On December 2, 2011, the Fair Trade Act was amended to introduce the consent decree system for use in fair trade law cases. This comes with the passage of the Korea-US Free Trade Agreement, which stipulates in its competition section the introduction of the consent decree system, which has been available in other territories such as the U.S. and European Union.  

Background

The consent decree system originated in the U.S., and is a system under which if an enterprise under investigation by the competition authorities prepares a method to correct its own problematic conduct and suggests it to the competition authorities, the competition authorities will review such method and then conclude the case by deciding the final corrective measure through the consultation with the relevant enterprise.  That is, the competition authorities will conclude the case by imposing the corrective measure agreed by the enterprise without determining the illegality of the conduct of the relevant enterprise.

This system has been utilized in many countries in various forms, such as consent decree (U.S. FTC), consent decree (U.S. DOJ), commitment decision (EU), and Verpflichtungszusagen (Germany).  However, there are differences between this consent decree system and the others with respect to specific procedures.

Main Contents

Conducts Subject to Consent Decree

Pursuant to the amended Fair Trade Act, a conduct which is subject to the investigation by the KFTC, is, in principle, subject to the consent decree (Article 51-2 (1) of the Fair Trade Act).  However, if the relevant conduct falls under ‘concerted act’ under Article 19 (1) of the Fair Trade Act, or if the conduct is deemed to remarkably obstruct the competition order since the degree of violation of the law is objectively evident and material, it will be excluded from the meaning of conduct subject to the consent decree (Article 51-2 (1) 1 through 3 of the Fair Trade Act).

Procedures for Consent Decree

The following are the procedures undertaken by an enterprise under investigation by the KFTC in proceeding with the application for the consent decree.

The application for a consent decree by an enterprise (Procedure 1) may be filed at any time before the KFTC finally deliberates the case, since there is no special restriction on the time to file the application in the Fair Trade Act (Article 51-2 (1)). The enterprise will submit a written statement to the KFTC regarding the following: 1) the factual relationship which may specify the relevant conduct; 2) the corrective measure required for recovery of competition order such as suspension of the relevant conduct and restoration to original status or positive improvement of the competition order; and 3) the corrective measure required to remedy damages to other enterprises or prevent occurrence of damages (Article 51-2 (2) 1 through 3 of the Fair Trade Act).

The KFTC's determination of the commencement of procedure for the consent decree (Procedure 2) will be made by comprehensively considering the necessity for taking prompt measure and for directly compensating damages to consumers (Article 51-3 (1) of the Fair Trade Act). Once the procedure for consent decree commences, the KFTC will stop handling the case for existing corrective measure, and the KFTC will review the corrective measure proposed by the applicant for the consent decree. In the above process, the corrective measure may be amended through a consultation with the applicant (Procedure 3) (Article 51-2 (3) of the Fair Trade Act). If the KFTC cannot reach an agreement with the applicant, the KFTC may conclude the procedure for the consent decree and commence the regular procedure for the corrective measure.

The opinions of the interested parties (i.e., the applicant, its competitors and consumers) (Procedure 4) on the corrective measure consulted between the KFTC and the enterprise will be obtained for at least for thirty (30) days before the KFTC makes the final determination on the consent decree. In other words, the KFTC will provide the interested parties with an opportunity to submit their opinions regarding the corrective measure by way of giving them direct notice or posting on the official KFTC's newsletter or the KFTC's internet homepage the following: 1) the summary of the relevant conduct; 2) the relevant provisions of the laws and regulations; 3) the corrective measure (if amended, then the amended version); and 4) other information that may be helpful to the understanding of the interested parties related to the relevant conduct, other than information that should be kept confidential in order to protect business and private life or that is not appropriate to be disclosed for public interest (Article 51-3 (2) 1 through 4 of the Fair Trade Act). Furthermore, the KFTC will inform the heads of related administrative agencies of the above four (4) matters and listen to their opinions about them, and for the Public Prosecutor General, the KFTC will have an obligation not only to inform but to consult with the Public Prosecutor General about the matters (Article 51-3 (3) of the Fair Trade Act).

The corrective measure which has gone through the process of obtaining the opinions of the interested parties as above will be presented to all members meeting or small group meeting of the KFTC, and the KFTC will make a determination on the corrective measure through deliberation or resolution (Procedure 5). If the corrective measure fails to be approved at the meeting, the KFTC will recommence the regular procedure for the corrective measure.

Effect of Consent Decree

Even when the consent decree is granted, the KFTC does not determine the illegality of the relevant conduct. That is, the KFTC's resolution of the consent decree does not decide the illegality of the relevant conduct, and although the applicant receives the consent decree, it is impossible to assert the illegality of the relevant act which becomes the subject of the consent decree based on the KFTC's resolution (Article 51-2 (4) of the Fair Trade Act). Thus, any person who intends to seek compensation for damages against an enterprise that has been granted the consent decree should separately assert and prove the illegality of the relevant conduct.

If an enterprise that receives the consent decree fails to implement such decision without any justifiable cause for a considerable period of time, the KFTC may impose a fine to compel the implementation not exceeding KRW 2 million per day until the consent decree is implemented or is revoked (Article 51-5 (1) of the Fair Trade Act).

Prospects

Enterprises that intend to minimize the risk of losing reputation and being exposed to civil lawsuit due to the breach of the Fair Trade Act will have much benefit from using the consent decree since they are able to conclude the case by consulting with the KFTC without the KFTC’s determination of illegality of their conduct.

However, it is necessary to wait and see whether the consent decree will be actively utilized in practice since if an enterprise intends to conclude the case with the consent decree, various information related to its relevant conduct is notified to the heads of related administrative agencies as well as the Public Prosecutor General as mentioned above (Article 51-3 (3) of the Fair Trade Act). This issue will be burdensome to such enterprises.

The KFTC may also lose its interest in using the consent decree. Assuming that the KFTC intends to conclude the case by the consent decree since the degree of illegality of the relevant conduct is not serious, during the process of obtaining the opinions of the interested parties, the Prosecutor's Office may, unlike the determination of the KFTC, determine that such degree of illegality is so evident and material from an objective point of view that the relevant conduct has remarkably damaged the competitive order. In this case, the Prosecutor's Office may propose to the KFTC that it should file a complaint of the relevant case to the Public Prosecutor General by taking the seriousness of the relevant conduct into account (Article 71 (2) of the Fair Trade Act). Furthermore, the Public Prosecutor General may inform the KFTC of the fact that the relevant conduct meets the requirements for filing a complaint and request the KFTC to file a complaint of the relevant conduct (Article 71 (3) of the Fair Trade Act). Since it is possible to expect that the KFTC will desire to avoid the situation involving the Prosecutors' Office as much as possible, the KFTC's interest in using the consent decree may decrease considerably.

For more information about any of the issues raised in this newsletter, please contact Jipyong & Jisung partners:

Gee-Hong Kim | ghkim@jipyong.com | +82-2-6200-1720
Hyung-Sam Park | hspark@jipyong.com | +82-2-6200-1781