or services; or the contract price in cases of bid rigging or similar conduct.
An administrative fine is calculated in two steps. First, the basic amount is determined by multiplying the relevant sales turnover by a multiplier that can be up to 10 per cent but varies depending on the gravity of the violation. Second, the basic amount is then adjusted in consideration of various factors, including the duration and frequency of the violation, aggravating circumstances and mitigating circumstances. On 30 December 2016, the KFTC eliminated a number of aggravating and mitigating circumstances in its revised Notice on Administrative Fine Adjustment. The KFTC's stated intention was to improve the predictability of administrative fine amounts by eliminating the factors that were difficult to define and apply in practice, and by preventing potential abuse of discretion.12 Thus, under the revised Notice on Administrative Fine Adjustment, the aggravating and mitigating factor lists are much shorter.
Aggravating circumstances now include just one factor: the entity at issue took retaliatory measures against another entity that did not participate in the cartel.
Mitigating circumstances include the following:
- non-performance of the cartel agreement;
- full cooperation with the KFTC investigation into the cartel; and
- remedial measures voluntarily undertaken.
Additionally, the KFTC may consider a discretionary reduction in the administrative fine if:
- the respondent lacks the financial capacity to pay the administrative fine; and
- the administrative fine is deemed to be unduly burdensome, given the effect of the violation on the market and the size of benefits resulting from the violation.
The KFTC's further revised Notice on Administrative Fine Adjustment took effect on 20 November 2017. In relation to the 'duration' and 'frequency' of the violation, the new rules raised the maximum fine aggregation or enhancement for each of the two factors from 50 per cent to 80 per cent. The revised Notice also raised the cumulative cap for the two factors from 50 per cent to 100 per cent. Furthermore, the revised Notice increased the basic fine multiplier for the top two most serious offences from between 7 and 8 per cent to between 7 and 8.5 per cent and from between 8 and 10 per cent to between 8.5 and 10 per cent, respectively.
iii Criminal sanctions
Under Article 66(1)(9) of the MRFTA, a cartel participant can be punished with imprisonment for up to three years or a criminal fine not exceeding 200 million won. Under Article 70 of the MRFTA, a criminal sanction may also be imposed on a representative, agent, employee or other member of the corporation that has participated in a cartel.
Under the amended MRFTA that came into effect on 17 January 2014, the KFTC is required to refer a matter to the Prosecutor's Office when requested by the Chief Prosecutor, the Chair of the Board of Audit and Inspection, the Chair of the Public Procurement Service or the Chair of the Small and Medium-Sized Business Administration. Since the MRFTA was amended, the KFTC has displayed a tendency to use the criminal referral authority more aggressively against individuals, and businesses, as the Chair of the Public Procurement Service and the Chair of the Small and Medium-Sized Business Administration have started to exercise their newly gained powers. In 2015, Japanese small bearing manufacturers and retailers agreed to fix prices for small bearings supplied to major Korean electronics companies and executed the agreement through their Korean branches. The KFTC referred both the Japanese head office and its Korean branch to the Prosecutor's Office, which has indicted these offices. This was the first instance of the Prosecutor's Office investigating and indicting a foreign corporation that had participated in an international cartel.
iv Consent decrees
Although the MRFTA was amended in December 2011 to provide for consent decrees for certain types of competition law cases, they are not available for cartel activities. Hence, under the MRFTA, there are no early resolution and settlement procedures for cartel activities.
VI 'DAY ONE' RESPONSE
The KFTC frequently conducts dawn raids. Under Article 50(2) of the MRFTA, when the KFTC deems it necessary for the enforcement of the MRFTA, its officials may enter the office of a potential offender to inspect business and management conditions, and examine accounting books, documents, electronic data, voice recordings and images. The KFTC may also demand that an interested party or witness appear before it or make a statement. Moreover, under Article 50(3) of the MRFTA, the KFTC has the authority to demand submission of relevant materials during an on-site investigation, and to seize and take custody of materials during an on-site investigation.
In cartel investigations, the KFTC generally conducts dawn raids. During a dawn raid, it typically demands submission of materials, seizes materials and takes statements from officers and employees of the dawn raid target. If the target is unable to provide materials demanded by the KFTC during a dawn raid, it must provide an explanation of why it is unable to do so; in certain cases, the person in charge of the demanded materials may be required to prepare a statement. In some cases, a dawn raid may last several weeks.
On 21 October 2015, the KFTC announced a major overhaul of its enforcement process, aptly named the Enforcement Process 3.0 Reform Initiative, as befitting the digital age. To enhance the transparency of the KFTC's investigative procedures and ensure due process for its investigations, the KFTC formulated and implemented its Rules on KFTC Investigation Procedures on 4 February 2016, as part of the Enforcement Process 3.0 Reform Initiative. The major provisions of those Rules are as follows:
- The requirement, aimed at avoiding fishing expeditions, to specify and explain (1) the purpose (i.e., investigator's allegation and relevant provision regarding such allegation) and scope of the inquiry, (2) the name and place of the investigation target, and (3) the right to refuse to comply with an investigation exceeding the expressly stated scope of the inquiry, except in certain investigations, including cartel investigations.
- The right to request and have legal counsel present throughout the entire investigative process, including during dawn raids and witness examinations, except in urgent cartel investigations.
- The right to receive a copy of an inventory of materials collected by the investigators during dawn raids, except in cases with obstruction concerns, such as destruction of evidence or disclosure of confidential information.
In addition, as of 4 February 2016, the Rules on the KFTC's Committee Operations and Case Handling Procedures were amended and implemented. Under these Rules, for a cartel case, the KFTC investigator must prepare an examination report and either refer the case to the Committee or close it within 13 months (excluding the time spent on document submission) of initiation of the investigation. If unavoidable circumstances arise, then the investigator may set an extension period and obtain approval for it from the Secretary General.
Under Article 69-2(1)(7) of the MRFTA, obstruction or refusal to cooperate – whether through concealment or destruction of materials, refusal to allow access to materials, or forgery or falsification of materials – is punishable by an administrative fine not exceeding 200 million won. In addition, under Article 69-2(1)(7), any individual involved in any of the foregoing conduct may be punished by a fine not exceeding 50 million won. Further, under Article 66(1)(11) of the MRFTA, any individual who obstructs, avoids or refuses to cooperate with a dawn raid through verbal or physical abuse, or refuses to grant access to the premises, may be punished by imprisonment for up to three years or a criminal fine not exceeding 200 million won, or both.
If a document demanded by the KFTC contains confidential information, this should be indicated on the document and a copy, rather than the original document, should be submitted to the KFTC. After documents have been submitted to the KFTC, copies of the submitted documents and a list of them should be maintained by the dawn raid target. Strictly speaking, at present, Korean courts do not recognise attorney–client privilege (as that term is commonly understood).
The KFTC's investigative authority only reaches the office or place of business, and designated places indicated on the KFTC's request for appearance. However, although controversial, the KFTC maintains that automobiles used for business purposes and personal lockers within the premises of an office or place of business may be inspected. On the other hand, once the KFTC has referred a case to the Prosecutor's Office for criminal proceedings, the Prosecutor's Office may only inspect an individual's private space under search and seizure warrants.
VII PRIVATE ENFORCEMENT
Under Article 56(1) of the MRFTA, a violator of the MRFTA is liable to the resulting victims. The MRFTA does not limit the scope of entities that are eligible to seek compensation. Thus, in principle, anyone injured by a cartel – including competitors, suppliers and consumers – may seek compensation.
Moreover, under Article 750 of the Korean Civil Code, a victim of a cartel may seek damages. When seeking damages under the Civil Code, the plaintiff is normally required to prove the intent or negligence of the defendant. Under the MRFTA, however, the onus is on the defendant in a private damages case to disprove intent or negligence. This shifting of the burden of proof to the defendant is a safeguard for victims of MRFTA violations and serves as an indirect deterrent to MRFTA violations.
Even so, the plaintiff still bears the burden of proof for causation, the existence of injury and the amount of damages. In practice, it is difficult to prove causation, but even more difficult to calculate the precise amount of damages. Because of this difficulty, where the injury resulting from the defendant's cartel activity has been proved but it is substantially difficult to prove the precise extent of the injury, the court may recognise a substantial amount of damages based on the facts under Article 57 of the MRFTA. In recent years, a number of improvements to the private enforcement regime have led to an increasing number of actions seeking damages for MRFTA violations. However, at present, there are no US-style treble damages for cartel violations.
Under the MRFTA, the completion of a public enforcement proceeding is not a prerequisite for bringing a damages claim against cartel participants. Furthermore, under the MRFTA, a victim of a cartel is not required to report the cartel to the KFTC before pursuing a damages claim.
In private damages cases, the courts are not bound by the KFTC's factual findings. Korean courts have consistently held that 'the facts found by the KFTC do not bind Korean courts in their decisions but are only taken to be presumptively true'.
VIII CURRENT DEVELOPMENTS
The current version of the MRFTA is expected to undergo a major overhaul – comprehensive amendments to the statute were proposed in August 2018 and are expected to be enacted, with some modifications, some time in 2019. The proposed amendments, if enacted, will significantly affect the enforcement of the MRFTA across the board in many ways. For example, the maximum amount of the administrative fine permitted under the MRFTA will be doubled; as applied to cartels, the maximum administrative fine will be 20 per cent, rather than 10 per cent, of the relevant turnover. In addition, treble damages will be available to plaintiffs when pursuing antitrust damages actions, including those alleging injury from a cartel. Equally importantly, private parties may seek injunctive relief in court even before, or in the absence of, the KFTC's investigations or formal enforcement actions.
With respect to cartel enforcement in particular, the proposed amendments will also strip the KFTC of its exclusive power to refer to the Prosecutor's Office a participant in any of the 'hard-core' cartels, such as price-fixing and bid rigging, which account for approximately 90 per cent of all cartel cases in Korea to date. At present, the KFTC exercises exclusive, and virtually absolute, discretion in deciding whether to refer a respondent in a cartel case for criminal proceedings.
The proposed revocation of the KFTC's exclusive criminal referral power has raised concerns that it might undermine the KFTC's leniency programme and also expose cartel participants to duplicate investigations by the KFTC and the Prosecutor's Office. In response, the proposed amendment includes a provision aimed at maintaining the integrity and success of the Leniency Notification. Under this provision, the first-in-line leniency applicant that satisfies all leniency requirements will receive a full exemption while the second-in-line applicant will be eligible for reduced sanctions at the KFTC's discretion. Meanwhile, the Prosecutor's Office is formulating an internal rule to resolve the issue of duplicate investigations and to mitigate the effects of its investigations on the Leniency Notification.
In 2017, the KFTC identified 69 cartels, imposed administrative fines totalling 229.4 billion won, and referred 27 cases to the Prosecutor's Office for criminal investigation. The KFTC has also continued to be active in the enforcement of international cartels. Among the most notable public enforcement actions, in August 2017, the KFTC found that 10 international shipping companies had engaged in price-fixing between 2002 and 2012 – including bid rigging – on contracts to ship automobiles manufactured by, inter alia, General Motors Company, Renault Samsung Motors Co Ltd and Toyota Motor Corporation, and had engaged in market allocation.13 Thus, the KFTC imposed corrective orders on all 10 companies, imposed total administrative fines of 43 billion won on nine and referred eight to the Prosecutor's Office for criminal proceedings.14 Of the eight, Eukor and Nippon Yusen were the only ones indicted by the Prosecutor's Office because the applicable statute of limitations for the other six companies had already run; the criminal cases against the two companies are continuing.
The KFTC also lost a number of cases in court. In particular, in two decisions, the Seoul High Court dealt a serious blow to the KFTC on the statute of limitations issue.15 Because of a law change in 2012, the KFTC's investigation commencement date has become an extremely important factor in determining whether the applicable statute of limitations has elapsed. Until these two decisions, the KFTC had always successfully claimed that its investigation commencement date cannot be the date on which a leniency application has been filed or even some point during the period when it was conducting some preliminary inquiry or planning for a dawn raid. Instead, the KFTC asserted that its investigation commencement date against a non-leniency applicant is the first date on which the KFTC outwardly expressed its investigatory interest to such a company (e.g., the date of the KFTC's dawn raid or the date of the KFTC's issuance of a formal information request to such a company). Under the KFTC's rationale, the KFTC could conduct its dawn raid or issue a formal information request several months or even as much as three years (as in the Denso Compressor case) after it has received relevant cartel leniency applications and could still claim that its investigation commenced several months or even three years after the leniency application dates. Rejecting the KFTC's arguments, the Seoul High Court ruled for the first time that, depending on the facts of a leniency case, the KFTC's investigation commencement date could be as early as the date on which an initial leniency application was filed.
The KFTC's appeals in both cases are pending before the Supreme Court.
1 Sai Ree Yun is the managing partner, Cecil Saehoon Chung is a senior foreign counsel, and Kyoung Yeon Kim and Seung Hyuck Han are partners at Yulchon LLC. The authors wish to thank Tae Yong Kim, Jinhee Rhew, Hee Jin Yun and Geary Choe, associates at Yulchon, for their valuable assistance.
2 Under Article 66(1)(9) of the Monopoly Regulation and Fair Trade Act [MRFTA], participation in improper concerted conduct is punishable by a term of imprisonment not exceeding three years or a criminal fine not exceeding 200 million won, or both.
3 Korea Fair Trade Commission [KFTC] Case No. 2002-077, decided 4 April 2002.
4 KFTC Case No. 2003-098, decided 29 April 2003.
5 Korean Supreme Court Case No. 2004Du11275, decided 24 March 2006 (Graphite Electrodes case) and Seoul High Court Case No. 2003Nu9000, decided 24 November 2004 (Vitamins case). The appellants in the Vitamins case withdrew their appeal to the Korean Supreme Court after the Seoul High Court affirmed the KFTC's decision on all grounds.
6 Korean Supreme Court Case No. 2012Du13665, decided 16 May 2014 (Air Cargo case).
7 While only the first two leniency applicants regarding particular improper concerted conduct are eligible for exemption from or reduction of an administrative fine under the Leniency Notification, as the case may be, later applicants or non-applicant parties are each eligible for a maximum 20 per cent (reduced from 30 per cent in 2017) discretionary reduction of the administrative fine for cooperation with the KFTC under the KFTC's Administrative Fine Notification.
8 As noted above, however, even late-filing applicants may receive discretionary cooperation credit in some situations.
9 Korean Supreme Court Case No. 2016Du46458, decided 11 July 2018 (Nobel Gunpowder case).
10 The scale of the cartel activity is determined on the basis of the relevant turnover.
11 Article 35(1)(5) of the Enforcement Decree; Article 6-3 of the Leniency Notification.
12 The revised Notice on Administrative Fine Adjustment eliminated the following factors.
Aggravating circumstances: (1) the entity at issue was the leader or instigator of the cartel; (2) the entity at issue or its employees obstructed or refused to cooperate with the KFTC investigation into the cartel; (3) a high-level executive of the entity at issue was involved in the cartel; and (4) the entity at issue participated in the cartel within three years of it being sanctioned by the KFTC for participation in another cartel.
Mitigating circumstances: (1) insignificant role in the cartel (e.g., participation in the cartel as a result of another's suggestion or deception); (2) full cooperation with the KFTC investigation into the cartel; and (3) entering into the cartel agreement through negligence in the ordinary course of business or notwithstanding substantial compliance efforts by the entity at issue.
13 Five of the companies are based in Japan (Nippon Yusen Kabushiki Kaisha, Mitsui OSK Lines, Kawasaki Kisen Kaisha, Nissan Motor Car Carrier Co Ltd and Eastern Car Liner), two in Norway (Wallenius Wilhelmsen Logistics and Höegh Autoliners), one in Chile (Compania Sudamericana de Vapores SA), one in Israel (Zim Integrated Shipping Services) and one in Korea (Eukor Car Carriers).
14 Höegh Autoliners was neither fined nor referred for criminal proceedings, but nevertheless filed an appeal against the KFTC's corrective order, apparently as a result of the public backlash against its cartel activity; the case is now before the Korean Supreme Court.
15 Seoul High Court Case No. 2017Nu34034, decided 5 October 2018 (Denso Compressor case); Seoul High Court Case No. 2017Nu62381, decided 12 October 2018 (Schaeffler Korea Automotive Bearing case).