Tuesday, April 14, 2015

Abuse of Superior Bargaining Power Notification by the Korea Fair Trade Commission: Distributor Risks in Korea

The Korea Fair Trade, in May of 2014, published the Notification on Specific Types of Abuse of Superior Bargaining Positions in Continuous Resale-Type Transactions (the "Notification") according to Article 23 of the Korean Monopoly Regulation and Fair Trade Law of Korea.  The Notification has made substantial changes to Korea's Antitrust Law. 

Please, promptly, review your specific situation with your attorney.  If you lawyer has not contacted you, contact the attorney immediately.  Your counsel must be capable and willing to become deeply aware of your business practices and must be knowledgeable about the Korea Fair Trade Commission.

Most Korean and international attorneys, in Korea, are, only, vaguely aware of the power of the Korea Fair Trade Commission and their Notifications - thus a guiding hand from the client is, often, necessary. 

We suggest a complete Compliance Audit, at least, every three years.  This audit, requires your attorney to stay up on the near constant updates in Employment, Environmental, Safety and Antitrust/Competition laws.

The Korea Fair Trade Commission Notification on Specific Types of Abuse of Superior Bargaining Position in Continuous Resale-type Transactions declares the following types of transactions, facially, "Unfair Transactions":
  • Refusal to Provide Statements of Transactions
    • The refusal or avoidance to provide to a distributor/supplier records of transactions between the supplier and the distributor
  • Unfair Treatment of a Distributor
    •  Unilateral modification of transaction terms
    •  Unfair payments, in event of termination, for the use of equipment provided by suppliers
    •  Prohibition, in agreements, of claims for damages in the event of a termination of the  business relationship
    • The unfair shifting of the cost of returns from the seller to the distributor
    • The unfair shifting of the cost of defects from seller to the distributor
    • The prejudicial treatment of a distributor because of the filing of a complaint to the Fair Trade Commission
  • Unfair Forced Sale of Goods
    • Unilateral supply of unwanted goods
    • Unilateral supply of unordered/non-requested goods
    • Mandatory purchase requirements for certain types of goods that are near expiry, are not proven in the market, are unpopular or are obsolete
  • Unfair Forced Economic Benefits
    • Requiring distributors to donate money to a supplier's business
    • Requiring distributors to dispatch workers to the business of the supplier
    • Requiring promotional activities/labor costs to be borne by the distributor without the agreement of the distributor
  • Unfairly Forced Sales Targets 
    • Terminating a distributorship because of not meeting sales targets
    • Withholding commissions because of not meeting sales targets
  •  Unfair Interference with the Business of the Distributor
    • Forcing a distributor to participate in supplier mandated promotional events/activities
    • Requiring the disclosure of trade secrets
    • Requiring the appointment or removal of employees of the distributor
    • Unilaterally requiring the distributor to maintain certain business hours
    • Unilaterally requiring the distributor to maintain a certain sales territory
Guys.  Get a Compliance Audit completed.  The cost is trivial when considering the risks.  
Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean Hayes is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw.

Wednesday, April 1, 2015

Top 10 Rules for Doing Business in Korea: Korean Business Ethics Basics

The following guest post contains some great business advice from Tom Coyner on Korean Business Ethics.  Tom works with us as a business adviser and, also, in these golden years he is, also, pursuing his passion - photography.

Top 10 Business Rules for Building a Successful Business in Korea
  1. Thou shall always have a Formal Introduction.
    If you are in Korea, it is most important and advisable to have a formal introduction to any person or company with whom you want to do business. Whenever possible, obtain introductions, using a proper intermediary, when possible, in your business meetings.
  2. Thou Shall Not Be Without Business Cards.
    In Korea, a businessperson is not comfortable until he or she knows what company and what position the person he or she has just met. Have a large supply of name cards made prior to visiting companies. Exchange your card with the other person’s taking a moment to closely examine the person’s name, title, etc. as a way of showing you hold the other party in respect. Exchange cards with both or the right hand – never with your left hand. After the exchange, you should place the cards on the table in front of you as you proceed with the meeting, using them for further reference.
  3. Thou Shall Not Assume Everything You Say in English Is Completely Understood. Remember that the level of comprehension of many English-speaking business people may not be as good as their courtesy implies. Emphasize and repeat your key points for their understanding. Try speaking in short, grammatically correct sentences using simple vocabulary. Sometimes it is a good idea to ask questions to verify the other person’s understanding while taking care not to embarrass the other person in front of others. Try diagramming your points rather than simply using English. Exchanging notes after meetings is very helpful for this purpose.
  4. Thou Shall Restrain Pushing Your Position Too Hard.
    Be prepared to be patient, gentle but firm, and as dignified as possible at a negotiating table. Do not try to push your position too hard. Sensitive issues and details may be skipped for future discussions, preferable by a go-between or by your staff, if available. Use of go-betweens can be very valuable especially in delicate dealings where financial negotiations are involved. Allow sufficient time for your counterparts.
  5. Thou Shall Build Human Relationships.
    Legal documents are not as important as human rapport and relationships. Koreans do not like detailed contracts. They prefer, and often insist, that contracts be left flexible enough that adjustments can be made to fit changing circumstances. Therefore, it is very important to develop and foster good relationships based on mutual trust and benefit in addition to the business contract.
  6. Thou Shall Respect Your Partner.
    Koreans are extremely sensitive people. Never cause them to "lose face" by putting them in a difficult position. On the contrary, offer praise for their recently earned prosperity. Their state of good feelings or "kibun" can do wonders far beyond your expectations. At the same time, be aware there are smooth "foreigner handlers" who flatter by insisting that you ``understand Korea better than other foreigners.’’
  7. Thou Shall Entertain and Be Entertained.
    Entertainment should always be accepted, and in some way reciprocated in due time. Parties are often like drinking competitions. You may be expected to get intoxicated but you have the right to politely hold the line. Legitimate reasons for drinking little or none may include personal health conditions and religious beliefs. At the same time, symbolic or token drinking can be done as a substitute when accompanying by a positive and friendly attitude. The giving of small gifts is also an accepted practice and is recommended.
  8. Thou Shall Try to Know Your Counterpart.
    Try to personalize all business relationships. An informal agreement with a trusted party can be considered far more secure than any written document. Try to find out as much about your counterparts as possible: their family status, hobbies, philosophies, birthdays, etc. Try balancing your social life with regular activities with Koreans and not simply people of your own or similar cultures. Since Korea is a tight-knit society, what may begin as an association for non-business reasons may evolve over time into important introductions to others important to your future business.
  9. Thou Shall Temper Use of Western Logic.
    Do not try to appeal too much to Western logic, but try instead to find "emotional common denominators." Feelings and "face" are often far more important in local business dealings. A willingness to compromise without giving up your core values is an invaluable skill anywhere but it is an ability that will serve you particularly well in Korea. Spend some time in reading up on Confucianism to get a fundamental understanding of the other persons’ perspectives.
  10. Thou Shall Keep Fully Informed.
    With increasing affluence and the development of mass communication, the lifestyle of Korean consumers is changing rapidly. Accurate market research and other advice concerning future trends are often only as good as tracking a starting point of fast-moving trajectory. Korea is a world leader in the common use of broadband Internet communications. Events and trends often change at "Internet speed."

    BONUS: Foreigners Are Different Than Koreans.
    While the first Ten Commandments definitely apply to Koreans, foreigners are placed involuntarily on a different plane. A foreigner should always respect the Ten Commandments, but a foreigner has a bit more wiggle room than his Korean peer.

    When possible try to do things the Korean way since in the long run it is not only proper but easier. But if proceeding along Korean methods is genuinely impossible, do your homework on the market and the other party’s needs – and then proceed with caution as circumstances demand. It is even more important to work with a flexible-minded Korean partner should you be forced to break some of the rules as you move forward. This may not be the easiest way to do business in Korea, but out of necessity has come unconventional paths to success. Foreigners are able to act differently, and they can bring new insights to Korean business.

    In 1987 the "Ten Commandments for Doing Business in Korea" by SH Jang was published in a local magazine and again in the following year in his book, The Key to Successful Business in Korea.  Business Ethics in Korea.

Tuesday, March 31, 2015

Legal Hackers Korea First Meet Up Held in Seoul

The first Meet Up of Legal Hackers was a great success.  We held the first Meet Up at JR BBQ in Itaewon.  A group of passionate entrepreneurs, lawyers and technologists go together and discussed the shutdown of Uber in Korea.  The event was sponsored by IPG Legal.

We decided, after a three hour meeting (and a few drinks), to share thoughts on how to manage this group via the Legal Hackers Meet Up group site.  We, also, decided that each group will either have a group member make a presentation on a topic or we will have a guest speaker. 

We have not scheduled the next Meet Up yet.  Likely, the next Meet Up of Legal Hackers will occur in early May 2015.  

To view the Meetup Page of Legal Hackers please visit: Korea Legal Hackers
Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean Hayes is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw.

Sunday, March 29, 2015

Short Selling at the Korea Stock Exchange Permitted - Don't Forget the Disclosure Requirements

A ban on short stocks in Korea was lifted late in 2013 by the Korea Financial Services Commission (FSC).

Short selling is defined by the United States Security and Exchange Commission as " the sale of a stock that an investor does not own or a sale which is consummated by the delivery of a stock borrowed by, or for the account of, the investor. Short sales are, normally, settled by the delivery of a security borrowed by or on behalf of the investor. The investor later closes out the position by returning the borrowed security to the stock lender, typically by purchasing securities on the open market."

Thus, simply, shorting a stock is an investment that the value of a stock will decrease over a specific period of time.  If the value decreases, the investor gains, typically, the amount of the decrease minus a commission. 

Because of, inter alia, the perceived potential for abuse by investors, most governments carefully monitor shorting shares via onerous disclosure requirements.  

The FSC imposes disclosure requirements on domestic and foreign companies and individuals with a controlling interest in short sale positions of more than .5% of a Korean-listed companies outstanding shares. 

Additionally, any domestic or foreign companies or individuals with a controlling interest in shorts of more the .01% or KRW 1 billion is required to report the transaction to the exchange and the Financial Services Commission.

Shorts are reported, daily, by the FSC and reported by the Korean Stock Exchange.

For more information on the Korean Stock Exchange please take a look at the website of the Korean Exchange and Morningstars' Korea Stock Market News & Reports.

I follow the Morningstar Page daily for useful information on the Korean Stock Exchange.  Also, Forbes and Wall Street Journal have very good articles on the Korean Stock Exchange.

Happy investing.
Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean Hayes is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw.

Friday, March 27, 2015

How to Successfully Manufacture OEM in Korea: Break a Product Down to the Thread

While China is the factory to the world, Korea is, still, a great choice for those that enjoy less headaches.  Even though Korea tends to be easier to painlessly manufacture OEM in, Korea is not without risk or pains.

We see an alarming number of cases of fraud and, also, an alarming number of cases where a product infringes on a patent or is made to standard that does not allow the item to be marketed.

I have wrote a good deal in other posts how the key to success in dealing with Korean businesses is, often, in listening to my wonderful Italian mother.
Bespoke Korean OEM Agreements"My mother once told me to look both ways before crossing the street, carry an umbrella in the spring, and don’t go out alone at night. The advice can go a long way when doing business in Korea or in most parts of the world. It is best, before doing business with any Korean company to do a little due diligence (look both ways), have a carefully drafted agreement (carry and umbrella) and employ some Korean know-how (hire local professionals)."

This post will focus on one of the most important issues related to drafting OEM agreements in Korea.  Please check on my numerous other articles on Korean Due Diligence including: Doing Business in Asia and Korea Contracts. Don't Forget the Counter-Party.  Please don't forget due diligence.  Also, don't forget about liquidated damages: Liquidated Damages Clauses in Korea and the multitude of other issues discussed on this blog. 

Specificity in OEM and Like Agreements in Korea
To, often, we see foreign OEM agreements drafted by dopey hacks.  These hacks rarely do anything, but cut and paste a product description into an agreement. No this is not adequate.  It is, also, not adequate to just refer to your Spec Sheet with a review. 

For example, I would never go into a bespoke suit shop and request a "beautiful two-button grey suit," you, also, should not be ordering products based on general descriptions.  Suits come with different fabrics, different buttons, different thread, different liners, different designs, different blah blah blah.

If your lawyers hasn't broken your product down to the thread, you may have the wrong lawyer.

Ask you lawyer to provide you with a Specification Sheet Sample.  Most good lawyers will have one.  Fill-out the Specification Sheet Sample and have your attorney review it.  Also, it may be advisable to have a QC professional (many law firms have them inhouse), also, review the Spec Sheet.
Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean Hayes is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw.

Tuesday, March 24, 2015

Wills, Trusts, Pre-Nuptial Agreements, Living Wills, and Power of Attorneys in Korea

We receive many calls requesting the notarization of wills, living wills, general and specific power of attorneys, prenuptial agreements and other like agreements and documents in Korea.  These documents are, often, just pulled from the internet.

We, sometimes, notarize these agreements for clients, however, in most cases we refer the client to their local embassy in Seoul, since the embassy stamp has a far less chance of not being recognized in the foreign jurisdiction than a Korean notarial stamp and, also, advise a redraft of the document.

This post was not written to tell you not to call me about notarial issues (actually don't contact me about notarial issues unless your nation does not have an embassy in Korea- contact your embassy), but to be aware that many of the agreements and documents that I have seen that were downloaded from online form libraries and blogs are worthless in Korea, Canada and many U.S. states.

In matters that are important for you and your family's life and livelihood, please spend a few bucks and have a professional draft these documents.  The professional should know about the recognition of these documents in Korea and, also, abroad.  Don't simply rely on the internet and luck. Your family is more important than saving a few bucks.  

This post was motivated by a prenuptial agreement that I just reviewed that was, obviously, downloaded from an online form library and that would have been invalidated by most U.S. courts if executed in its form.  Writing this post reminds me of a case we handled, a few years back, concerning a will that was contested, since the will did not meet the execution formalities.

Sean Hayes is chair of the Korea Practice Group at IPG Legal.  Sean, formerly, worked for the Constitutional Court of Korea and for a Korean college of law.  He may be contacted at: SeanHayes@ipglegal.com