Recently, the Supreme Court upheld an appellate court decision affirming that the three of Korea’s top mobile carriers and their responsible officers were not guilty in a case where “three major mobile carriers – specifically LG Uplus, SK Telecom, and KT – and their responsible officers were indicted by the Prosecutors’ Office for violating the Mobile Device Distribution Improvement Act (“MDDIA”) by entering into an agreement with their distributors in or around October or November 2014, whereby the distributors: (i) were required to pay subsidies in excess of the maximum cap, through retailers, to iPhone 6 users who transferred to or newly subscribed to the service plans of the said mobile carriers; and (ii) were thereby induced to pay unfair discriminatory subsidies to users depending on the types of the service plans to which they had subscribed.” 

Under Article 9(3) of the MDDIA, “in concluding an agreement with their agents, mobile carriers shall not instruct, coerce, demand, induce, etc. their agents to provide unfair discriminatory subsidies to users or include special provisions or conditions which make agents recommend specific additional services, service fee plans, etc. to users in an unfair discriminatory manner.”

Here, the issue was whether the iPhone 6-related incentives paid by the three mobile carriers to their distributors in or around October or November 2014 can be deemed to be connected to the discriminatory subsidies paid by the distributors to consumers, and thus, constitute an “act of inducing agents to provide unfair discriminatory subsidies to users” under Article 9(3) of the MDDIA.

Grounds for Indictment: 

• The three mobile carriers, including LG Uplus, increased the amount of incentives payable to distributors, and notified their distributors that under the policies, they are instructed or otherwise required by their standard distribution agreement to pay additional subsidies to users who would change to or newly subscribe to the service plans of the said mobile carriers just in time for the iPhone 6 release; and

• The term “induce” used in Article 9(3) of the MDDIA should be broadly interpreted in line with the legislative intent of the MDDIA.  

Accordingly, the above conduct of the three mobile carriers constitutes acts of inducing distributors to pay unfair discriminatory subsidies to users through retailers.

Our Representation:

On behalf of LG Uplus, Kim & Chang’s lawyers successfully persuaded the Court.  Our team demonstrated thorough understanding of the sales incentive policies of the three mobile carriers, and provided in-depth analysis of the MDDIA and issues presented in the indictment of the Prosecutors’ Office.  Specifically, we reasoned that although the terms “unfair discriminatory subsidy” and “induce” under Article 9(3) of the MDDIA should be strictly construed, the sales incentive policy of LG Uplus was not an act “inducing” the payment of “unfair discriminatory” subsidy as set forth in Article 9(3) of the MDDIA.  Further, citing the legislative intent of the MDDIA, we argued that the Prosecutors’ Office had unreasonably determined that an act which failed to meet the requirements for a violation of Article 9(3) of the MDDIA constituted a violation. 

Ultimately, our client, LG Uplus, was found not guilty.

Significance:

The Supreme Court’s ruling on this case is significant, given that the Court accepted our reasoning that Article 9(3) of the MDDIA should be strictly construed and applied in accordance with the principle of statutory criminal punishment, but found that the current sales incentive policies of the three major mobile carriers should not be subject to criminal sanctions under the MDDIA.