6/30/2016

Termination of a Franchise Agreement in Korea: Korean Franchise Law Basics

The Fair Franchising Transactions Act of Korea ("Franchise Act") and its Enforcement/Presidential Decree, the Commercial Law of Korea and the Korea Franchise Promotion Act are the main bodies of law regulating the relationship between franchisors and franchisees in Korea.  The law is enforced by the Korea Fair Trade Commission and the Korean courts.
terminating a franchise in korea
Franchise Termination in Korea

Korea's Franchise Act, facially, limits the power of the franchisor to terminate a franchise.  The Franchise Act notes that:
"Article 14 of the Franchise Act of Korea
(1) Any franchisor that intends to terminate a franchise agreement shall clearly note the franchisee's breach of the agreement during a grace period of not less than two months and shall give written notice at least twice that it will terminate the agreement unless such breach is corrected during the given period: Provided, that the foregoing shall not apply to cases specified by Presidential Decree . . ..
(2) The termination of a franchise agreement without complying with the procedure under paragraph (1) shall have no effect."
The major published disputes, with regard to Article 14 of the Franchise Act of Korea, relates to the seriousness of the alleged breach alleged by the franchisor, whether the breach was corrected and the intent of the franchisor in terminating.  Because of many perceived abuses by franchisors, the Fair Trade Commission of Korea has been active in fining franchisors for these perceived abuses and the courts have deemed some terminations as ineffective under Article 14(2) of the Franchise Act.

Article 15 of the Presidential Decree/Enforcement Decree to the Franchise Act stipulates certain exceptions to the "grace period/cure period" noted in Article 14 of the Franchise Act of Korea.

The exceptions include:
  1. Franchisee Bankruptcy, insolvency, or corporate reorganization;
  2. Franchisee bounced promissory note;
  3. Franchisee's Force Majeure;
  4. Franchisor business is damaged because of dissemination of malicious lies or the leak of trade secrets by the franchisee;
  5. Franchisee's violation of law in relation to operation of the franchised business that is not rectified;
  6. Franchisee's violation of law in relation to operation of the franchised business that is impossible to rectify;
  7. Repeated violation of legal franchisor demands by the franchisee;
  8. Franchisee operates the franchise in a manner that gives rise to an imminent fear to public health or safety;
  9. Franchisee abandons the franchise business; and
  10. Franchisee is convicted of a crime related to operation of the franchise business. 
Terminating a Franchise is not easy in Korea.  Few attorneys, in Korea, are adept at Korea's franchising law and even fewer lawyers understand the business-side of franchising.  Franchising is a true specialty in Korea that few attorneys know much about.   Get a Korean franchise lawyer that is business savvy prior to even consider terminating a franchise in Korea.  This lawyer, because of Korean realities, should be working with an experienced retired senior judge, since many of these cases end up in court.  The ubiquitous firms are not always the answer and not, always, the best at resolving matters in a proactive and non-conflicted manner.
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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

A "Franchise" Defined under Korean Law: Franchise Law Basics

Franchise Law in Korea
Korea Franchise Law 

Korea has a very broad definition for a "franchise."  The definition of a franchise is noted in Korea's Franchise Act and has been fairly consistently applied by the courts and Korea's Fair Trade Commission.  

Korea's Franchise Act defines a franchise as:
"a continuous business relationship in which the franchisor allows the franchisee to sell goods or services under certain quality standards and business method using its trademarks, service marks, trade name, signs and other business marks ("Business Marks") and supports, educates and controls the franchisee with regard to relevant management and operating activities, and in which the franchisee must pay franchise fees to the franchisor in return for the use of the Business Marks and the support and education concerning the management and operating activities." 
This broad definition of a Korean franchise leads to most relationships where a company owning Business Mark maintains a degree of "control" over another company as a franchise relationship when a fee is charged for the use of the Business Mark.  The definition has been interpreted broadly by the courts and the Fair Trade Commission of Korea.

All franchises, in Korea, must be registered with the Korean Fair Trade Commission.  Ramifications for not registering may be severe.  Register your franchise and obtain a great business-savvy franchise agreement.

Prior to licensing your trademark to any individuals in Korea, please consider whether your relationship with the licensee is, actually, a franchise relationship.  Operating under a "license agreement" does not guarantee that the relationship is a mere license relationship.   Korea considers the reality of the relationship over the mere form of the agreement.

Please note that few lawyers, in Korea, are adept at franchise law.  Franchise law is a true specialty in Korea that requires a deep understanding of franchise jurisprudence in Korea and a working relationship with Korea's Fair Trade Commission.
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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

Entering into a Joint Venture/Partnership in South Korea?

One of the major parts of my law practice for international clients, in Korea, is the structuring of joint ventures and the resolution of joint venture disputes in court and through arbitration.  I find, in most of these cases, the non-Korean party is not in need of a joint venture with a a Korean party to succeed in Korea and the Korean party does not realize or has no intent in satisfying obligations under the joint venture agreements.  The parties are commencing a relationship, thus, with an immediate potential for failure.

Thus, many disputes are caused by the realization by the non-Korean party that he/she doesn't need the Korean party and the realization by the non-Korean party that the Korean party had no intent, at signing, in following the joint venture agreement.  

Do You Need a Korean Joint Venture to Succeed in Korea?

We find that a joint venture is, normally, only successful in a few situations.  The following are the major situations that we encounter that tend to make sense for both parties.
  1. The Korean party has instant access to a proven distribution network (retail outlets) or supply chain and the non-Korean has a product that easily fits into this supply chain.   Often this, however, is best addressed through a distribution/license agreement and, not, a joint venture agreement, but in some cases the joint venture makes sense.  Be careful, often a joint venture is not necessary and changed circumstances can kill the relationship.
  2. The industry is an industry closed to foreigners (few industries in Korea as closed to foreigners - ie. publishing) and the Korean party needs the expertise or money of the non-Korean party in order to succeed in the industry.  Be careful, needs often quickly change and, often, these industries are heavily regulated and, often, lead into a money pit that you will never dig anything out of.   Knowing the governor does not mean that you will receive government support.  Everyone in Korea has contacts, however, few are able to capitalize on these contacts, thus, don't be sold a can of hooks.
  3. The non-Korean party is broke and, thus, unable to commercialize an invention and the Korean party is in need of a new product line or has spare manufacturing capacity.   Be careful, the learning curve may not be as great as you think and you may not be needed for too long.
  4. The industry is a niche industry with only a handful of players and the non-Korean can receive instant access to one of the main players through the joint venture and the Korean is able to gain access to the technology through the joint venture.  Typically, this is a joint venture between a Korean conglomerate (chaebol) and a multinational company.  Often these relationships are fleeting and lead us to many hours in arbitration.   
If you have money, have the expertise in doing business in Korea (or can hire experts), are not in a  regulated industry, carefully consider the market, have a local guide and are not in a need of joint venture because of the nature of the business - forgo the risk of a joint venture and hit road in Korea on your own. 

Other articles that may be of interest;
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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean Hayes is co-chair of the Korea Practice Team for one of the leading international law firms. He is the only non-Korean to have worked as an attorney for the Korean court system (Constitutional Court of Korea).

Internship Available at Law Firm in Seoul, Korea

We are looking for a dedicated intern that will work either P/T or F/T.  We are paying a decent stipend.

Requirements

  • College Student or Recent Grad.
  • Ability to communicate in English.
  • Tech Savvy.
  • Ability to commit to working for three months.  
  • Ability to work with a team of Korean and American lawyers.
  • Fun atmosphere and you will get real work assignments.  
  • You will not be doing legal work. Most assignments with relate to marketing and PR.  

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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

6/26/2016

Korean Lawyers Support Class Action Lawsuits and Punitive Damage

According to a recent survey conducted by the Seoul Bar Association, most Korean lawyers are in favor of amendments to Korean law to allow for the award of punitive damages by Korean courts. Of the 1545 respondents who participated in the survey, 92% (1417) were of the opinion that the Korean legal system ought to provide for the ordering of punitive damages.

In many overseas jurisdictions, including the United States, England & Wales, Australia, and New Zealand, punitive damages – otherwise known as “exemplary damages” – may be ordered by a court where compensatory damages are deemed an inadequate remedy. Awarded only in special, or highly exceptional cases – cases usually involving negligence where the defendant has acted intentionally or with subjective recklessness – the imposing of punitive damages is intended to send a strong message, designed to both punish the defendant and deter others from engaging in similar conduct.

Thus, in principle, punitive damages are an exception to the rule that damages are to compensate rather than to punish or generate a windfall for a plaintiff that is unrelated to the damage or injury actually suffered by the plaintiff.

It is of no coincidence that the Seoul Bar Association survey comes at a time of ongoing high-profile corporation investigations in Korea, such as the Oxy Reckitt Benckiser Korea toxic humidifier probe, and investigation into Japanese automaker Nissan Korea’s alleged emission fraud.

According to the Korea Bizwire report on the findings of the Seoul Bar Association survey, of those lawyers in favor of an introduction of punitive damages into the Korean legal system, 56 percent (792) were of the view that punitive damages should be implemented only “as a form of a special law, exclusive to corporate environmental abuses and defective products” whilst 39 percent (546) consider that punitive damages should be implemented “for all areas of damages.”

The survey, also, found widespread support by Korean lawyers for development of Korean law to allow for consumer class action lawsuits. Currently, the Korean legal system provides, under its Consumer Act, only for the bringing of a legal action by a qualified consumer group or organisation, against a company – not for the bringing of such a claim directly by claimants.
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info@ipglegal.com

6/23/2016

Korea Increases Penalties For Data Breach and Unauthorized Transfer of Data: Korea Communications Commission

In March 2016 Korea made amendments to its Act on the Promotion of Information & Communications Network Utilization and Information Protection (“Act”). The purpose of the Act is to both facilitate the utilization of information and communications networks and regulate for the protection of personal information including that of users of online service providers.  “Online service provider” includes any commercial website operator or telecommunications service provider; and “user” is defined as any person that uses the information and communications services of an online service provider.
Privacy law, Korea Communication Commission, Korea

The Act covers the collection, storage, use, processing, provision, destruction and similar disposition of personal information. The Act applies to Korean online service provider companies and, though the Act does not specify, may apply to foreign companies.

In determining whether the Act will apply in the case of a foreign website operator, the Korea Communications Commission (KCC) would likely consider factors including the location of the website’s server, whether the website is written in the Korean language or uses a Korean domain, or whether the operator conducts promotional activities in Korea.  In January 2014, the KCC fined multinational corporation Google 212 million Korean won (approximately US$200,000) for collecting Korean users’ personal information without properly obtaining their consent. This was the first time that the KCC had imposed an administrative sanction against a foreign corporation for violation of Korean personal information protection law.

The amendments, which will take effect on 23 September 2016, further enhance accountability for data protection as well as increase sanctions for data breach or unauthorised transfer of personal data. Sanctions will be increased to three times the actual damage suffered by customers in the event of a data breach; and in the event that a company does not obtain the necessary prior consent for transfer of personal information abroad, a statutory fine of up to 3% of revenue generated from its use will be imposed – up from 1%.  Criminal sanction may, also, be imposed.

In light of the stringent penalties soon to come into effect, it would be advisable for online service providers both in Korea, and with a connection to Korea, to exercise particular vigilance in their data protection compliance practices.
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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

6/09/2016

Will McDonald's Korea Franchise in Korea?

In early April this year, chief executive and president of McDonald’s, Steve Easterbrook, announced that the company was seeking a “strategic partner” in Korea, as part of the company’s implementation of a “global turnaround strategy.”  A report on the announcement can be found at: McDonald's seeks strategic partner in Korea.

At the time, the company did not elaborate as to what exactly was meant by “strategic partner” though McDonald's did say that the company was “open to all possibilities” including a master franchise or joint ventures with local enterprises.  The company commented that of the 119 countries in which McDonald’s operates, 60 percent are executing various forms of strategic management structures including franchises or joint ventures.  For the duration of its almost 30 years in Korea, McDonald’s Korea has been managed directly by headquarters in the United States.

A few days after the initial report, it was reported in the Korea Times, a local English-language newspaper in Korea, that McDonald’s is planning to close its directly-managed stores in not only Korea, but also Japan and Taiwan, and turn these stores into franchise outlets.

Industry analysts speculate that recent slow sales in the region may have forced the company to sell their directly-managed stores as a form of “exit strategy.”  A McDonald's official has, however, said that the company’s shift to a franchise business is simply “a readjustment in its operation,” as its Korean business “has entered a stabilizing stage,” adding that the company still believes that “Asia is the market with greatest growth potential.”

We will update the reader when more is known.
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info@ipglegal.com

6/08/2016

Korean Currency Control Laws Revised: Korea Won - Yuan

Yonhap News, a Korean-language wire service, reported today that the South Korean government has revised currency control law in order to allow the direct trade of South Korean Won and Yuan.   The Korean Government is expecting this move will increase trade, while allowing the diversification of foreign currency holdings.

Yonhap notes, in part, that:
"The [M]inistry [of Strategy & Finance] said South Korea's Hana Bank and Woori Bank have been designated as the clearing banks to take charge of won-yuan settlements and payments. The Chinese won-yuan exchange market is scheduled to start operating in June in Shanghai, a follow-up to a summit meeting between South Korean President Park Geun-hye and her Chinese counterpart Xi Jinping in October 2015. The direct trade market in Seoul was already opened in December 2014, with its daily turnover reaching an average of $2.26 billion as of end-November last year."
We will be writing, over the next couple of week about revisions to Korea's Currency Control Laws. Please check back to blog.

Other articles that may be of interest to the reader:
The full article may be found at: S. Korea Lifts Hurdles to won-yuan direct trade 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