The extraordinary growth of international business has seen the legal arena marked by a proliferation of legislation which purports to combat against anticompetitive conduct. Today, more than 100 countries are said to have some kind of antitrust law, and instances where the antitrust laws of a country are applied extraterritorially to a foreign corporation's anticompetitive conduct have been spreading.
Growing antitrust law
The United States took an early lead in applying its antitrust laws extraterritorially. Although the antitrust laws of the US do not explicitly provide for extraterritorial application, the US, starting in 1945 with United States v Aluminum Company of America (Alcoa), accumulated precedents establishing the effects doctrine. This allowed it to apply its antitrust laws extraterritorially against anticompetitive conduct. For the EU, it was the late 1980s that extraterritoriality of its own antitrust system was recognised in the so-called Wood Pulp cartel case which established the place of implementation doctrine similar to the effects doctrine. Although the above doctrines were initially resisted by other nations, such resistance has subsided as more of them have adopted the concept of applying their own laws beyond their borders. Now, the effects doctrine has become widely accepted as a ground for exercising extraterritorial jurisdiction of antitrust laws, and the number of transnational cases where domestic laws are applied to govern extraterritorial conduct of foreign companies has dramatically exploded.
Korean companies, as their prominence in global markets have grown, have been increasingly subject to the extraterritorial reach of foreign antitrust laws. For example, in 2005, the US Department of Justice (DOJ) imposed fines of $300 million on Samsung Electronics, a Korean manufacturer of dynamic random access memory (DRAM) and its US subsidiary, Samsung Semiconductor, for participating in an international conspiracy to fix prices in the DRAM market. This fine was the second largest antitrust fine in US history up to that point. Similarly, the DOJ fined Hynix Semiconductor $185 million for antitrust violations over DRAM price fixing. Also, as part of a wider ongoing DOJ probe into airline antitrust activities, it fined Korean Airlines $300 million after the carrier pleaded guilty to fixing prices on passenger and cargo flights in 2007 and in 2009, Asiana Airlines reached an agreement with the DOJ, pleading guilty to conspiring to fix air cargo prices and paying criminal fines of $50 million. In addition, according to local reports, the Japan Fair Trade Commission will fine affiliates of Samsung Electronics and LG Philips LCD, as well as Panasonic-owned MT Picture Display, an unprecedented amount of several billion yen for price fixing. This was because their sale to subsidiaries of Japanese companies indirectly affected the Japanese market.
The sanctions against Korean companies in the above cases reflect a global trend of increased enforcement activity by competition authorities to protect their domestic businesses and consumers. While the US remains the most active promulgator of extraterritorial measures in antitrust law, other countries and regional organisations such as the EU, most of its member states, and recently, Japan and China, have adopted the extraterritorial application of competition laws.
Korean approach
The early history of Korean competition law and policy reflects a primary concern for the domestic market and an initial reluctance to intervene in foreign anticompetitive activities. However, as the Korean market has been increasingly harmed by anticompetitive behaviors conducted outside of Korea by foreign companies, Korea has become more receptive to the idea of extraterritorially applying its antitrust laws.
It took some time, however, before Korea had the means to effectively combat the anticompetitive acts of foreign companies. Although the Korea Fair Trade Commission (KFTC) was set up in 1981, it was not until 2002 that it fined an international cartel, namely, the graphite electrodes cartel and the vitamin cartel. In 2002, the KFTC imposed administrative fines against six foreign manufactures of graphite electrodes as their cartel activities had an actual or potential impact on the Korean market. Also, in 2003, it carried out a sweeping investigation into an alleged international cartel of six foreign vitamin manufacturers, and levied administrative fines of $3.3 million. In those two cases, the KFTC unanimously adopted in its judgment the effects doctrine in connection with its recognition of jurisdiction. Since then, Korea has begun to catch up to more advanced antitrust regimes and the KFTC's ability to enforce Korean antitrust laws extraterritorially against foreign companies has increased.
Then, in 2004, Korea established express provisions under the Monopoly Regulation and Fair Trade Act (MRFTA), which codified the extraterritorial application of the Korean competition law. The MRFTA expressly provides that "the Act shall apply even to activities carried out overseas when they are deemed to have an effect on the domestic market". With this provision, the KFTC began to more actively enforce its competition policy on regulating antitrust violations involving foreign companies, and, now, Korean case law is filled with examples of the KFTC investigating and sanctioning foreign companies for their anticompetitive activities affecting the Korean market.
Cartels
The KFTC's ability to apply Korea's competition law to international cartels has increased since 2002. The case studies in recent years continue to show that the KFTC has been aggressively enforcing the Korean competition law on an extraterritorial basis for international cartel activity, as seen in the actions against the aircargo cartel, the LCD panel cartel and the marine hose cartel, to name a few. In regard to the LCD panel cartel, the KFTC joined US, Japan, and the EU competition authorities in investigating cartel activities, which demonstrates the KFTC's ability to work closely in cooperation with other jurisdictions to combat international cartels. For the marine hose cartel, in May 2009, the KFTC imposed a corrective order and a total of $448,000 administrative fine on five marine hose manufacturers because their cartel damaged five Korean oil refinery companies. This case shows the KFTC's effective use of its investigative power on international cartels affecting the Korean market.
Merger review
Obviously, M&A plays an important role in the Korean economy as mergers serve as a mechanism for increased foreign direct investment into Korea, and the extraterritorial application of the MRFTA requiring notification of M&A deals to the KFTC has been well established. In July 2003, the KFTC introduced a system that requires notification to the KFTC for certain M&A transactions or "combination of enterprises" involving a foreign company, even with respect to deals between two foreign companies. Since 2003, the KFTC has increasingly imposed monetary sanctions for failures of merger notification. In 2006, the KFTC imposed a total fine of W67.2 million against eleven business combinations with foreign companies for failing to notify it, and since 2006, the KFTC has also concentrated its resources on strengthening merger reviews. In July 2008, Korean competition law was amended to increase the thresholds of assets or sales turnover of the merging party needed to trigger the merger notification requirement from W100 billion to W200 billion. For mergers between two foreign companies or mergers that involve a domestic company acquiring a foreign company, notification is required if the sales turnover in Korea of each company (including their respective affiliates) is W20 billion or more.
Abuse of market dominance
Until 2005, the KFTC did not enforce abuses of market dominance by a foreign company extraterritorially. But since 2006, laws regulating abuses of market dominance were reinforced and strengthened, and it began to closely monitor multinational companies for violations of the MRFTA. The two representative abuse of market dominance cases in Korea are the Microsoft and Intel cases.
In the abuse of market dominance case with Microsoft in 2006, the KFTC applied the MRFTA holding that Microsoft was actually engaging in tie-in sales by being involved through its contracts with Korean personal computer manufacturers. Finding that Microsoft's bundling of its Windows Media Player, Messenger Program and Media Server Player with its operating system was anticompetitive, the KFTC ordered corrective measures against Microsoft to untie the programs and imposed an administrative fine of $32.4 million. In 2008, the KFTC held that US-based Intel unlawfully abused its market dominance and imposed a corrective measure and an administrative fine of $25 million against Intel. Intel was providing loyalty rebates to local original equipment manufacturers such as Samsung Electronics and Trigem Computer in their sale of CPUs that were conditioned upon obligations to not purchase CPUs from Intel's competitor, Advanced Micro Devices.
Comity
In the international community, in order to temper the effects of the unilateral assertion of extraterritorial jurisdiction, comity principles have come to the fore, and, this issue of comity as well as the convergence of antitrust law and policy in different jurisdictions has emerged as a great challenge. Among competition authorities and international antitrust institutions that responded to such challenge, the International Competition Network (ICN) is regarded as the most effective body that facilitates cooperation of competition authorities worldwide. The ICN has evolved into a network of the heads of competition authorities worldwide, seeking convergence in antitrust law and policy. The case studies show that, so far, the KFTC's and the court's extraterritorial application of Korea's competition law has not created much conflict with other countries since Korea's actions were made in response to the other country's prior actions.
Cross-border enforcement
The explosion of international business has created a need for the cross border enforcement of antitrust law, and the recent KFTC decisions make clear that Korea has significantly increased its public enforcement of competition law to control the anticompetitive acts of multinational corporations. As examined above, the extraterritoriality of the Korean competition law is applicable to foreign multinational corporations in case the anticompetitive activities, including cartels, merger and acquisitions, and abuse of market dominance, substantially affect Korean consumers and businesses. As international cartels tend to become more complex, broader in scope, and larger in terms of affected volumes of commerce, it is anticipated that the KFTC will focus more on international cartel enforcement and continue to strengthen the network of cooperation with competition authorities of other countries. Also, with the increasing number of large mergers involving foreign companies that affect the Korean market, the parties intending for such deals should obtain approval from the KFTC (as well as approvals from other competition authorities in various countries) irrespective of their nationalities or the location of their assets. Moreover, laws regulating abuses of market dominance by foreign companies will continue to be reinforced as shown above. Since the enforcement of competition law by Korean authorities has become more effective, a foreign multinational corporation should be aware of the risk of being subject to the antitrust laws of Korea. To avoid being investigated multiple times for the same case by Korean and other competition authorities and incurring unnecessary cost, a foreign multinational corporation should ensure its compliance with the Korean antitrust rules for cartels, M&A review, and abuse of market dominance.
The private enforcement of competition law in Korea is also increasing. This year, a large number of consumers brought a private action for damages against an oil cartel of four Korean oil refinery companies. A private action was also successfully brought by a local confectionery company against a cartel of wheat flour companies, where the court awarded damages to the confectionery company. There have also been private actions made against a sugar cartel, a school uniform cartel, a credit-card VAN cartel, and the tie-in sale of Microsoft, to name a few. Although class actions are not allowed in Korea and individual private actions have been against local companies, the increasing number of private actions in Korea indicates the long-range potential for private enforcement of competition laws against international anticompetitive activities. Korea is seeking to expand the implementation and enforcement of its antitrust laws and will likely continue to develop effective private remedies in the Korean market so that Korean consumers need not rely on the laws of other countries for compensation as well as to deter foreign anticompetitive conduct. Therefore, it is important that foreign multinational corporations be prepared to be brought into Korean courts by private litigants as well, and not just the KFTC, for the enforcement of Korean competition laws, to the extent that such foreign multinational corporations affect the Korean market.
| Author biographies |
Hwan Jeong
Shin & Kim
Hwan Jeong is a partner at Shin & Kim. His practice focuses on a broad range of antitrust law matters, including investigation of merger review, cartels, abuse of market dominance and unfair trade practices, and antitrust litigation. Also, as a corporate lawyer since 1995, Jeong has extensive experience in cross-border investments, mergers and acquisitions, general corporate transactions, and corporate reorganisation. He advises major multinational companies, private equity arms of bulge bracket firms, and regional private equity funds.
Jeong has been serving as an advisory counsel in the Competition Policy Advisory Committee of the Korea Fair Trade Commission since 2005.
He was an ad-hoc instructor of antitrust law at Seoul National University Law School, and is currently an ad-hoc instructor at the Judicial Research and Training Institute of the Supreme Court of Korea. He is a frequent speaker and writer on topics relating to antitrust law. |