As a follow-up action to the overhauling amendment to the Monopoly Regulation and Fair Trade Law (the “FTL”), which was adopted on December 29, 2020 and is scheduled to become effective on December 30, 2021, the Korea Fair Trade Commission (the “KFTC”) proposed a set of amendments (the “Proposed Amendments”) to the Enforcement Decree to the FTL (the “Enforcement Decree”).  The Proposed Amendments went through a 40-day public comment period from June 4, 2021 to July 14, 2021.

In order to enforce the amended FTL without setbacks, the KFTC sets forth in the Proposed Amendments specific details that will supplement the amended provisions in the FTL.  The KFTC will review the opinions submitted by stakeholders and relevant ministries during the public comment period and finalize the Proposed Amendments after further reviews by the Regulatory Reform Committee, the Ministry of Legislation and the Cabinet Council.  Once finalized, the Proposed Amendments will become effective at the same time as the amended FTL on December 30, 2021. 

Details

The key aspects of the Proposed Amendments can be grouped into (i) amendments related to facilitation of innovative growth, which the KFTC has presented as the major policy directive behind the Proposed Amendments, and (ii) amendments to KFTC investigative procedures, which are further explained in the following: 
 

1.   Amendments Related to Facilitation of Innovative Growth
 

1)   Improving Effectiveness of Venture Holding Companies

The Proposed Amendments (Article 26) reduce the minimum asset requirement applicable to venture holding companies from KRW 500 billion to KRW 30 billion.  Further, “R&D-focused” small-to-medium sized enterprises (“SMEs”) with their R&D scale being 5% or more of their annual revenue can also be included as subsidiaries of venture holding companies in addition to venture companies.  Furthermore, in an effort to prevent illegal profit-taking by the owner family, the Proposed Amendments prohibit a company from becoming a venture holding company if the owner or the relatives of the owner hold shares of subsidiaries of the company.
 

2)   Regulations on Implementation of Corporate Venture Capital (“CVC”) 

As the amended FTL sets the upper limit of external funds to be invested in funds created by CVCs held by general holding companies at 40%, the Proposed Amendments also set the upper limit of external funds at 40%, which is the highest rate permitted by law.  In addition, just as in the case of subsidiaries of venture holding companies, the Proposed Amendments extend the grace period to ten years for inclusion of CVC-invested small-to-medium sized venture companies into affiliates.
 

3)   Exclusion of PEFs from Designation of Conglomerates 

Under the current Enforcement Decree, while company groups engaging exclusively in financial/insurance businesses are excluded from the scope of companies subject to the designation of conglomerates, “PEF-exclusive company groups” may still be designated as conglomerates.  However, the Proposed Amendments set forth that PEF-exclusive company groups and “business groups consisting solely of companies engaging in financial and insurance business and PEF-related companies” shall be excluded from the designation of conglomerates.
 

4)   New Merger Notification Threshold Based on Size of Transaction

The amended FTL expands the types of mergers and acquisitions that are subject to pre-merger notification requirements by creating a new merger notification threshold in which the acquiring company must notify the acquisition if (i) the transaction value meets a certain threshold amount and (ii) the acquired company or its affiliate is active in the Korean market at a “substantial level.” 

Supplementing the amended FTL, the Proposed Amendments set forth the specifics of the new merger notification threshold as follows: 

• the transaction value threshold is KRW 600 billion; and

• the term “substantial level” means one of the following:

1. the acquired company or its affiliate sells or provides products or services in the Korean market to at least one million persons on a monthly basis for three years immediately preceding the notification date;

2. the acquired company or its affiliate (1) has leased a domestic R&D facility or utilized research personnel for three years immediately preceding the notification date and (2) had an annual R&D budget of at least KRW 30 billion (approx. USD 27 million) at some point during the three-year period immediately preceding the notification date; or

3. other factors similar to (i) or (ii) as further notified by the KFTC.

Further details to the above provisions, including how they are to be construed, will be provided through KFTC notifications.
 

5)   Information Subject to Prohibited Information Exchange Collusion

In relation to Article 40 (1) 9 of the amended FTL which prohibits companies from engaging in unlawful information exchange collusion, the Proposed Amendments provide the following as types of information that are subject to regulation as “Prohibited Information Exchange Collusion”: (i) cost of products or services; (ii) quantity of products delivered, quantity of products in the inventory, or quantity of products sold; and (iii) terms and conditions of products, services or payment.  In the meantime, specific criteria for determining whether certain information exchange restrains competition is expected to be laid out in guidelines to be later issued by the KFTC. 
 

6)   Grounds for Revoking Leniency Benefits 

Pursuant to the amended FTL, if a person who filed for leniency with the KFTC and was granted leniency benefits (the “leniency applicant”) during a KFTC investigation of a cartel case later makes statements before the court that differ from those made during the KFTC investigation, then the leniency benefits can be revoked.  The Proposed Amendments set forth the specific grounds for revoking the leniency applicant’s benefits as follows:

• if the leniency applicant denies material statements or submission during a court proceeding;

• if the leniency applicant submits false materials; 

• if the leniency applicant fails to diligently cooperate in the trial without a justifiable reason, including not appearing before the court; or

• if the leniency applicant files an action claiming that he/she is denying the act of collusion in contravention of the leniency application.
   

2.   Amendments to KFTC Investigative Procedures

The Proposed Amendments provide that a business entity and its employee may be subject to an administrative fine of up to KRW 100 million and KRW 10 million, respectively, if the business entity or its employee provides false materials or fails to provide materials in connection with the KFTC’s survey.  In addition, supplementing the amended FTL’s requirement to prepare a written interview statement when the KFTC conducts an investigatory interview, to ensure the interviewee’s rights of defense, the Proposed Amendments specify that the name, address, date and time, place, and contents of the statements should be included in the written interview statement (Article 75 (2) of the Proposed Amendment). 
 

Implications

The KFTC has commented that the Proposed Amendments when in effect would facilitate innovative growth by increasing investment in ventures through venture holding companies and CVCs and promote effectiveness of conglomerate regulation.  As such, the Proposed Amendments, together with the amended FTL, is expected to have a direct impact on all business entities.  Therefore, we recommend business entities to familiarize themselves with the content of the Proposed Amendments in advance and closely monitor the KFTC’s notifications regarding the practical application and interpretation of the Proposed Amendments.