3/24/2017

Trade Dress Law in Korea. The Copycat May Catch the Mouse

A blog I just, recently, ran into posted an interesting post on Hermes trouble with copycats in Korea. The blog may be found at: Fashion Law Blog.

Hermes lost, recently, a High Court case in Korea.  Hermes argued, in part, that:
" [Defendant’s] bags – which bear a striking resemblance to its famed Birkin and Kelly styles – run afoul of the Unfair Competition Prevention and Trade Secret Protection Act, which prohibits, 'causing confusion with another person's goods by using signs identical or similar to another person's name, trade name, trademark, container or package of goods or any other sign widely known in the Republic of Korea as an indication of goods, or by selling, distributing, importing or exporting goods with such signs.'" 
Hermes, in short, specifically argued that:
". . . that in recreating the trade dress in its most famous bags – namely, the distinctive three lobed flap design that fits around the base of the handle, padlock closure at its center, key fob affixed to a leather strap, and thin horizontal strap that fits over the flaps of its Birkin bag, for instance – [Defendant] was in breach of Korean unfair competition law."
The High Court, however, ruled in favor of the Korean company.  The High Court opined that:
". . . unique 'eyes' design was a key element of the bags’ identity, and the subsequent popularity of the products among consumers. According to the decision, 'Taking into consideration the creativity, uniqueness, the details of production, and the cultural values of the bags altogether, [Defendant's] products have achieved their own version of originality and aesthetics by incorporating various rare images together.'" 
The post may be found at: Court Rules Against Hermes  in Battle of LookAlike Bags in Korea.  Blog is worth a read.  I will be writing about a few new legal blogs over the next couple of weeks - check back.
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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean 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.  Sean is known for his proactive New York-style street-market advice and his aggressive and non-conflicted advocacy.  Sean works with some of the leading retired judges, prosecutors and former government officials working in Korea.

Sean's profile may be found at: Sean C. Hayes

3/21/2017

Can you Revise Employment Rules in Korea without the Agreement of Employees?

The Guidebook on Wage System Reform, published by the Korean Ministry of Employment & Labor, has sparked more interest, in the private sector, to the revamping of Korea's wage system based on seniority and moving to a system based on merit and/or job scope.

The major issue, in this regard, is if the Rules of Employment of a company may be amended, without violating the Labor Standards Act of Korea ("LSA"), when  "wage system reform" is not consented to by a majority of the employees or the trade union.

Numerous Korean government agencies have successfully moved to a more merit-based promotion and bonus system from a strict seniority-based wage system.  The private sector has carefully watched this trend, because of public failures by noted international conglomerates.  The private sector, to date, has been slow to move to a merit-based wage or like system because of these public failures.

Korea, Seniority, Merit, Wage, Pay
Wage System Reform in Korea

The MOEL's Guidebook on Wage System Reform ("Guidebook") was drafted to be a guide for companies wishing to move from a seniority-based system to a system based on merit and/or job scope/responsibility.

LSA Article 94(1) (Procedures for Preparation of and Amendment to Rules of Employment) 
An employer shall seek consultation of a trade union, if there is a trade union composed of the majority of the workers in the workplace concerned, or the consultation of the majority of workers if there is no trade union composed of the majority of the workers, with regard to the preparation of an amendment to the rules of employment. However, if the rules of employment are to be modified unfavorably to workers, the employer shall obtain workers' consent. 
Some Korean courts and the Ministry of Employment & Labor of Korea have interpreted this Article 94(1) of the LSA not to impose an absolute burden to receive the consent of employees for modifications to rules of employment when the modifications are not "unfavorable to workers." Courts and the Ministry of Employment & Labor have, recently, supported the "generally-accepted justification" test to determine if modifications to rules of employment are "unfavorable to workers."

Generally-Accepted Justification Test
Under this Generally-Accepted Justification Test, Korean courts, should weigh the following factors in determining if the change of the rules of employment of a company violates the LSA.  The factors to be considered are:
  1. Degree of Disadvantage to the Employee in the Changed Employment Rules;
  2. Degree of Change and Necessity of the Change in the Employment Rules;
  3. Reasonableness of the Change in the Employment Rules;
  4. Whether the Disadvantage was Offset by Advantages;
  5. Degree of Progress in Negotiations with the Union and the Reaction of the Union and employees; and
  6. Whether the Changes are considered Common in Korea.
Courts, recently, have moved to become more employer friendly.  However, without a nuanced approach to amending rules of employment, a nuanced understanding of Korean legal and political realities and a savvy and experienced local Human Resources guide - companies will, likely, run aground  in employment relationship issues.  A proactive and experienced team is necessary for success in Korea.  The ubiquitous teams are, not, always the best teams.

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

Sean 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.  Sean is known for his proactive New York-style street-market advice and his aggressive and non-conflicted advocacy.  Sean works with some of the leading retired judges, prosecutors and former government officials working in Korea.

Sean's profile may be found at: Sean C. Hayes
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Employment Law Articles
Additional Articles on Employment Law, in Korea, may be found at:

3/17/2017

Franchisor Obligation in Korea to File Annual Report to FTC: Korean Franchise Law Updates

Korea's Franchise Law imposes an obligation to report to the Fair Trade Commission of Korea, yearly, specific information relating to your franchise business worldwide.  

A franchisor's disclosure document may be de-registered or a fine may be imposed if this Yearly Franchise Report is not accepted by the Korean Fair Trade Commission within 120 days of the closing of the year.

The Yearly Franchise Report, in Korea, is intended to notify franchisees and prospective franchisees of changes in the operations of the franchisor.

Don't forget - file the update yearly.

Other articles on Franchise Law that may be of interest:
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.

2/24/2017

Starting a Business in Korea: Foreign Capital-Invested Company, Branch or Liaison Office

There are, in short, three legal manners of entering into the Korean Market.  A business may enter as a Foreign Capital-Invested Company (Foreign Direct Investment Company), Branch or Liaison Office.  In most situations, the best manner to enter the Korean market is via the FDI Company route in order to avail of certain favorable tax treatments, not expose the foreign entity to liability, easier remittance of profits and easier processing of visas.

However, many exceptions to this general rule do exist.

FDI, Korea, Seoul

1. FDI Company (Foreign Capital-Invested Company)

  • Separate legal entity separate from the foreign company (Subsidiary of the Overseas Company)
  • Various benefits under Korea FDI laws and regulations (e.g. free trade zones).
  • Investment of at least KRW 100,000,000/investor.
  • Opportunity to obtain a D-8 Investment Visa.
  • Tax Support & Incentives available. 
FDI Company may be formed with the following types of businesses under the Korean Commercial Code (KCC):

Chushik Haesa (Joint Stock Company; Co. Ltd.; Corp.; Ltd.) 
Chushik Hoesa is the only corporate entity that is allowed, at the present, to publicly issue shares. The vast majority of incorporators in Korea choose the Chushik Hoesa corporate form. It is also the most common corporate form for foreign companies establishing subsidiaries in Korea and this will not change anytime soon.

Yuhan Hoesa (Private Company, sometimes referred to as an LLC)
Yunhan Hoesa is a closely held company that is prohibited from having more than 50 shareholders. In recent years, a few foreign companies (including some international hedge funds) have chosen Yuhan Hoesa.

 A few companies, recently, have chosen this form because of possible U.S. and E.U. tax benefits (pass-through benefits) and simplified reporting guidelines.  Additionally, there are few requirements in regard to directors, publication of balance sheet and accounting.

However, the KCC prohibits securitizing shares and issuing corporate bonds.

Hapja Hoesa (Limited Partnership; LLP)
With a Hapja Hoesa one or more partners must maintain unlimited liability and one or more partners may maintain limited liability. The entity is responsible to pay Korean corporate taxes and thus may not be treated as a pass-through entity.

Hapmyeong Hoesa (Partnership)
In a Hapmyeong Hoesa two or more partners form the partnership. The partners must maintain unlimited liability. The entity is responsible for corporate taxes and thus is not a pass-through entity. 

Hapja Johap (Limited Liability Partnership; LLP)
Hapja Johap is similar to Hapja Hoesa. With a Hapja Johap one or more partners may have unlimited liability and one or more partners may maintain limited liability. The critical difference between Hapja Hoesa and Hapja Johab is that Hapja Johap, like Johap (partnership) is not a separate legal entity. The tax treatment issues are not yet resolved; however, we doubt that it will be subject to double taxation, thus, we assume that it will be treated as a pass-through entity. The form, after the tax treatment issue is resolved, may be, in most cases, a more advisable solution than the Yunhan Hoesa form for those that may benefit from the pass-through nature of the entity.

Yuhan Chaekim Hoesa (Limited Liability Company; LLC) 
Yuhan Chaekim Hoesa is very similar to a U.S. LLC. It is intended to provide the advantages of Yuhan Hoesa and Chushik Hoesa. The liability is limited, shares are freely transferable between members, bonds may be issued, no capitalization requirements are imposed, no director or auditor requirements are imposed and the entity has easy exit requirements.

2. Branch Office

  • Considered the same legal entity as the overseas company (Headquarters).
  • Overseas manager is appointed as a manager of the branch. 
  • The conduct of the Branch can be imputed on the Headquarters. 
  • May engage in profit making in Korea.  

3. Liasion Office

  • May not engage in profit making in Korea.  
  • Intended for a company to engage in R &D, advertisement, research and explore the entry into the Korean market.  
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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean 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.

Sean is known for his proactive New York-style street-market advice and his aggressive and non-conflicted advocacy.  Sean works with some of the leading retired judges, prosecutors and former government officials working in Korea.

Sean's profile may be found at: Sean C. Hayes

2/09/2017

South Korea's Gambling Law

Korea is one of a small number of countries in the world that differentiates Korean citizens and foreigners with regard to the legality of gambling via the gambling locale.  Casino gambling, for Koreans, is legally prohibited in all but one casino.  However, foreigners may gamble in a variety of casinos located in most major tourist cities.

Korean Gambling Law


Korean criminal law applies to Korean citizen throughout the world,  Thus, Korean citizen are, even, prohibited from gambling outside of Korea.  Prosecution, for overseas gambling by Koreans, sometimes occur, however, these prosecutions are, usually, part of a more substantial allegation against the individual.

The, only, exception, for Koreans, to the Gambling Laws is casino gambling at Kangwon Land.  The Special Act on the Assistance to Development of Abandoned Mines established the legal framework for the development of the Kangwon Land casino and the law and related laws allows Koreans to patronize this casino. The casino is in a remote area a few hours South of Seoul.

Foreigners, however, may gamble at any legally established casino in Korea.  The Tourism Promotion Law established the legal framework that has allowed the establishment of casinos throughout Korea for the use by, solely, foreigners.
  
Koreans have the opportunity, within Seoul and in many major cities, to gamble via lotteries, ToTo, horse racing, powerboat racing, and cycle racing only.

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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.  Sean 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.  Sean is known for his proactive New York-style street-market advice and his aggressive and non-conflicted advocacy.

Sean works with some of the leading retired judges, prosecutors and former government officials working in Korea.

Sean's profile may be found at: Sean C. Hayes

2/06/2017

Damages for Material Omissions in Franchise Disclosure Documents in South Korea

In April of 2015, the Supreme Court of Korea ruled that under Article 4; Article (9)(1); and Article 41(1) of  the prior version of the Fair Transactions in Franchise Business Act ("Franchise Act") damages may be obtained, from a franchisor, for all material omissions (Supreme Court 2014 DA 84824,84831, April 9, 2015).

Fair Trade Commission Lawyers KoreaDamages may be obtained under Article 37(2) of the Franchise Act of Korea and Article 56(1) of the Monopoly Regulation and Fair Trade Act of Korea for "material omissions."

The damages may include the cost of build-out, rental, franchise fees and even, in some cases, lost opportunity costs. The Fair Trade Commission may, additionally, impose a fine, even if no sales/profits, have accrued to the franchisor up to KRW 500,000,000 (c. USD 450,000).  Criminal penalties may, also, be imposed.

The opinion of the Korean Supreme Court clarifies what the Court will determine as "material."  The Court opined that if a franchisor fails to notify a prospective franchisee of a fact that could lead a franchisee not to invest in a franchise - the franchisor shall be deemed to have violated the Franchise Act of Korea and, thus, may be held liable for damages.

The Court noted it will look to "principles of experience," thus, allowing the possibility of a court appointed expert to opine if a reasonable franchisee would invest in the franchise if the alleged fact was not omitted from the Korean disclosure document.

It is best, in Korea, to err on the side of inclusion.  The most trivial may come back and bite. Disclosure of prior violations of the Franchise Act and Monopoly Regulation and Fair Trade Act; violations of law by management; prior cancellation of a franchise registration; and the nuts and bolts mandated in the States is required.

Please note that Korea has a disclosure requirement that requires a disclosure akin to what is found in the United States.  The Korean government, often, requires the modification of Master Franchise Agreements, Master License Agreements and Franchise Agreements based on interpretations of the Franchise Act by the Fair Trade Commission of Korea.  Thus, making it, often, necessary for more time to register a franchise than what is, typical, in the United States.

Plan ahead and, only, hire an attorney with foreign and domestic experience in franchising.  Because of Korean-specific realities, have an experienced and still active retired judge as an active part of the team.

For more information on Korean Franchise Law, please search via the search box to the right or click on the Franchise Law label.  We will be adding more Korean Franchise Law topics over the next few weeks.

The Korean Fair Trade Commission's website may be found at: KFTC.  The Korean Supreme Court's website may be found at: Supreme Court of Korea.
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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.

Sean's profile may be found at: Sean C. Hayes

1/26/2017

Happy Lunar New Year from IPG Legal


We in Korea will be having a four day holiday to celebrate Lunar New Year.  Happy New Year to all our Korean friends.

We would, also, like to wish a Happy New Year to all of our Chinese friends.  Have a wonderful Lunar New Year!

Sean Hayes may be contacted at: SeanHayes@ipglegal.com.  Sean 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.  Sean is known for his proactive New York-style street-market advice and his aggressive and non-conflicted advocacy.  Sean works with some of the leading retired judges, prosecutors and former government officials working in Korea.

Sean's profile may be found at: Sean C. Hayes