I OVERVIEW OF RECENT PRIVATE ANTITRUST LITIGATION ACTIVITY
In Korea, there was no significant activity relating to private antitrust litigation in 2019 including landmark court decisions or legislative change.
II GENERAL INTRODUCTION TO THE LEGISLATIVE FRAMEWORK FOR PRIVATE ANTITRUST ENFORCEMENT
i Damages claim
The primary competition law governing antitrust issues in South Korea is the Monopoly Regulation and Fair Trade Act (MRFTA). Article 56, Paragraph (1) of the MRFTA states, 'where a person sustains damage caused by a violation of any provision of this Act by a business entity or an association of business entities, the business entity or the association of business entities shall be liable for the damages, provided that the foregoing shall not apply if the business entity or the association of business entities proves that it acted neither intentionally nor negligently.'
In order to successfully assert a claim for damages under the above MRFTA provision, the plaintiff must establish the following elements: an act violating the MRFTA, the fact that damage occurred and the amount of the damage, and causation between the violation and the damage.
With regard to the first element, the Korean courts have ruled that even if the Korean Fair Trade Commission (KFTC), the antitrust enforcement agency, issues a corrective order on the alleged violation of the MRFTA, it does not automatically lead to a court finding the violating party's conduct illegal because the KFTC's fact-finding and ruling is not binding upon the courts. However, the courts have also ruled that in such a case, the violating act can be presumed in a subsequent civil lawsuit to have occurred. Once the KFTC finds through its investigation or disposition that a violation of the MRFTA has occurred, the damaged party may use it in a civil lawsuit against the violating party and this would certainly lighten the damaged party's burden of proving the violation.
With regard to proving that damage occurred, see Section VIII.
To address causation between the alleged violation and resulting harm, the Korean courts have taken the position in line with the general civil law principle that there should be reasonable causation between the violation and the damage. Consider a lawsuit that a competitor filed against Microsoft seeking damages for harm allegedly caused by the latter's bundling practices (i.e., sale of its Windows Media Service with the Windows Server operating system as well as its media player and instant messaging (IM) program). While the court recognised that the defendant's bundling practices violated the MRFTA and that the plaintiff had to give up its business, the plaintiff's business failure was deemed to have been caused by internal factors such as its failure to operate a portal site, as well as outside factors such as the crash of the venture bubble. Therefore, the court declined the find the requisite causation between the defendant's bundling and the alleged damage to the competitor.2
Further, while the plaintiff asserting a general tort claim must prove the defendant's intent or negligence, the burden of proof shifts to the defendant to prove the lack of intent or negligence in order to be relieved from liability in accordance with Article 56, Paragraph (1) of the MRFTA.
The statute of limitations for a general tort claim is also applicable to the above damage claims under the MRFTA: (1) three years from the date on which a claimant comes to know of the damage and the person who inflicted such damage, or (2) 10 years from the date on which the act of violation occurred, whichever is earlier. However, if the damaged party is the national or local government (commonly, in cases involving bid-rigging for construction ordered by the national or local government), the (2) part of the above statute of limitations is reduced to five years in accordance with the National Finance Act or the Local Finance Act.
ii Injunctive relief
The MRFTA and other legislation relating to antitrust issues do not explicitly provide injunctive relief against a violation of the MRFTA. Accordingly, the court in the Microsoft case also dismissed the plaintiff's claim for an injunction against the defendant's illegal bundling practices.
However, some scholars and legal commentators began to criticise the court's position regarding injunctive relief, as merely based on the lack of an explicit provision in the MRFTA. Thereafter, the Supreme Court ruled that an injunction may be granted if (1) the defendant's unauthorised use of the outcome built by the competitor's substantial efforts and investment in its own business contrary to the order of competition constitutes a tort under the Civil Code because it is an unfair competitive act that infringes on the profits that are valuable and entitled to legal protection; (2) if the violation continues, awarding monetary compensation alone would be insufficient to expect effective remedy for the victim; and (3) if, when comparing the benefit to the victim protected by the injunction and the disadvantage to the violating party caused by the injunction, the benefit to the victim is recognised to be greater.3
Although the above decision mainly addresses the issues under the Act on Unfair Competition Prevention and Trade Secret Protection, which primarily governs infringement of intellectual property and trade secrets rather than pure antitrust issues and fair advertising and labelling issues, legal commentators expect that the courts are likely to recognise injunctive relief against antitrust violations according to the same legal doctrine.
Article 2-2 of the MRFTA, which was first enacted by the amendment to the MRFTA in December 2004, stipulates that the MRTFA shall also apply to acts done outside South Korea if such acts affect its domestic market. It is understood that the MRFTA explicitly adopted the 'effect principle' in relation to the extraterritorial application of antitrust regulations.
The Supreme Court held that the phrase, 'if such acts affect its domestic market', under Article 2-2 of the MRFTA refers to cases where an act done overseas has direct, considerable, reasonable and predictable effects on the domestic market. Whether or not a case meets the above criteria will be determined on a case-by-case basis by considering the totality of circumstances, including the details of and intent behind the act in question, the goods and services subject to the act in question, the transaction structure and the effects of and degree to which the act in question will affect the domestic market. In particular, with respect to the element of 'direct effect' (which refers to the direct result of the act committed by the business entity), the Supreme Court ruled, over the conflicting views of the lower courts, that such element is necessary in determining the extraterritorial application of the Korean antitrust laws.
For instance, in a case where foreign entrepreneurs have reached an agreement that limits competition in many markets, and those markets include the Korean market, the court held that in the absence of any special circumstances, such agreement is deemed to have effects on the Korean market and therefore the MRFTA is applicable.
Furthermore, when an act of a foreign entrepreneur that occurred overseas affects the domestic market, the MRFTA can be triggered as it satisfies the requirements under Article 2-2 thereof, and the same applies even if such act is deemed legally permissible under the law and policy of the foreign country. However, the application of the MRFTA to foreign entrepreneurs is not mandatory. For that reason, where the legality of an act in question is in dispute – in other words, the act in question is deemed illegal and prohibited under Korean law but permissible under the laws of a foreign country – this dispute makes it extremely difficult for foreign business entities to do business in Korea as they may require substantial adjustment and changes to be made to their business structures. Hence, in such a case, if the need to respect the foreign law is deemed substantially greater than the need for regulating the act of a foreign entrepreneur by applying the MRFTA, then the application of the MRFTA should be restricted. In determining whether or not a situation falls into this category, the court will consider the totality of circumstances, such as effects that the act in question could have on the domestic market, the degree of involvement in the act in question by the foreign government, the degree of difference between the Korean and foreign laws, disadvantages to the foreign entrepreneur if the MRFTA is applied to the act in question, the degree to which the legitimate interest of the foreign government is harmed, etc.4
As discussed in Section II, the victim may file a civil lawsuit against the violating party seeking damages or an injunction. There are no other limitations on the standing for a private party to bring a lawsuit against the violating party. For example, the doctrine restricting the standing of an indirect purchaser, as recognised by the United States Supreme Court, does not exist under Korean law.
V THE PROCESS OF DISCOVERY
There is no common law rule of discovery in South Korea.
Under the Korean Civil Procedure Act, a party to a litigation may ask the court to issue an order for production of documents to the other party or a third party. The request for document production can be filed (1) for the documents referred to or cited by the other party to the lawsuit, (2) when the requesting party has a legal right to request that the person who possesses the documents transfer them or grant access to them (3) when the documents in question were prepared for the benefit of the requesting party, or (4) when the documents in question were prepared to address the legal relation between the requesting party and the possessor.
But, since the requested party may refuse to submit the documents on the ground that the 'document has been prepared solely for use by the possessor' under the Korean Civil Procedure Act and considering that most of the documents that can be used to prove damage are internal documents of the violating entity, in practice, the plaintiff faces the difficulty of proving damage caused by the violation of the MRFTA since most defendants can argue for the above exemption from the document production order.
In addition, the party that receives the court's document production order is not subject to sanctions for non-compliance; the court may simply find the other party's argument concerning the contents of such document in question to be true.
In addition to those grounds listed above, a party may also file a request for the court order requiring the other party or a third party to submit the document in question to the court. This request for document submission order is commonly utilised to collect documents relating to the lawsuit from the government or other institutions. But, similar to the court's document production order, there are no legal grounds to enforce the document submission order on the other party or the authorities.
In a lawsuit in which a private party files to seek monetary damages against the party violating the MRFTA pursuant to Article 56 thereof, if it finds it necessary, the court may order the KFTC to produce the entire set of investigation records for the case in question, which include interviews with persons related to the case, witnesses, appraisers, stenographic records and other evidentiary documents.
Vi USE OF EXPERTS
In lawsuits dealing with antitrust issues, there is no formal procedure in which experts or economists can be involved.
However, in ordinary civil lawsuits the court may call for an expert opinion or appraisal of a party's application or its initiative and such procedures can be also used to establish violation and damage, or to calculate damages, in antitrust litigation.
The Civil Procedure Act only provides that a court can appoint an expert or appraiser having knowledge and experience on the subject matter at issue, but there are no specific qualifications for such expert or appraiser. Please note that, unlike typical litigation cases involving appraisal – such as construction costs, land survey or authenticity of a document – Korean courts do not have a set pool of experts or appraisers in relation to antitrust issues. While a party cannot apply for a specific person to be appointed as an expert or appraiser, and only the court has an authority to appoint one, in general practice the experts are usually recommended by the party that requests the expert opinion or appraisal and decided on by the court after review.
VIi CLASS ACTIONS
Class actions are not available under Korean law except for claims relating to securities.
VIIi CALCULATING DAMAGES
In principle, the scope of recoverable damages is limited to actual damages under Korean law. The same principles apply to antitrust cases, but the MRFTA permits recovery of damages up to three times the amount of actual damages in the case of (1) unfair collective action such as price fixing or collusion, (2) retaliatory measures taken against a person or entity that has reported the unfair trade practice to the KFTC, cooperated with the KFTC's investigation on such unfair trade practices or filed a request for mediation with the Korea Fair Trade Mediation Agency (KOFAIR) in relation to unfair trade practices (Article 56, Paragraph (3) of the MRFTA).
When determining the amount of such treble damages in accordance with Article 56, Paragraph (3) of the MRFTA, the court will consider the following factors (Article 56, Paragraph (4) of the MRFTA):
- intent or degree of awareness of the violating party of the damage caused;
- severity of the damage caused by the violation;
- economic benefits the violating business entity or association of business entities gained from the violation;
- fine and penalty following the violation;
- duration and frequency of the act of violation;
- financial status of the business entity; and
- effort exerted by the violating business entity or association of business entities remedy the damage.
However, the amount of damages that the violating business entity that has been granted leniency pursuant to the MRFTA is liable to pay shall not exceed the amount of damage the victim suffered as a result of the violation (Article 56, Paragraph (4) of the MRFTA).
Further, if it is recognised that damage has been caused by a violation of the MRFTA but it is extremely difficult to prove the facts supporting the amount of such damage, the court may award a considerable amount of damages to be calculated based on the parties' arguments and the results of its examination of the evidence submitted (Article 57 of the MRFTA).
Please note that computation of damages under Korean law is based on the theory of 'difference in financial status', under which the amount of damages is determined to be the difference between the financial status that would have existed without the violation and the financial status that existed as a result of the violation, thus the 'but for' test will apply. In cases of unfair collective action (i.e., cartels), the damages are calculated by finding the difference between the price resulting from the cartel and the price that would have been deemed competitive in the absence of the cartel. In case of exclusionary conduct, the amount of damages will be generally calculated as the loss in sales caused by the exclusionary act in question.
In view of the foregoing, determining a virtual competitive price or overcharged price is the key element in calculating damages for a cartel. According to the relevant precedent, the courts have taken the position that a competitive price should be determined by deducting the portion of price increase resulting from the cartel while maintaining the other pricing factors. Thus, if there are no changes in economic conditions, market structure, terms of transaction and other economic factors, it would be reasonable to conclude that the competitive price should be based on the price formed after the cartel (i.e., ex post facto price). However, the above should not apply if there are substantial changes in the factors that affect the ex post facto price. Instead, in such a case, the courts should determine the competitive price by analysing the changes in factors, including characteristics of price formation for the product in question, economic conditions, market structure, terms of the transaction and other economic factors, and eliminating any effects that the changes have had on the formation of the ex post facto price.
Additionally, as a method of calculating a virtual competitive price or overcharged price, an econometric method, especially regression analysis, is generally used. For example, in the cases concerning alleged price fixing of oil supplied to the military and flour, the court used the econometric method to calculate damages. However, the methods the Korean courts use to calculate damages also include other measures such as statistics on overcharged prices caused by price fixing, the volume of damages awarded in similar cases and the amount of profit the defendant gained from the violation, as long as reasonableness and objectivity in the use of these measures is maintained.
Punitive damages are not available under Korean law.
Korean courts may order the losing party to pay a certain amount of the attorney's fee to the prevailing party, but the actual recoverable amount is limited to the amount calculated based on the formula stipulated in the rules of the Korean Supreme Court.
ix PASS-ON DEFENCES
The Korean Supreme Court does not recognise pass-on defences on the ground that it cannot conclude there is a direct causation between the price of raw materials, intermediary goods, etc. and the price of the final product, or that the price increase in the final product reflects the price increase in raw materials and intermediary goods, in the absence of any special circumstance where the price increase in raw materials and intermediary goods directly results in the price increase in the final product.
Instead, it has taken the position that under the principle of fairness, the possibility that an increase in price for products, etc. will partially reduce the damages can be taken into consideration when determining the amount of damages. In this regard, the legal commentators view that if the above doctrine is applied, it would bring about results that are substantially similar to those of pass-on defences.
X FOLLOW-ON LITIGATION
If a violation of the MRFTA is found, the KFTC may issue a corrective order or an administrative fine or both. The MRFTA also has provisions imposing criminal liability on entities violating the Act.
However, the above measures for private enforcement can be pursued separately from the KFTC sanctions. In other words, despite the KFTC's administrative or criminal sanctions, a private party may still bring a follow-on lawsuit against the violating entities.
Under Korean law, the attorney–client privilege, attorney work product and joint work product defences are not recognised in the litigation process.
XIi SETTLEMENT PROCEDURES
There is no separate settlement procedure for antitrust litigation cases, but settlement procedures under ordinary civil procedures will apply. Parties to a lawsuit may settle the case during the litigation procedure, or the court may issue a recommendation for settlement between the parties.
If a settlement is reached by the parties, or the parties do not raise an objection to the court's recommendation for settlement within two weeks, the settlement will have the same legal effect as a court's final and conclusive decision.
For antitrust cases, there is a procedure seeking mediation before the KOFAIR, a quasi-governmental agency established pursuant to the MRFTA. To handle the mediation procedure, a committee for the mediation of disputes concerning antitrust issues consisting of seven commissioners or less including one chairman, is formed within the KOFAIR.
The cases subject to the KOFAIR mediation procedure include disputes relating to unfair trade practices, disputes between franchisors and franchisees, disputes relating to subcontract transactions, disputes between large retailers and suppliers, disputes between suppliers and agencies, and disputes relating to unfair standard terms and conditions.
The party that alleges it suffered harm from the violation of the MRFTA regarding one of the above specific issues may file a petition for mediation with the KOFAIR. Alternatively, the KFTC may request mediation before the KOFAIR.
The committee may conduct any necessary examination or investigation to verify the facts alleged by the parties, require submission of documents and materials related to the case, or recommend settlement or propose terms of mediation to the parties. Until the mediation proceeding is concluded, the KFTC cannot issue a corrective order against the alleged violating entity.
The mediation is concluded if any of the following occurs: (1) the parties in dispute accept the recommendation or proposal for mediation issued by the committee or the parties voluntarily reach a settlement thereby completing mediation; (2) an agreement between the parties is not reached within 60 days (or 90 days if both parties have agreed to such extension) from the date on which the petition or the request is filed; (3) one of the parties refuses to mediate the case or file a lawsuit with the court and thus there is no longer any real benefit for the parties to proceed with mediation.
Once an agreement is reached between the parties during the mediation procedure, the committee will prepare a written mediation report setting forth the terms of their mediation agreement, which will be signed by the commissioners of the committee and the parties. Thereafter, the parties must perform their obligations pursuant to the terms of the mediation agreement and submit to the KFTC a written confirmation specifying completion of the obligations under the mediation agreement. If the parties reach a mediation agreement and the performance of their obligations thereunder is completed, the KFTC will not issue a corrective order.
The mediation report issued by the committee will have the same legal effect as a court's final and conclusive decision. Therefore, if either party fails to comply with the obligations under the mediation agreement, the other party may enforce the agreement without filing a separate lawsuit.
XIV INDEMNIFICATION AND CONTRIBUTION
In principle, joint tortfeasors have joint and several liability. The liability of each joint tortfeasor is proportional to the percentage of his or her negligence contributed to the violation, and when one tortfeasor pays for damages exceeding his or her portion of the liability, he or she can seek indemnity for the exceeding portion from the other tortfeasor.
That said, Article 56, Paragraph (5) of the MRFTA stipulates that where the business entity that has been granted leniency in accordance with the MRFTA is held liable for treble damages, the entity will be held liable as a joint tortfeasor to the extent not exceeding the damages caused to the other from a cartel.
XV FUTURE DEVELOPMENTS AND OUTLOOK
The KFTC formed a special committee consisting of experts and specialists to work on the overall amendment to the MRFTA and prepared a bill for such amendment. The proposed amendment was submitted to the National Assembly in November 2018 by the Korean government and is now pending the National Assembly's examination and resolution.
The key points addressed in the proposed amendment to the MRFTA in relation to private enforcement are as follows:
- the addition of a provision permitting the damaged party to file a lawsuit with a court seeking an injunction to prohibit or prevent unfair trade practices; and
- the addition of a provision allowing the court in a lawsuit seeking damages caused by unfair trade practices to issue an order against the entity to submit a certain document and prohibiting the entity from refusing to submit the document if it is necessary to prove damage or the amount thereof despite the fact that such documents can be protected as trade secrets (see Section V for a discussion on the limitations of document production because in practice the documents containing trade secrets can be exempted from document production orders).
The proposed amendment is still being examined by the standing committee. Since the current term of the National Assembly will end in May 2020 and the next general election will be held in April 2020, the possibility that the proposed amendment will be passed prior to the end of the current term is very low. Moreover, as bills that are pending when a term ends are discarded under the National Assembly's protocol, the above bill will also be scrapped at the end of the current term of the National Assembly.
However, considering the KFTC's effort to form a special committee to amend the overall MRFTA that was enacted more than 30 years ago and has seen only partial amendments, it is expected that the current proposed amendment will be the basis for future amendments to the MRFTA if the government or the KFTC decides to propose such overall amendment again.
Meanwhile, the number of cases reviewed by the KOFAIR substantially increased in the past three years and it is expected to continue to rise in the future. Most cases brought before the KOFAIR involve unfair trade practices by entities in a superior business position. That is because for many small and medium-sized companies, it is not easy to bring a lawsuit against such entities considering the burden of proving damages, costs for bringing such lawsuit and anticipated amount of damages. But despite the limitation that settlement through the KOFAIR mediation procedure is conditioned upon both parties' consent and the KOFAIR or the committee cannot force them to settle the dispute, the KOFAIR's mediation procedure is being recognised as an alternative dispute resolution mechanism worth considering by potential plaintiffs, with the advantage that the cases are subject to direct investigation by the quasi-governmental agency under the KFTC and the investigation can lighten the potential plaintiff's burden of establishing a case before the KOFAIR. As a result, the mediation procedure before the KOFAIR will be more widely utilised in Korea going forward.
1 Kuk-Hyun Kwon is a managing partner, Junghoon Yoo is a partner and Jee-Hyun (Julia) Kim is an associate at EJE Law.
2 Seoul Central District Court judgment rendered on 11 June 2009, Case No. 2007GaHap90505.
3 Supreme Court Decision rendered on 25 August 2010, Case No. 2008Ma1541.
4 Supreme Court judgment rendered on 16 May 2014, Case No. 2012Du5466.