Antitrust Alert: Korea Fair Trade Commission Announces Focus on Perceived Antitrust Abuses of Intellectual Property by IT and Pharmaceutical Companies

On December 18, 2008, the primary competition law agency of Korea, the Korea Fair Trade Commission ("KFTC"), submitted to the President of Korea the KFTC’s business plan for 2009. Among other priorities, the KFTC stated that it plans to "strengthen enforcement against abuse of intellectual property rights by global companies in the IT, pharmaceutical, and other new technology industries." It specifically states that the KFTC will "focus on monitoring conduct [of such global companies] that would restrain business activity of another company by abusing their patent rights, thereby, for example, (1) interfering with new entry by such company or (2) coercing such company to purchase raw materials [from them or their designees]."

This initiative follows the KFTC's high profile enforcement actions against Qualcomm, Microsoft, and Intel for allegedly anticompetitive licensing, bundling and rebate practices relating to IT patents and products licensed and sold in Korea. The KFTC focus on the pharmaceutical industry seems to echo the European Commission's current inquiry into competition in that sector. In a preliminary report issued in November 2008, the EC found "evidence that [sellers and licensees of brand name pharmaceutical products] have engaged in practices with the objective of delaying or blocking market entry of competing medicines.” (See Jones Day Antitrust Alert, "European Commission Issues Preliminary Report on Pharmaceutical Sector Inquiry" (December 2008).

Companies selling IT and pharmaceutical products in Korea or licensing patents in those fields in Korean markets should be familiar with recent developments: the relevant recent enforcement actions of the KFTC, the applicable provisions of the Korea Monopoly Regulation and Fair Trade Act ("MARFTA"), and Guidelines promulgated under MARFTA, in particular the Guideline for Review of the Abuse of a Market Dominant Position ("Dominance Guideline") and the Guideline for Review of Unfair Trade Practices ("Unfair Trade Practices Guideline").

In particular, it should be noted that Korean antitrust law regards a reduction in the number of competitors as a "competition restricting effect" which in turn constitutes a "hindering" of fair trade, which is one of the statutory criteria for judging whether conduct violates the prohibition of unfair business practices in MARFTA Article 23. This explicit concern for preservation of the number of competitors in a market contrasts with U.S. antitrust approach, which focuses on the effect of competitive conduct on consumer welfare, including prices and output. As such, conduct that may tend to drive competitors from a market, or to exclude potential competitors from entering a market, even if considered procompetitive under U.S. antitrust law, may run afoul of Korean law. In light of the KFTC's avowed focus on competitive conduct in the IT and pharmaceutical sectors, companies in these industries should consider carefully the effects of the terms of sales and licensing transactions involving the Korean markets, including the effects on actual and potential competitors.

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