3/30/2015

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.  
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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.

3/29/2015

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.
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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.

3/27/2015

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.
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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.

3/24/2015

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.

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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

3/23/2015

Searching Trademark & Service Marks in Korea: Register your Trademarks/Service Marks Prior to Doing Business in Korea

Prior to marketing products, services or a business in Korea do a thorough search for like trademarks/service marks in Korea, then, have your trademarks/service marks registered in Korea - if you don't want the added cost of litigating a matter at a Korean court.  If you have patents, don't forget to, also, register your patents and other intellectual property.

Korean Trademark Search Attorney
Your U.S. and E.U. trademark, service mark and patent filings are not enough. These "international filings" only gives you a grace period to file outside of these jurisdictions. 

The Korea Intellectual Property Organization has a website, in English, that has a decent search system.  Regrettably, not all of the information on the site is in English.  This search is not the end of the matter.  You should, obviously, also hire a professional to assist.

Upon filing, also, make sure you develop at strategy to protect your Intellectual Property.  Your strategy should, include, at a minimum:
  1. Comprehensive Intellectual Property Audit. 
    Audit all your intellectual property including your patents, trademarks, servicemarks, books, manuals, videos, software, know-how, and trade secrets.  The purpose of this IP Audit is to determine if all of your IP is registered and properly safeguarded.  This is discussed more at: Protecting Your Intellectual Property in Korea.
  2. Educate Korean Customs
    A few professionals in Korea, including professionals at IPG, do presentations to Customs informing Korean Customs of how to spot counterfeit products.
  3. Engage Actively Customs and the Prosecution
    If you are not on-the-ground in Korea, get a local company to assist.
  4.  Draft a Comprehensive Intellectual Property Protection Plans.
     If you don't have an IP department or have a IP department that is not up to the task in your  company the inexpensive way to do this is to outsource the work.  Please consult with your in house attorney or a private attorney.

  5. Track Importers of Counterfeit Products into Korea
    The Prosecution, generally, does a decent job.  However, often it is advisable to employ a professional to obtain the necessary information and present the information to the Prosecution and Customs.
  6. Actively Engage your Sales Channels
    So much information can be garnered from those that are competing against counterfeiters and pirates. 
  7. Integrate the Office Outside Korea with the Korean entity. 
    All too often a Korean branch is totally out of the loop and hence unaware of developments at the home office.
  8. Trade Secrets Matter. 
    I wrote an article on protecting trade secrets in Korea that may be found at: Protecting your Trade Secrets in Korea: Top 5 Things to Know Before Subjecting your Business to the Korean Market.
  9. Search the Internet, Government Databases and Portals to Find Violators of Your IP. Get someone to do this, at least, on a monthly basis. 
  10. Get Professional Assistance
    Speaks for itself.

The Korea Intellectual Property Trademark/Service Mark search may be found at: Korea Intellectual Property Rights Information Service.
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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.

3/20/2015

Capturing Chinese Tourist Money in Korea: Retail Opportunities in Korea

The NPR blog has an interesting article on the frenzy to learn Chinese by Koreans in order to satisfy the hoards of Chinese tourists entering the Korean market.  These young students and their future employers are capturing the Chinese tourist business via understanding the unique buying characteristic of Chinese tourists and, also, learning their language.  The article notes that the major reason for Chinese tourist visiting Korea is shopping.

Chinese Tourist MoneyThis recent development has, also, benefited many foreign brands doing business in Korea.  Prices, in Korea, are, in many cases, substantially cheaper than prices paid for products in China and even Hong Kong. 
Additionally,  Chinese tourist, overall, believe Korean products are of a higher quality than Chinese products and that products bought in Korea are not counterfeit.

Opportunities abound for those in retail.  Some of the greatest opportunities are in handbags, cosmetics, shoes and in the fast-casual brand market.  The major Korean and foreign brands are all benefiting, in Korea, from this modern phenomenon .

The Chinese have been known to congregate in the Myeong Dong area of Seoul, however, you can, often, find Chinese tourists in Itaewon, Gangnam, Karasu-gil, Chogno3-ga and even in major cities outside of Seoul, thus, the opportunities are not, only, in high-price rent districts. 

The article sheds more light on the issue.  The article notes, in part, that:
"Perhaps nowhere is the growth of the Chinese middle-class more visible than at top tourist destinations, which these days are teeming with Chinese travelers. The Chinese are traveling abroad in numbers never seen before, and it's felt strongly in South Korea, which finds itself scrambling to keep up with an estimated 4 million Chinese tourists a year. In Myeongdong, Seoul's bustling, pedestrian-only main street for shopping, the common sounds you hear — besides blaring pop music from storefronts — are of a language foreign to Koreans: Mandarin Chinese. A number of Chinese tourists say they're from Hangzhou, in southeastern China, and that they came to Korea for one main reason. "Shopping. Shopping," says tourist Li Li-jun."
The full article may be found at: The Chinese Tourist Boom
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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.

3/19/2015

Korea's Medical Devices Act Amendment: Monetary and Monetary-Like Benefits to Healthcare Workers

The Korean government is fighting the pervasive practice of rewarding doctors and other healthcare providers for utilizing the products of medical device and pharmaceutical companies.  A passive quid pro quo has led, in the eyes of many in the Korean government, to an industry that is dominated by a few players (most of which are noted foreign players).

The Korean Medical Devices Act and clarifying rules prohibit manufacturers and importers from providing monetary or monetary-like benefits in all forms but those explicitly listed under the amended Maintenance of Order from Distribution and Sale of Medical Devices Rule ("Medical Devices Rule" or "Rule").  The amended rule came into force in January of 2015.

This Medical Devices Rule covers all types of monetary and monetary-like compensation except for certain specified benefits including: sample, funding of clinical trials, post-market surveillance and support for presentations.

The salient parts of this convoluted Rule is as follows:

Samples
The prior Rule allowed the distribution of unit samples.  The prior Rule was criticized, since it is, often, not practicable to give to a healthcare provider a free sample in the case of a medical device. Imagine a medical device company giving away an MRI machine.  Thus, with industry input, the Rule was amended to allow the free use of a medical devices for one month prior to purchase.

Post-Market Surveillance
The prior Rule allowed for the funding of Post-Market Surveillance by medical device companies, however, the Rule limited the number of case reports to the number required to be submitted under the Enforcement Degree of the Medical Devices Act.  The limit caused the lack of funds, in many cases, for necessary re-examinations.

The amended Rule, now, allows for the funding of additional case reports in certain limited cases.

Overseas Product Demonstrations
The prior Rule attempted to keep importers out of the quid pro quo game by, only, allowing importers of medical devices to provide monetary or monetary-like benefits to those attending training programs that may improve their skills in the usage of medical devices.  The scope of acceptable benefits under the old Rule was very limited.

The new Rule expands the scope of acceptable practices and expands, potentially, the allowed benefits.

Overall, the revisions, for the medical device community, was warmly welcomed.  However, the increased enforcement over the part few years has not.  We will update the reader when more information on enforcements under this amended Rule become available.

*You may subscribe to The Korean Law Blog via the SUBSCRIBE link at the very top of this page.

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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.