The Private Competition Enforcement Review: South Korea

Overview of recent private antitrust litigation activity

In South Korea, there were no significant activities or landmark court decisions relating to private antitrust litigation in 2021.

Following several years of efforts by the Korean Fair Trade Commission (KFTC) to amend the Monopoly Regulation and Fair Trade Act (MRFTA), the National Assembly passed its first comprehensive amendment to the MRFTA since its initial enactment, which took effect on 30 December 2021(the Amendment).

The key points addressed in the Amendment in relation to private enforcement are as follows:

  1. 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;2
  2. the addition of a provision allowing the court in a lawsuit seeking damages caused by unfair collective action (i.e., cartel) or unfair trade practices to issue an order against a party to prevent it from submitting a certain document, or to prohibit it from refusing to submit the document if it is necessary to prove damages or the amount thereof, even if the document is protected as a trade secret (see Section V for a discussion on the limitations of document production (in practice, documents containing trade secrets can be exempted from document production orders));3 and
  3. the addition of a provision permitting the court to issue a separate order against the receiving party and its attorney not to use the trade secrets contained in the produced document, except for the purposes of carrying out the lawsuit, and not to disclose the information to anyone except the party that received the order to maintain confidentiality.4

Articles discussed below refer to the Amendment.

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 MRFTA. Article 109, 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'.

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 KFTC 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 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.5

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 109, Paragraph (1) of the MRFTA.

The statute of limitations for a general tort claim is also applicable to the above damages 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 10-year term is reduced to five years in accordance with the National Finance Act or the Local Finance Act.

ii Injunctive relief

Prior to the Amendment, the MRFTA and other pieces of legislation relating to antitrust issues did not explicitly provide injunctive relief. Article 108 of the Amendment prescribes that a person who was harmed, or fears he or she may be harmed, by an unfair trade practice in violation of the MRFTA is entitled to bring claims in a district-level court for injunctive relief or for prevention of the violation against the violating business entity or association of business entities.

Extraterritoriality

Article 3 of the MRFTA stipulates that the Act shall also apply to acts carried out outside South Korea if these 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 3 of the MRFTA refers to cases where an act carried out 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 this 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, the 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 3 thereof, and the same applies even if the 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, and the degree to which the legitimate interest of the foreign government is harmed.6

Standing

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.

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.

However, because 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 as 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 the document in question to be true.

In addition to the 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. However, 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 109, 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 includes interviews with persons related to the case, witnesses, appraisers, stenographic records and other evidentiary documents.

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 these procedures can also be 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 the expert or appraiser. 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.

Class actions

Class actions are not available under Korean law, except for claims relating to securities.

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, or (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 the unfair trade practices or filed a request for mediation with the Korea Fair Trade Mediation Agency (KOFAIR) in relation to unfair trade practices.7

When determining the amount of the treble damages in accordance with Article 109, Paragraph (3) of the MRFTA, the court will consider the following factors:

  1. intent or degree of awareness of the violating party of the damage caused;
  2. severity of the damage caused by the violation;
  3. economic benefits the violating business entity or association of business entities gained from the violation;
  4. fine and penalty following the violation;
  5. duration and frequency of the act of violation;
  6. financial status of the business entity; and
  7. effort exerted by the violating business entity or association of business entities to remedy the damage.8

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.9

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 the 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.10

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 the 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.

Pass-on defences

The Korean Supreme Court does not recognise pass-on defences on the grounds 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.

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.

Privileges

Under Korean law, the attorney–client privilege, attorney–work product and joint work product defences are not recognised in the litigation process.

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.

Arbitration

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 chairperson, is formed within the KOFAIR.

The cases subject to the KOFAIR mediation procedure include disputes:

  1. relating to unfair trade practices;
  2. between franchisors and franchisees;
  3. relating to subcontract transactions;
  4. between large retailers and suppliers;
  5. between suppliers and agencies; and
  6. 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 an extension) of the date on which the petition or the request is filed; or (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.

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 109, Paragraph (4) 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.

Future developments and outlook

Class actions are not currently available under Korean law except for claims relating to securities. In 2021, the Ministry of Justice introduced a bill to establish a strong class action system in Korea to cover all damages claims. Pursuant to the bill, class actions will be possible for any type of civil litigation, with a minimum of 50 plaintiffs being required for the court to grant class certification. In addition, this will be retroactively applicable to any act that occurred before the law becomes effective. This bill has not been officially submitted to the National Assembly for review, but the development and progress of the proposed bill should be closely observed because it will also cover private antitrust litigation.

In September 2020, the KFTC proposed the Act on Fair Intermediary Transactions on Online Platforms. This Act would provide regulation of certain online platforms, including Apple's App Store, Google Play and open market or e-commerce platforms such as eBay and food delivery, hotel services and transportation platforms that exceed certain criteria in terms of size. The proposed bill will give business entities doing business on or through these platforms the right to seek damages relating to violations of the Act by online business operators, the details of which will be governed by the existing MRFTA provisions. The Korean government officially submitted this bill to the National Assembly in February 2021 and it is currently under review. The development and progress of this proposed bill needs to be closely observed during its deliberation and resolution in the National Assembly.

Footnotes

1 Kuk-Hyun Kwon is a managing partner, Junghoon Yoo and Jung-Won Lee are partners and Jee-Hyun (Julia) Kim is a senior foreign attorney and associate at EJE Law.

2 Amendment, Article 108.

3 id., at Article 111.

4 id., at Article 112.

5 Seoul Central District Court judgment rendered on 11 June 2009, Case No. 2007GaHap90505.

6 Supreme Court judgment rendered on 16 May 2014, Case No. 2012Du5466.

7 Article 109, Paragraph (2) of the MRFTA.

8 id., at Article 109, Paragraph (3).

9 ibid.

10 id., at Article 115.

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