On January 22, 2021, the Korea Fair Trade Commission (the "KFTC") announced its 2021 Enforcement Plan (the "2021 Plan"). The enforcement plans, published annually by the KFTC, present a comprehensive overview of the issues and enforcement areas of the KFTC's priority for the year and lay out a plan for the KFTC's enforcement activities for the new year.
This year, the 2021 Plan in particular drew closer attention by the business community in Korea as a roadmap of the KFTC's enforcement under the substantially amended Monopoly Regulation and Fair Trade Law (the "FTL") when it takes effect in January 2022. As detailed in our previous newsletter, the amended FTL, among others, will (i) have information exchange as a new type of illegal collusive conduct, (ii) double the maximum percentage of revenues that can serve as the basis of administrative fines, (iii) provide an individual's right to directly seek injunctive relief against unfair trade practices, and (iv) introduce a new merger filing threshold based on the size of the transaction and the target's activities in Korea.
With this background, we provide below our observation on key issues and areas drawn from the 2021 Plan:
Focus on Fair Competition in Digital Economy
2021 marks the fifth year of the Moon administration, and the KFTC's enforcement activities before this year have mostly focused on regulation of large conglomerates and protection of the economically weaker small businesses from the abusive practices of larger companies. While there is no significant change to the KFTC's overall policy direction from previous years, the 2021 Plan notably discusses establishment of fair competition in digital economy as the first priority area of its enforcement effort, among the following six core task items:
- Promote fairness in digital economy
- Foster an inclusive market characterized by mutual cooperation and coexistence between large companies and small and medium businesses
- Establish sound ownership/control structure of large conglomerates and fair transactions by large conglomerates
- Establish market environment and trade practices that promote innovation
- Build a system to institutionally guarantee consumer rights
- Reinforce infrastructure for implementing fair trade policies
As a background, the 2021 Plan recognizes the increasing digitalization of economy under the Fourth Industrial Revolution and structural changes toward contactless economy, which in turn calls for close review and regulation of new competition issues. The KFTC's prediction of (i) new types of unfair trade practices and consumer harms caused by network effect and (ii) more economic difficulties to be suffered by smaller vendors due to competition between online and offline businesses is also noteworthy as a basis for its all-front regulatory efforts in digital economy presented in the 2021 Plan.
Facilitation of Innovation
Innovation continues to be one of the keywords in the 2021 Plan. The actions that the KFTC is expected to take include: introduction of more detailed standard for the newly-added merger notification threshold based on the transaction value, reinforced monitoring of market-dominant players' conduct, such as exclusive dealing and rebate offering, in semiconductor and pharmaceutical businesses, and regulating abuse of intellectual property rights, such as unfair royalty demand by SEP holders.
Building Stronger Regulatory Infrastructure
With a number of new legislations and amendments in place, including the recent overhaul of the FTL, the KFTC is seeking to reinforce the infrastructure for effective law enforcement. The areas where the KFTC is expected to provide more detailed regulations as discussed in the 2021 Plan are information exchange as a new type of collusive behavior, the new merger filing threshold based on the transaction value, plaintiffs' ability to access evidentiary materials in a follow-on damages lawsuit, and individuals' right to seek an injunctive relief.
Industries Under Scrutiny
The 2021 Plan makes reference to certain specific industries in relation to the KFTC's planned regulatory and enforcement efforts in 2021. For example, in relation to potential need to improve the standard terms and conditions, the KFTC refers to the OTT, crowd funding, delivery app and used-car sales businesses as potentially problematic businesses. Also referenced were automobile parts, machinery and fashion businesses in relation to a planned survey on subcontract price payments.
Please refer to the attachment for more details of the six core task items.