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Supreme Court Confirms Reversal of KFTC's Sanctions Against an Air Transportation Company for Alleged Provision of Inappropriate Benefits to Specially-Related Parties


Kim & Chang successfully represented an air transportation company, including its two affiliates, in its appeal to reverse sanctions imposed by the Korea Fair Trade Commission (the "KFTC") for allegedly providing inappropriate benefits to specially-related parties (i.e., misuse of company assets for private gain).  The Seoul High Court ruled in favor of the client by completely revoking the KFTC's sanctions, which included both corrective orders and an administrative fine, and the Supreme Court affirmed the Seoul High Court’s decision in an appeal pursued by the KFTC.

The Supreme Court’s decision is expected to serve as an important precedent as it clearly established for the first time the requisite elements and assessment criteria for inappropriate benefit cases, which had until then remained unclear, especially with respect to what can be deemed "inappropriate" and with regards to the proper allocation of the burden of proof.  In particular, our team effectively argued to the courts that "inappropriateness" as defined under Article 23-2 of the old Monopoly Regulation and Fair Trade Law ("FTL"), or Article 47 of the current FTL, is a separate legal element that should be assessed independently of the other factors for assessing allegations of provision of inappropriate benefits, meaning the KFTC had the burden of proof to specifically demonstrate the "inappropriateness" of the conduct in question, but failed to do so.  The courts accepted our argument in full, and ruled in favor of our client.

According to the Supreme Court ruling, the assessment of "inappropriateness" should be limited to examining whether the provision of benefits helped the conglomerate group (through specially-related parties) maintain or increase its concentration of economic power, and should not additionally require examining whether it could potentially undermine fair trade as a result of restricted competition in relevant markets or increased concentration of economic power.  This is significant in that the Supreme Court clarified that (i) the assessment criteria for "inappropriateness" in inappropriate benefit cases differs from that of "unfairness" for general unfair assistance cases, and that (ii) the assessment of "inappropriateness" should be based on the change in concentration of economic power, not on the potential to undermine fair trade.  Further, the Supreme Court ruling made clear that the burden of proof falls on the KFTC to demonstrate the "inappropriateness" in inappropriate benefit cases.

As the Supreme Court ruling has clearly established the assessment criteria for inappropriate benefit cases, future cases should be reviewed based on whether the relevant conduct caused an increase in concentration of economic power among the specially-related parties, in consideration of the background against which the conduct took place, the intent or purpose of the conduct, the scale of the transaction, and the scale of benefits received by the specially-related parties.  We expect to gain a better understanding of what "concentration of economic power" means in this context as precedents are set, and we anticipate that the experience we gained in this case will serve as a valuable asset when establishing a criteria for "concentration of economic power" in future inappropriate benefit cases.