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Newsletter | July 2016, Issue 2
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ANTITRUST & COMPETITION
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KFTC Issues Amended Guidelines on the Review of Unfair Trade Practices
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On December 31, 2015, the Amendment to the Guidelines on the Review of Unfair Trade Practices (“Amendment” and “Guidelines,” respectively) came into effect. The Guidelines are intended to provide guidance to companies about when their unilateral conduct may be considered an “unfair trade practice.”
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Through the Amendment, the Korean Fair Trade Commission (“KFTC”) is attempting to clarify: (1) the overall criteria for assessing anticompetitive effects; (2) the detailed standards for assessing various unpermitted unfair trade practices (including tying arrangements, abuse of “superior bargaining position,” and unfair appropriation or technology/solicitation of another’s personnel).
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| 1. |
Standards for assessing anticompetitive effects
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The prior Guidelines merely provided a definition of the term “anticompetitiveness” when assessing whether a conduct constitutes an “unfair trade practice.”
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The Amendment adds details to the standards for assessing anticompetitiveness. Specifically, the Amendment clarifies that “anticompetitive effects” means “increase in market price” or “decrease in output”. Hence, the Amendment clarifies that the objective of the anticompetitive effect review should be to protect competition (not competitors).
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Further, the Amendment provides for a threshold question to be considered before reviewing for anticompetitiveness – whether a company has market power. And here, that company’s market share is the key criteria.
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For example: (1) those with 30% or higher market share are presumed to have market power; (2) for a company with market share ranging from 20% to 30%, multiple factors should be considered together (factors include degree of market concentration, competitive dynamics, and characteristics of relevant products/services); and (3) those with 10% to 20% market share may be deemed to hold market power only when multiple market participants engage in the same act, which produces certain cumulative effects.
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Based on these standards, the Amendment further elaborates the criteria for determining whether an act constitutes certain unfair trade practices, such as undue refusals to deal, discrimination against transaction counterparties, and imposition of unduly restrictive terms.
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| 2. |
Criteria for assessing a tying arrangement’s anticompetitive effects
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The Amendment seeks to make its review criteria for tying arrangements more closely aligned with the standards of competition authorities in other major jurisdictions.
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For example, the prior Guidelines considered whether a tying arrangement amounts to an “unfair” means of competition. Under the Amendment, the unfairness language has been deleted, and it regards “anticompetitiveness” as the primary factor for determining whether or not such an arrangement is not permitted.
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Accordingly, the criteria sets the following factors that should be considered: (1) whether there are two separate products or services; (2) whether the seller has market power in the relevant market for the tying product; (3) whether purchasers are forced to buy the two separate products or services together; (4) whether such a tying arrangement is improper in light of normal commercial practices in that relevant industry; and (5) whether such a tying arrangement may foreclose a competitor from the relevant market.
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| 3. |
Criteria for assessing whether a company has a superior bargaining position
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Korean law prohibits companies from abusing their “superior bargaining positions” as an unfair trade practice.
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The prior Guidelines previously stated a rather ambiguous factor – when determining whether a company had a superior bargaining position, whether and how feasible the transaction counterparty may “find” a “replacement” should be considered.
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The Amendment attempts to clarify this ambiguity by setting forth more detailed standards for determining whether a company can be said to possess a “superior bargaining position.”
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Under the newer standards, a transaction relationship must exist on a continuing basis, and the non-superior party’s dependence on the superior party must be “considerable.”
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Further, the Amendment reflects a recent Supreme Court decision holding that “abuse of superior bargaining position” claims may be made only when the superior party’s counterparty is a business entity, not a consumer.
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However, an exception is made when “market order” may be affected, due to a concern that many consumers will be harmed or because the same pattern of abuse will likely continue or reoccur.
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| 4. |
Criteria for assessing unfair appropriation or another’s technology/solicitation of another’s personnel
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The prior Guidelines prohibited companies from unfairly interfering with another’s business if it would make the rival’s business “extraordinarily difficult.”
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Since the threshold for establishing a violation under the prior Guidelines was deemed too high, concerns had been raised that it encouraged businesses to unfairly utilize their competitors’ technology or hire their employees (instead of making acquisitions by other means, such as a merger).
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In light of this, the Amendment lowers the threshold by replacing the term “extraordinarily difficult” with “considerably difficult.”
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Potential Impact
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The Amendment attempts to clarify certain terms and provide detailed standards. As a result, we expect the guidelines will help enhance consistency and predictability of the KFTC’s enforcement of unfair trade practice prohibitions.
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Back to Main Page
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If you have any questions regarding this article, please contact below:
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