SOUTH KOREA: An Introduction to Competition/Antitrust

Against the backdrop of the ongoing global economic downturn, the South Korean economy is expected to face continuing uncertainties for the foreseeable future. Following the outbreak of COVID-19, the online platform industry has experienced significant growth, and new and unprecedented services and businesses have been introduced. At the same time, many have come to seriously fear the market dominance of large online platforms. Moreover, with the ever-increasing price of raw materials, small and medium-sized enterprises (SME), small business owners, and consumers are experiencing more financial difficulties by the day. Incidentally, there is a growing demand for policies that not only protect due process rights under the law but also provide fast and effective damage relief measures.

In the face of the foregoing economic headwinds, the enforcement authority of the South Korean antitrust and competition law, the Korea Fair Trade Commission (KFTC), is firmly abiding by its fundamental policy principle of safeguarding the rights and interests of consumers, SMEs, and small business owners through the promotion of fair and free competition. In September, at a press conference marking the first anniversary of his appointment, the KFTC Chairperson Han Ki-Jeong set out a list of central tasks that the competition authority will be prioritising, which include the following: (i) creating a robust framework for fair competition in the digital market; (ii) establishing a fair market environment that can better safeguard the rights of consumers, SMEs, and small business owners; and (iii) improving the law enforcement system.

First, regarding creating a robust framework for fair competition in the digital market, the KFTC will be implementing policies that can simultaneously sanction violations of the Monopoly Regulation and Fair Trade Act (MRFTA) by market dominant platforms while effectively promoting and encouraging competition. For example, regarding the problem of unbalanced power relationships (which arises in the context of conflict between online platforms and businesses that operate therein), the competition authority has had some traction in addressing the issue via self-regulation in areas such as delivery apps and open markets, and accordingly, it has decided to support and encourage a more widespread use of self-regulation in other areas as well, such as with hotel booking apps. Moreover, regarding the monopolisation problem (which arises in the context of competition between platforms), the KFTC is in the process of developing a policy direction that can better help promote and foster competition; the authority will also be proactively sharing its views on some of the related online platform bills pending at the National Assembly. Furthermore, the KFTC is contemplating amending the merger review guidelines to better reflect the unique circumstances surrounding the M&A review process in the context of the digital economy. And finally, the KFTC has reaffirmed its determination to impose stricter penalties on dark patterns. These are manipulative behavioural and design tactics employed online to deceive consumers through false or exaggerated information, or other deceptive methods.

Second, regarding establishing a fair market environment that can better safeguard the rights of consumers, SMEs, and small business owners, the KFTC will be stepping up its investigatory and regulatory efforts, particularly over those areas that constitute an integral part of people’s daily livelihoods. For example, the KFTC is currently investigating allegations of cartel activities in construction, telecommunications, and finance, and is planning to expand the scope of its investigations into such conduct in other areas as well. Moreover, in the franchise space, given that various disputes are on the rise with respect to the types and amounts of materials that franchisees are required to purchase from franchisors and the increases in price charged by the latter, the competition authority will be amending regulations to better promote fairness in this area.

Third, regarding improving the law enforcement system, the KFTC will be providing a stronger guarantee of due process rights and facilitating the process for private parties to more easily file damages claims. Also, the competition authority intends to foster an environment whereby corporations can more actively and voluntarily implement compliance programmes. Moreover, the KFTC plans on improving the mediation system and pushing for legislation to that end in order to provide SMEs with an avenue for obtaining timely damage relief measures. Furthermore, the KFTC intends to amend relevant procedural regulations so that the KFTC can more effectively present evidence before the court and thereby enable consumers and SMEs to more easily gather evidence for establishing their private damages claims during litigation.

The forgoing agenda mentioned at Chairman Han’s September 2023 press conference is largely in line with the workplan for 2023 announced by the KFTC back in January, which included: (i) addressing impairment of innovation and restraint of competition in the digital market; (ii) prohibiting unfair practices that burden SMEs and consumers; and (iii) improving the law enforcement system to better safeguard due process rights and provide timely damage relief measures.

In the January 2023 workplan, the KFTC announced that it will focus its monitoring activities on abuses of dominance in the digital-based industries (eg, semiconductor and app market) and core platform fields (eg, mobility and open market), create a market environment that promotes innovation and competition, more tightly regulate cartel activities in various fields, and adopt stern measures to control unfair trade practices in the online content or app markets.

The KFTC also emphasised in the said announcement that it will more intensely monitor unfair subcontracting practices regarding payments and misappropriation of subcontractors’ technical information, protect franchisees, prevent large distributors from interfering with the management of suppliers, and regulate deceptive advertising in the online market to protect the rights and interests of consumers.

The KFTC further announced in the January workplan that it plans to improve the law enforcement system and better guarantee due process rights via some of the following measures (which the competition authority has already started to implement): i) specifying both the conduct subject to an on-site investigation and the duration of the investigation; ii) establishing a procedure whereby an examinee under investigation may request the return or disposal of out-of-scope materials collected by the KFTC; iii) setting a standard for investigating compliance departments; (iv) providing an opportunity for examinees to meet with the director of the relevant division of the KFTC prior to deliberation; and (v) for certain cases, mandatorily holding two or more hearings and thereby increasing the opportunity for examinees to present their opinions.

Overall, the KFTC is expected to step up its enforcement activities across a wide range of areas. Accordingly, it is advised that multinational corporations continue to monitor the legal and regulatory developments in South Korea’s antitrust and competition space. To do so would be especially important in light of the fact that: i) the KFTC has made it clear that it will be paying particularly close attention to violations of the MRFTA in the digital arena and other areas that are closely tied to the welfare of consumers and SMEs; and ii) the KFTC will be supporting and encouraging private parties to make more active use of lawsuits and mediation to address their damages claims. Companies are thus advised to consult with local law firms to keep abreast of both the substance and direction of the KFTC’s policy developments and the potential implications for their businesses.