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NewsletterA Quarterly Update of Legal Developments in Korea

NEWSUPDATES

CORPORATE

National Pension Service Adopts the Stewardship Code

ANTITRUST & COMPETITION

Amended Organizational Regulation Likely to Strengthen the KFTC’s Enforcement Efforts Regarding Unfair Trade Practices for Small Businesses in Distribution Arrangements

BANKING

Improvements to Regulations on Internet-Only Banks

SECURITIES

Proposed Amendment to Ease Regulations on Private Equity Funds

INSURANCE

Employment Insurance Commission Announces Unemployment Insurance Obligation for “Special Type Workers,” Including Insurance Agents

Fair Trade Law Amended, Allowing Punitive Damages in Damages Litigation Against Cartels and Retaliatory Conduct

Proposed Amendment to the Environmental Health Act Stipulates Treble Damages for Harm Caused by Environmental Pollution

Network Act Now Requires Global Companies to Appoint Local Representative

Kim & Chang Advises SK Telecom and Macquarie in the Acquisition of ADT Caps from Carlyle for Nearly KRW 3 Trillion, Creating New Market Synergies

Kim & Chang Advises Hoban Construction Housing in the Acquisition of Resom Resort under Rehabilitation Proceeding, Involving Some 10,000 Resort Members

Kim & Chang Advises Pearl Abyss in Acquiring the Icelandic Video Game Developer, CCP Games, Most Known for Its Popular “Eve Online” Game

Samsung Fire and Samsung Electro-Mechanics Sell Their Stake in Samsung C&T in a Block Deal to Improve Corporate Governance

Supreme Court Rules That Policies of Three Major Mobile Carriers to Provide Sales Incentives Was Not an Act Inducing Distributors to Pay Unfair Discriminatory Subsidies to iPhone Users

Kim & Chang Advises MKIF in the First-of-Its-Kind Dispute in Korea over Managerial Control Against a Collective Investment Vehicle

MBK Partners Sells Its Majority Interest in Orange Life

Supreme Court Sets Precedent on the Scope of Certain Financial Services from VAT Exemption

“Centropolis” Sold for the Highest Ever Purchase Price Paid for an Office Building in Korea

December 2018, Issue 4

SELECTED REPRESENTATIONS

Newsletter

TAX

Proposed Amendment Introduces Instances to Treat Overseas Investment Vehicles as Beneficial Owners of Korea Source Income

REAL ESTATE

Amended Commercial Lease Protection Act Goes into Effect, Increasing Lease Protection Period to Ten Years

LABOR & EMPLOYMENT

Government Announces “Anti-Bullying Action Plan” to Address Workplace Harassment

Supreme Court Decisions Establish a Standard for Calculating Hourly Wage to Determine Potential Minimum Wage Violations

INTELLECTUAL PROPERTY

Korea Adopts Treble Damages for Patent Infringement and Trade Secret Misappropriation Beginning July 9, 2019

ENVIRONMENT

Amendment to the Atmospheric Environment Conservation Act Proposes to Strengthen Regulations on Air Pollutants

National Assembly Enacts Special Act on Fine Dust Abatement and Management

INTERNATIONAL ARBITRATION & CROSS-BORDER LITIGATION

Hong Kong International Arbitration Centre Amends Its HKIAC Administered Arbitration Rules

UPDATES (Continued) NEWS (Continued)

Only-Ranked Korean Law Firm for Fifth Consecutive Year – The American Lawyer’s Global 100 (2018)

Highest Ranking Korean Firm in the Asia-Pacific Region – The American Lawyer’s Asia 50 (2018)

Winner of Six Consecutive “Korea Law Firm of the Year” Titles – ALB Korea Law Awards 2018

For Fourth Consecutive Year, “National Law Firm of the Year - South Korea” – Asialaw and Benchmark Litigation Dispute Resolution Awards 2018

Top Tier Across the Board for 15 Consecutive Years – IFLR1000 (2019)

Again the Only Korean Law Firm Given Highest Ranking in All 24 Categories Ranked – Asialaw Profiles 2019

Again Ranked in the Top Tier in South Korea – ALB M&A Rankings 2018

AWARDS & RANKINGS

Kim & Chang Committee for Social Contribution Helps Achieve New Guinness World Record and Shares Kimchi with the Local Community

PRO BONO

Supreme Court Overrules Lower Tribunal to Recognize that a Patent for a Sustained Release Pharmaceutical Composition Satisfies the Description Requirements

Government Approvals Obtained for Sale of D’Live’s Seocho SO Business

December 2018, Issue 4 l 3

On August 30, 2018, Korea ’s National Assembly passed an amendment to create a statutory basis in the Monopoly Regulation and Fair Trade Law (“FTL”) to allow punitive damages in civil lawsuits against cartels and retaliatory conduct.

Generally:

The amendment also gives the Korea Fair Trade Commission (“KFTC”) an authority to request dispute mediation.

The amended FTL, except for the punitive damage provision, will take effect on March 19, 2019. The punitive damage provision of the amended FTL will take effect on September 19, 2019.

The amended FTL addresses the previous FTL’s lack of sufficient recovery scheme for damages suffered by the general public due to cartel and retaliatory conducts. The previous FTL was criticized for its heavy focus on administrative sanctions that could be imposed by the KFTC while neglecting recovery of damages suffered by the public due to violations. Substantial damage recovery was further limited under the previous FTL, because the KFTC was not able to apply for dispute mediation.

Key Aspects of the Amendment / Significance:

1. Punitive damages against cartels and retaliatory conduct allowed

The amended FTL provides that enterprises can be liable for damages up to three times the actual damages to the plaintiffs who were harmed by: (i) cartels; and (ii) retaliatory conduct for filing a complaint against the enterprises with the KFTC.

Punitive damages will not be imposed for leniency applicants. Instead, leniency applicants will be jointly and severally liable with other cartel participants up to the actual damages suffered by the plaintiffs.

Additionally, the KFTC separately announced a proposed bill to completely overhaul the FTL amendment, in which the KFTC’s exclusive right to make criminal referrals will be abolished for hardcore cartels (such as price fixing or bid rigging cartels), allowing prosecutors to initiate criminal investigation and indictment against hardcore cartels without a prior KFTC referral. The proposed bill was recently approved at the cabinet meeting.

Significance: Given these developments, we expect the criminal and civil enforcement actions against cartels will become more frequent and will likely involve greater monetary exposure. At the same time, the amendment reduces the liability for leniency applicants whose civil liability will be capped at the actual damages. Therefore, companies who are considering leniency application should seek expert advice to minimize civil liability.

2. The KFTC official authority to request dispute mediation granted

The amended FTL creates a statutory basis for the KFTC’s authority to request the Korea Fair Trade Mediation Agency (“KOFAIR”) to mediate a dispute. As such, the KFTC will be able to refer cases that do not warrant investigations to KOFAIR for mediation.

Significance: As the amendment wil l expand companies ’ exposure against civil l iability for damages, companies facing disputes should prepare appropriate response strategies to minimize the risks.


By Sung Eyup Park ([email protected]) and Wooju Lee ([email protected])

Fair Trade Law Amended, Allowing Punitive Damages in Damages Litigation Against Cartels and Retaliatory Conduct

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ENVIRONMENT

By Yoon Jeong Lee ([email protected]) and Hyeongjun Hwang ([email protected])

Proposed Amendment to the Environmental Health Act Stipulates Treble Damages for Harm Caused by Environmental Pollution

On October 5, 2018, the Ministry of Environment announced a public notice of a proposed amendment to the Presidential Decree of Act on Resource Circulation of Electrical and Electronic Equipment and Vehicles (“RCEEV”) to broaden the scope of products subject to recycling obligations.

The provision on the scope of electrical/electronic products and products subject to recycling and collection, and the provision on the expansion of restricted hazardous substances are expected to become effective on January 1, 2020 and July 22, 2019, respectively.

Key Aspects:

■ The scope of electrical/electronic products and products subject to recycling and collection, for which the use of hazardous substances is restricted, has been expanded from 26 products to 49 products. The additional products subject to restriction include daily commodities such as dehumidifiers, toasters, electric kettles, electric water heaters, and hair dryers.

■ The scope of hazardous substances, whose use is restricted when used with electrical/electronic products, has also expanded from five substances to nine substances. Di-EthylHexyl Phthalate (DEHP), Benzyl butyl phthalate (BBP), Dibutyl phthalate (DBP), and Diisobutyl phthalate (DIBP) were added to the existing list, which includes lead and mercury.

Significance

Once the proposed amendment is enacted, the scope of the RCEEV will be significantly expanded and associated obligations will be heightened. Therefore, businesses that manufacture, import or sell electrical/electronic products should check whether their products fall under the newly added 23 products, and whether any of the newly restricted hazardous substances are being used.


Network Act Now Requires Global Companies to Appoint Local Representative

On September 18, 2018, the National Assembly passed a bill to amend the Act on the Promotion of the Use of the Information Network and Information Protection (the

“Network Act”). The amended Network Act will become effective on March 19, 2019.

The amended Network Act establishes several new requirements and obligations, including the obligation of certain global business operators to designate a local representative, and a consent requirement for re-transfer of personal information overseas.

Key Aspects:

1. Global business operators obligated to designate a local representative

Under the amended Network Act, online service providers (“OSPs”) having no address or place of business in Korea, but meeting certain thresholds are required to designate a local representative in Korea.

The local representative must be designated in writing, and upon designation, information about the local representative (e.g., the local representative’s name and his/her telephone number) must be disclosed in the company’s privacy policy.

The local representative’s responsibilities include responsibilities of the chief privacy officer, such as handling user complaints, notification and report on personal information leakage, explanation of delay in reporting, and submission of materials required by the regulatory authorities.

Violation of the Network Act by the local representative will be deemed as the OSP’s violation.

2. Consent required for re-transfer of personal information overseas

The amended Network Act requires privacy and data protection regulations governing overseas transfer of personal information to apply to re-transfer of personal information overseas. Accordingly, a business operator who intends to re-transfer the personal information that had already been transferred overseas, must now obtain separate consent that is identical to the consent for the initial overseas transfer, and the re-recipient must take protective measures as required under the Network Act for the initial overseas transfer.

However, like the initial overseas transfer of personal information, if the re-transfer takes the form of re-delegation of personal information processing, or if the re-transfer involves change of storage location, the company can be exempt from the (separate) consent requirement, in accordance with the Network Act.

Significance:

When the amended Network Act comes into force, global business operators with no place of business in Korea are expected to more frequently receive a user’s request for withdrawal of consent to personal information processing, request for access, and request for correction.

The regulatory authorities are also expected to request materials from the global business operators more frequently.

The scope of global business operators obliged to designate a local representative will be determined later in the follow-up amendment to the Enforcement Decree of the Network Act, based on several factors, including the number of users and sales. Thus, it would be prudent to closely monitor how the regulatory authorities plan to amend the Enforcement Decree, as this may critically impact business operators subject to such an obligation.

TECHNOLOGY, MEDIA & TELECOMMUNICATIONS

By Dong-Shik Choi ([email protected]) and Wookil Kim ([email protected])

Newsletter

CORPORATE

National Pension Service Adopts the Stewardship Code

On July 30, 2018, the Fund Management Committee (“FMC”) of the National Pension Service of Korea (“NPS”) ratified the Principles on Stewardship of the NPS (the

“NPS Stewardship Code”).

In October 2018, the Special Committee of Stewardship (the “Stewardship Committee”), which will take charge of implementing the NPS Stewardship Code, launched its activities. The business community and the financial industry are keen to understand how this development will impact the corporate management environment.

Key Aspects:

1. Stewardship code primer

The NPS Stewardship Code is based on the model

“stewardship code” regarding fiduciary duties, and was first introduced by the Korea Corporate Governance Service (the “KCGS”) in December 2016 under the title, “Principles on Institutional Investors’ Fiduciary Duties.”

The purpose of the stewardship code is to guide institutional investors with equity holdings in listed companies (e.g., pension funds and asset managers) exercise their voting rights in accordance with the fiduciary duties expected of an asset manager. Since its introduction, around 70 institutional investors have adopted the stewardship code.

The stewardship code presents seven principles for institutional investors:

(1) Establish and disclose a fiduciary responsibility policy;

(2) Establish and disclose a conflicts of interest policy;(3) Periodically monitor investee companies;(4) Establish internal guidelines on stewardship

activities;(5) Establish and disclose a voting policy and voting

records;

(6) Periodically report on voting and stewardship activities; and

(7) Build up capabilities and expertise.

Institutional investors may adopt the stewardship code voluntarily, and have discretion to set the scope of its application. However, once an institutional investor adopts the code, it must provide justification in case of any non-compliance.

The KCGS is tasked with monitoring and disclosing the state of the adoption and implementation of the stewardship code periodically.

2. NPS’ plan for implementing the stewardship code

The NPS plans to implement the NPS Stewardship Code in steps, f irst l imiting the scope to its application to exercising NPS’ non-managerial rights as a shareholder (e.g., establishment of a dividend policy) in its investees to avoid excessive managerial intervention.

NPS will expand such scope to shareholder activities that are considered managerial (e.g., appointment/dismissal of executive officers and approval of M&A transactions) when the conditions are ripe. The NPS had expressed that it would engage in private discussions with select companies to recommend improvement of their dividend policies, and that the Stewardship Committee would determine the scope of advanced disclosure of NPS’ voting plans by the second half of 2018. The NPS also laid out specific plans for expanding the scope of shareholder activities in 2019 and 2020 as follows:

■ By 2019, the NPS will engage in private discussions with its portfolio companies to an expanded set of issues related to shareholder value, such as embezzlement, breach of fiduciary duty, and

By Jong Koo Park ([email protected]) and Seoyeon Lee ([email protected])


unlawful subsidy. The NPS will also establish general principles for the composition and operation of the board of directors of its portfolio entities.

■ By 2020, the NPS plans to engage in shareholder activities publicly (e.g., disclose names of problematic companies and issue public letters.), and to exercise veto rights against companies whose efforts to streamline their management and corporate procedures (which would have been raised in private discussions) fell short of NPS’ expectation.

NPS intends to exercise its shareholder’s right on a non-public basis, but will immediately publicize any action it takes if it could materially impact the corporate value of the investee.

Significance:

As more institutional investors adopt the stewardship code, it is expected that they will become increasingly

active in exercising their shareholders’ rights. Further, the amendment to the Enforcement Decree of the Financial Investment Services and Capital Markets Act will allow discretionary investment managers to exercise their voting right by proxy, and will likely induce the NPS to delegate its voting rights to the managers, possibly beginning in 2019.

In selecting such managers, the NPS will likely give priority to those who have adopted and implemented the NPS Stewardship Code dutifully. Such initiative is expected to encourage more institutional investors to show their commitment to the NPS Stewardship Code.

Accordingly, listed companies should prepare proactive measures to respond to more vibrant shareholder activities. Such preparations include preliminary monitoring of any changes in their shareholding ratios, and monitoring institutional investors on the adoption of the stewardship code and any exercise of voting rights.

Listed companies should also engage in proactive dialogue with their institutional investors.

The amended Organizational Regulation of the Korea Fair Trade Commission (the “Amended Regulation”) became effective on November 6, 2018.

The Amended Regulation is designed to establish a new division, the Distributor Transaction Division, which will

be headed by the Distribution Policy Officer, a newly created Director-General level position within the KFTC, and to reinforce manpower dedicated to monitoring and investigating unfair trade practices in the supplier-distributor field.


By Sung Eyup Park ([email protected]) and Wooju Lee ([email protected])

Amended Organizational Regulation Likely to Strengthen the KFTC’s Enforcement Efforts Regarding Unfair Trade Practices for Small Businesses in Distribution Arrangements

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Key Aspects of the Amended Regulation:

1. Investigations commenced on the KFTC’s own motion is expected to increase

Under the Amended Regulation, the Distributor Transaction Division will consist of nine officials, who will be solely dedicated to and responsible for enforcing the Fairness in Distributor Transactions Act (“FDTA”). Currently, the FDTA is enforced by the KFTC’s Anti-Monopoly Bureau.

With the creation of the Distributor Transactions Division, the KFTC’s ex officio initiative is expected to increase based on the whistleblowing system and increased written surveys.

The KFTC has already laid the legal foundation to enforce its policies relating to distribution arrangements, having amended the FDTA to make the FDTA applicable to agreements in place before the enforcement date of the FDTA. The KFTC has also set forth legal grounds to provide rewards to whistleblowers, and to undertake written surveys.

In addition, starting January 1, 2019, distributors can seek dispute resolution through the Distributor Dispute Mediation Council located in each city and province.

Also, on September 4, 2018, the KFTC announced the draft Notification on Specific Types and Standards of Unfair Trade Practices Prohibited under the FDTA (the “Notification”), which includes specific examples of each of the five types of unfair trade practices prohibited under the FDTA (previously open to public comment from September 4 to 27, 2018). Once the Notification is promulgated, the KFTC will be able to fully undertake its enforcement activities through the Distributor Transaction Division.

2. In its annual surveys, the KFTC is expected to focus on several major items

On May 24, 2018, by announcing the Measures to Eradicate Unfair Trade Practices in the Distribution Industry (the “Measures”), the KFTC has indicated that it will conduct annual industry surveys to identify business practices that require improvement, and accumulate information to use for its ex officio investigations.

Based on the KFTC’s model distribution agreements (food & beverages and apparel industries), the Notification and the Measures, the KFTC appears to view the following practices as problematic and requiring improvement in the distribution sector:

■ Unfavorable changes to payment conditions (e.g., sales incentives) during the term of the agreement;

■ Unfair prohibition or limitation imposed on product returns;

■ Imposition of excessive transaction costs; ■ Excessive allotment of expenses (e.g., promotional

expenses); ■ Unfair interference with business activities and

demands for store improvements; ■ Forced sales by means, such as false sales records

or bundling; and ■ Unilateral termination during term of the

agreement and unfair refusal to renew.

Potential Impact / Prospects for Policies and Enforcement on Distributor Transactions:

In light of the above changes, the KFTC is expected to pursue vigorous enforcement efforts in the distribution sector. As such, companies should assess the impact of the relevant policies, and consider making changes to existing distribution practices from a longer-term perspective, as well as having in place a concrete compliance system tailored to the company’s specific circumstances.


On September 20, 2018, during the Plenary Session of the National Assembly, the Act on Special Cases concerning the Incorporation and Management of Internet-only Banks (“Internet-only Bank Act”) was passed and is expected to take effect on January 17, 2019.

Also, on October 17, 2018, the Financial Services Commission (“FSC”) issued a pre-announcement of the proposed Enforcement Decree of the Internet-only Bank Act (the “Proposed Enforcement Decree”), which details specific regulations on matters concerning internet-only banks, such as their incorporation, shareholder composition, operation method, and other important issues.

Background:

Although K-Bank1 and Kakao Bank of Korea (“Kakao Bank”)2 are currently operating as Korea’s first internet-only banks, many have raised concerns that applying the Banking Act as it currently stands may impose fundamental barriers in building a foundation for the operation of internet-only banks, citing, among others, restrictions on innovative ICT companies from becoming major shareholders of internet-only banks.

To reso lve such systemic i ssues , a number of amendments to the Banking Act and new Special Acts were proposed, and as a result of such legislative efforts, the Internet-only Bank Act was enacted.

Internet-only Bank Act:

First, the Internet-only Bank Act has special provisions setting forth the maximum number of voting shares that a so-called “non-financial business operator” may hold.

The Banking Act allowed non-financial business operators to only hold up to 4% of voting shares and up to 10% if approved by the FSC; in the latter case, such a

shareholder was required to waive the right to exercise voting rights for any amount of shares owned in excess of 4%. However, upon the enactment of the Internet-only Bank Act, a non-financial business operator may hold up to a maximum of 34% of the voting shares in an internet-only bank, provided, that the approval of the FSC is obtained at each point in time when the non-financial business operator holds such voting shares in excess of 10%, 25%, and 33%.

It should also be noted that the Internet-only Bank Act limits the scope of non-financial business operators eligible for the above special provisions. Under the Proposed Enforcement Decree, a non-financial business operator is eligible to acquire more than 10% of the voting shares in an internet-only bank if the non-financial business operator is: (i) not a part of an enterprise group subject to limitations on mutual investment under the Monopoly Regulation and Fair Trade Act; or (ii) if it is a part of an enterprise group, the sum of the total assets of telecommunications business operators within such enterprise group accounts for 50% or more than that of the non-financial business operators of the enterprise group.

In connection with legislative discussions on whether internet-only banks must conduct all of their businesses via electronic financial transactions (i.e., an automated means of operation that wholly excludes any face-to-face interaction or communication with bank users), the Internet-only Bank Act stipulates that internet-only banks should, in principle, operate banking businesses via electronic financial transactions. The exceptions are those cases set forth in the Proposed Enforcement Decree as unavoidable circumstances for the protection and improved convenience of internet-only bank users (e.g., when it is unavoidable for the protection and convenience of disabled users and the elderly over the age of 65, or when it is difficult to complete the

BANKING

By Sang Hwan Lee ([email protected]) and Keun-Chul Song ([email protected])

Improvements to Regulations on Internet-Only Banks

1 K-Bank received its banking business license on December 14, 2016.2 Kakao Bank received its banking business license on April 5, 2017.

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financial transaction due to technical reasons, such as loss or malfunction of information communication devices).

Finally, to prevent side effects, such as collusion with large conglomerates, the Internet-only Bank Act lowers the barrier for non-financial business operators to participate in internet-only banking, while at the same time, establishing stricter restrictions on transactions with large shareholders than those with commercial banks, such as by: (i) prohibiting enterprises other than those small and middle-sized enterprises from taking out loans; or (ii) in principle, prohibiting credit extension to large shareholders or the acquisition of equity securities issued by large shareholders.

Significance:

Given that the enforcement of the Internet-only Bank Act would make it easier for innovative business entities to take a leading role in the operation of internet-only banks, we expect the proposed legislation to not only boost the growth engines of existing internet-only banks, but also facilitate the entry of new internet-only banks.

However, given that the review on acquisition of shares in excess of the 10% shareholding limit was previously based on the presumption that the shareholders are financial business operators, it would be necessary to monitor how financial regulators will take into account the unique features of non-financial business operators and prescribe the requirements to expand their review to also encompass non-financial business operators.

SECURITIES

Proposed Amendment to Ease Regulations on Private Equity Funds

By Sun Hun Song ([email protected]), Tae Han Yoon ([email protected]), and Sungjin Kim ([email protected])

On November 2, 2018, 15 National Assembly members submitted a bill proposing to amend the Financial Investment Services and Capital Markets Act (“FSCMA”) to relax regulations on private equity funds (“PEFs”).

The proposed amendment will unify the current two-track regulatory framework for PEFs that apply different requirements to “specialized investment-type” PEFs (i.e., hedge funds) and “management participation-type” PEFs. The proposal includes changes to relax the regulations on fund management and on “institutional investors PEFs,” and to increase the current investor number cap for PEFs.

These changes ref lect the demands within the industry to ease the PEF regulations in Korea to be more in line with global standards and to increase the competitiveness of domestic PEFs.

Key Proposed Changes:

1. Unified regulatory regime for PEFs

The proposed amendment will eliminate the current requirement for management participation type PEFs to have more than a 10% stake for management


participation, thereby unifying the current PEF regulation regime.

Under the amended FSCMA, PEFs will no longer be classified as specialized investment-type PEFs and management participation-type PEFs.

The regulations on investment management by PEFs will be unified as below:

■ The cur rent requ i rement for spec ia l i zed investment-type PEFs restricting exercise of voting rights for shares held by the PEF in excess of 10% will no longer apply.

■ The current requirements for management participation-type PEFs to do the following will no longer apply: (i) invest at least 50% of their capital in equity within two years from the capital contribution date; (ii) acquire at least 10% of shares; and (iii) hold acquired shares for at least six months.

■ The current prohibition of loans for management participation type PEFs will no longer apply.

2. Introduction of institutional investment PEFs

Instead of the previous two-track system, the proposed amendment introduces “institutional investor PEFs,” which funds exclusively from institutional investors, and will be subject to minimal regulation as compared to “general PEFs.”

The specific scope of institutional investors will be defined later through the subordinate regulations. Unde r t he new reg ime , t he management participation-type PEF will fall under the institutional investor PEF.

Additionally, the examinations of institutional investor PEFs by the regulatory authorities will be conducted from the perspective of stabilizing the financial markets, rather than investor protection, and only when necessary.

While it is unclear under the current regulation whether GPs a re inc luded in the scope of examination, the proposed amendment specifically includes GPs.

3. Increase of investor number cap from 49 to 100

The proposed amendment increases the number of investors permitted for PEFs from “49 persons or less” to “100 persons or less.”

4. Transitional measures

Under the proposed amendment, existing specialized investment-type PEFs will be converted into general PEFs, and management participation-type PEFs will be converted into institutional investor PEFs.

As such, existing management participation-type PEFs will be prohibited from receiving capital commitments from non-institutional investors from the enforcement date of the amendment.

Significance:

The unification of the two-track regime is expected to bring substantial changes to the PEF regulations in Korea. Hence, it is recommended that you closely monitor the legis lat ion status of the proposed amendment and the changes it may bring.

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INSURANCE

By Jae-hong Ahn ([email protected]), Hyun Wook Shin ([email protected]) and Il-Suk Lee ([email protected])

Employment Insurance Commission Announces Unemployment Insurance Obligation for “Special Type Workers,” Including Insurance Agents

On July 31, 2018, the Employment Insurance Commission announced that “special-type workers,” which encompass various types of non-conventional types of laborers, such as insurance solicitors, golf caddies, workbook tutors, and delivery service workers, would become eligible for unemployment benefits in a gradual step based on the specific type of employment and the need for unemployment protection.

However, details of coverage, such as the jobs that will first become eligible, the standard for calculating the amount of benefits, and the overall timeline for enforcement, have not yet been finalized.

Key Aspects:

Under the expanded coverage of the new unemployment insurance plan, special-type workers and their employers (like any other regular-type employee and his/her employer) are required to equally bear the cost of the unemployment insurance premium.

For instance, according to the published unemployment insurance premium rate for 2018, as the premium, an amount equivalent to 0.65% of the special type worker’s

annual remuneration will have to be contributed equally by each worker and his/her employer. Further, if there is more than one layer of subcontracts for a given project, the primary contractor is anticipated to apply for and withhold the insurance premium on behalf of its subcontractors and/or the special type workers that they hire.

Significance:

Accordingly, the labor costs for the companies that use special type workers are expected to increase due to their new obligation to pay additional insurance premium. Also, as unemployment benefits are paid to those who are unemployed against their will, legal disputes on how, and in what circumstances, the special type workers left their previous employment position are expected to increase.

This new system will most likely be implemented during the first half of 2019. As such, companies using special type workers, such as insurance solicitors, would need to pay special attention to their human resources management.


TAX

Proposed Amendment Introduces Instances to Treat Overseas Investment Vehicles as Beneficial Owners of Korea Source Income

On July 30, 2018, the Ministry of Economy and Finance announced its proposed tax law amendments. Within the proposed amendments (the “Proposed Amendment”), a special provision was introduced to address instances where an Overseas Investment Vehicle (“OIV”) would be treated as the beneficial owner of Korea source income.

The Proposed Amendment was finalized in December 2018, and the law will become effective as of January 1, 2020.

Background:

Under the current Korean Tax Law, if capital gains are earned from the share transfer, such Korea source income is taxable in Korea.

Specifically, the Korean Tax Law provides that the Korea source income attributed to the Beneficial Owner(s) (“BO”) can be exempt if: (i) foreign investors who invest in shares in a Korean company through an OIV are BO of the Korea source income; (ii) if the country having jurisdiction of the BO has made a tax treaty with the Republic of Korea; and (iii) Korea source income derived from the share transfer can be exempt based on such a tax treaty. Also, in order for each BO to be allowed the tax exemption, each BO must fill out a form prescribed by the Korean Tax Law, and submit it to the Korean tax authorities. These provisions in the Korean Tax Law are generally referred to as the “OIV Regime.”

In the meantime, before the OIV Regime was newly introduced in the Corporate Tax Law, in 2013, the Supreme Court decided that the BOs for capital gains on the share transfer were not foreign investors who invested in overseas funds – similar to OIV – but overseas funds themselves. Based on this, the Korean tax authorities has

By Woo Hyun Baik ([email protected]), Christopher Sung ([email protected]) and Sung Sik Kim ([email protected])

regarded overseas funds as a BO, and has imposed the share transfer income tax according to the Korean Tax Law, since there is no tax treaty between Korea and the country where the overseas fund is located.

Since then, the OIV Regime has been introduced, but the Supreme Court decision and the purpose of the OIV Regime are in conflict with each other, and taxpayer confusion has increased.

Accordingly, the Ministry of Strategy and Finance announced an amendment to the Korean Tax Law to resolve the conflict between the Supreme Court decision and the purpose of the OIV Regime.

Key Aspects of the Proposed Amendment:

With respect to the application of the tax treaty for Korea source income, if Korea source income is paid to the foreign investor through an OIV, the foreign investor – rather than the OIV – should be treated as the BO of the Korean source income, unless an exception applies as provided below.

When any one of the following exceptions is met, the OIV receiving the Korea source income rather than the foreign investor would be treated as the BO of such Korea source income under the Proposed Amendment:

(i) The OIV is liable to tax in the country in which it is a resident, and the OIV is not established for the purpose of unjustly reducing its income/corporate taxes with respect to its Korea source income;

(ii) The OIV is treated as the BO of income under the relevant tax treaty; or

(iii) The OIV is unable to certify its investors investing in the OIV (in case of partial certification, only for the portion for which the certification cannot be made).

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Further, when the OIV is an “entity other than a foreign corporation” within the meaning provided under the Korean Tax Law, the rule above applies only when conditions (ii) or (iii) is met (i.e., condition (i) is irrelevant for OIVs that are not classified as a “foreign corporation” within the meaning provided under the Korean Tax Law).

In addition, when the OIV is treated as the BO of income by meeting condition (iii), the withholding tax rate to be applied is the default withholding tax rate provided under the Korean Tax Law (usually 22%, including local surtax).

REAL ESTATE

Amended Commercial Lease Protection Act Goes into Effect, Increasing Lease Protection Period to Ten Years

By Yon Kyun Oh ([email protected]) and Bo Hyun Kim ([email protected])

On October 16, 2018, the amendment to the Commercial Building Lease Protection Act (the “Commercial Lease Protection Act”) became effective. Among others, the amendment includes the extension of the period (up to a total of ten years, including the initial lease term) during which a commercial building tenant can exercise its right to demand lease renewal.

In light of the increasing number of disputes arising between tenants and landlords, the newly enforced amendment seeks to ensure stable operation of the tenants’ businesses.

Key Aspects:

1. Exercise period for tenants’ right to demand renewal of lease term extended

Prior to the amendment, the Commercial Lease Protection Act limited the exercise period for tenants’ right to demand lease renewal to five years. Under the amendment, the exercise period has been increased to ten years (including the initial lease term).

However, the new lease protection period will only apply to newly executed or renewed lease

agreements, and the previous protection period of five years will continue to apply to the lease agreements that were already in existence prior to the effective date of the amendment (i.e., October 16, 2018).

2. Exercise period of tenants’ right to demand compensation for business goodwill (kwon-li-geum) extended

Prior to the amendment, a tenant could seek compensation for any premium or goodwill (known as “kwon-li-geum ” in Korean) created on its leased premises against subsequent tenants of the leased premises, and the tenant had the choice to exercise such a right three months before the end of the lease term. If, during the three-month exercisable period, the tenant finds and introduces a prospective tenant to the landlord, but the landlord rejects such prospective tenant (thereby interfering with the tenant’s actions to collect goodwill against subsequent tenants), the landlord was obligated to compensate the tenant the reasonable goodwill assessed on the lease premises.

Under the amendment, the tenant’s exercisable period for collection of goodwill has been increased to six months prior to the end of the lease term.


This amendment applies to existing leases regardless of their execution dates.

Significance:

As the tenants’ right to demand lease renewal has been significantly strengthened, we expect an active

discussion in the real estate industry about what would constitute justifiable grounds for landlords’ refusal of lease renewal requests from a tenant under the newly amended Commercial Lease Protection Act.

“Workplace bullying” and “workplace harassment” have been gaining increased media attention and social interest in South Korea. To address these issues, on July 18, 2018, a joint committee of Korea’s various ministries and other relevant agencies (i.e., the Office for Government Policy Coordination, the Ministry of Employment and Labor (“MOEL”), the Ministry of Education, the Ministry of Culture, Sports and Tourism, the Ministry of Justice, the Ministry of Health and Welfare, the National Police Agency, and the Anti-Corruption & Civil Rights Commission) (the “Joint Committee”) announced the Anti-Bullying Action Plan (the “Plan”) to combat harassment and bullying in the workplace.

Key Aspects:

The Anti-Bullying Action Plan sets out six stages to manage the risk of workplace bullying or harassment, and to properly deal with such incidents in the workplace: (i) reporting; (ii) investigation; (iii) disciplinary action against the harasser; (iv) support for the victim; (v) employer liability; and (vi) prevention. For each stage, the Plan also provides detailed action items for businesses to take, such as mandatory training.

Key action items of the Plan include:

■ Define the concept of workplace bullying; ■ Set up an internal channel for victim-employees to

report incidents of workplace harassment or bullying; ■ Obligate the employer to commence investigation

into alleged workplace harassment or bullying; ■ Streamline the reporting channels and processes to

the government agencies; ■ Where relevant laws and regulations are violated,

allow the MOEL to open ex officio inspection; ■ Protect the victim by expanding occupational

insurance coverage or assistance in lawsuits; ■ Obligate the employer to punish the harasser; ■ Where the employer retaliates against the victim,

provide for punishment of the employer; and ■ Obligate the employer to provide employees with

education on prevention of workplace harassment or bullying.

Implementation Plan:

In order to implement the Anti-Bullying Action Plan, the Joint Committee: (i) noted that in or around August 2018, it has amended the Guideline on Work Duties

LABOR & EMPLOYMENT

By Weon Jung Kim ([email protected]) and Do-Yoon Kim ([email protected])

Government Announces “Anti-Bullying Action Plan” to Address Workplace Harassment

Newsletter

of Labor Inspectors (however, as of December 2018, it appears that such amendment has not been made); (ii) plans to establish joint guidelines and prepare standards for Rules of Employment; (iii) has or plans to amend/enact relevant laws and regulations (e.g., introduced the amendment to the Labor Standards Act (“LSA”), and plans to introduce changes to the Occupational Safety and Health Act), and/or guidelines (around December 2018); and also, (iv) in discussion with the National Assembly, the Joint Committee announced that it is looking into the possibility of enacting a special act to prevent workplace harassment.

As of December 2018, amendments to the LSA and enactment of a special act to prevent workplace bullying are still currently pending before the National Assembly.

Significance:

With increased national concern and growing attention, through the Anti-Bullying Action Plan, the Korean government has indicated a strong willingness to address harassment and bullying in the workplace. Consequently, it is likely that the government will seek to voluntarily amend the related laws and regulations, and vigorously strengthen its enforcement efforts.

In particular, we expect that disputes arising out of or in connection with these issues will increase, due to the increased enforcement of laws and regulations that prohibit workplace harassment and workplace bullying, such as the Amendment to the Equal Employment Opportunity and Work-Family Balance Assistance Act (effective May 29, 2018) and to the Amendment to the Occupational Safety and Health Act (effective October 18, 2018).

Recommendations:

We recommend that you continue to monitor the social atmosphere and dynamics involving workplace bullying issues, and the government’s position and follow-up actions.

Also, this is a good opportunity to actively review your company’s current status, handling and preparedness on these issues, including any workplace harassment incidents, whether investigation and disciplinary measures have been sought and how they have been handled, whether training has been properly implemented and provided to employees, and whether the Rules of Employment and related policies/guidelines are updated to reflect the most current laws and regulations (and also, depending on further government action, make the appropriate updates if and when it becomes necessary).

The Supreme Court recently rendered a series of meaningful decisions, which set a standard for calculating hourly wages for purposes of determining whether minimum wage v io lat ions have been committed.

Background:

To determine whether wages, which are commonly paid in the form of monthly salaries, exceed the minimum wage under the Minimum Wage Act, the following calculation should be made:

Supreme Court Decisions Establish a Standard for Calculating Hourly Wage to Determine Potential Minimum Wage Violations


■ Among the wage items paid monthly, divide the sum of wages or allowances paid regularly or uniformly at least once a month under a predetermined payment rate and conditions (the “reference wages”) by prescribed monthly working hours.

■ Then, this hourly wage should be compared to the applicable minimum wage for that year. However, it should be noted that in the past, the scope of reference wages and the number of working hours used in the calculation have been subject to different interpretations and controversies.

Details of the Recent Supreme Court Decisions:

The Supreme Court has clarified in a series of decisions that to determine minimum wage violations, weekly holiday allowances should be included as part of the reference wages, but weekly holiday hours should not be included in the number of working hours used to determine the reference wages.

If an employee receives wages in the form of a monthly salary, it would include not just compensation for the work performed by the employee in a given week, but also include compensation for paid holidays (i.e., weekly holiday allowances).

The Supreme Court has repeatedly held in its decisions3

that all components of a monthly salary, including weekly holiday allowances, should be used to calculate reference wages to determine potential minimum wage violations, and that there is no reason to exclude weekly holiday allowances from reference wages.

On the other hand, when dividing monthly reference wages by working hours to determine the hourly wage, whether the weekly holiday hours4 are included in the working hours has been called into question. The MOEL continued to maintain its position that weekly holiday hours must be included in the number of working hours used to determine the hourly wage rate. However, earlier in 2018, the Supreme Court held that only the actual prescribed working hours should be used for this calculation, and the paid weekly holiday hours are not included.5

As such, it became clear that to convert an employee’s monthly salary to an hourly wage for reference to the applicable minimum wage, reference wages (including weekly holiday allowances) are divided by the prescribed monthly working hours.

Significance:

Nonetheless, in response to the controversy on whether weekly holiday hours should be included in the number of working hours used in the calculation discussed above, the MOEL pre-announced legislation on August 10, 2018, that would amend the working hours to the “sum of: (i) weekly prescribed working hours; and (ii) hours other than prescribed working hours, which are deemed as paid.” The MOEL’s position is in direct opposition to the recent Supreme Court decisions.

On December 24, 2018, the MOEL announced a proposed amendment that partially amends the Enforcement Decree. According to the proposed amendment, ‘non-statutory paid holidays’ are excluded from the calculation of the minimum wage, but the position regarding ‘weekly holiday hours’, which were the key issue of the aforementioned Supreme Court Decision, are maintained.

For your reference, the minimum wage for 2019 is KRW 8,350 per hour. Using the MOEL’s preferred calculation formula, if an employee works five days a week, and the rest of the week consists of one unpaid day off and one paid holiday (which is required by the LSA for employees who work a full weekly schedule), and receives a monthly salary of KRW 1,500,000, the hourly wage of the employee would be KRW 7,177 (1,500,000/209).

This hourly rate would be in violation of the minimum wage requirement under the MOEL standard, but if calculated according to the above Supreme Court decisions, the hourly rate would be KRW 8,640 (1,500,000/173.4), which would not violate the minimum wage requirement.

3 Supreme Court Decision 2006Da64245, January 11, 2007 and Supreme Court Decision 2018Do6486, October 12, 20184 Under the LSA, this is paid even though the employee does not provide actual labor, but receives weekly holiday allowances for the hours.5 Supreme Court Decision 2014da44673, June 19, 2018

Newsletter

Korea Adopts Treble Damages for Patent Infringement and Trade Secret Misappropriation Beginning July 9, 2019

On December 7, 2018, the National Assembly approved proposed amendments to the Patent Act (the “Patent Act Amendment”) and to the Unfair Competition Prevention and Trade Secret Protection Act (the “Trade Secret Act Amendment,” collectively the “Amendments”), which include new provisions for awards of up to treble damages for certain acts of patent infringement or trade secret misappropriation.

The Amendments were officially announced on January 8, 2019, and will become effective on July 9, 2019.

Key Changes:

1. New provision for treble damages for intentional or willful infringement/misappropriation6

The current Patent Act and Trade Secret Act only allow a patent or trade secret owner to claim actual damages for patent infringement or trade secret misappropriation. In practice, this has led to relatively low damages awards in Korea, even for knowing acts of infringement or misappropriation, and damages awards for patent infringement or trade secret misappropriation often have not been high enough to effectively discourage such infringement or misappropriation.

However, under the Amendments, courts are now authorized to award damages as a punitive measure of up to three times the amount of actual damages for intentional or willful acts of infringement/misappropriation.

When calculating the amount of such punitive

damages, courts are instructed to consider the following factors: (i) whether the infringer has a dominant position; (ii) whether the infringer knew the act of infringement would cause harm to a patent or trade secret owner, or intended such harm; (iii) the significance of any such damages; (iv) the economic benefits to the infringer from the infringement; (v) how frequently and how long the infringing activity was committed; (vi) the criminal penalty for the infringing activity; (vii) the infringer’s financial status; and (viii) what efforts the infringer has made to reduce the harm to the patent or trade secret owner.

Impact:

These newly-added punitive damages provisions of the Amendments wil l apply to infr inging activities committed after the effective date of the Amendments, as well as to util ity model infringement. The newly introduced treble damages provision should improve remedies for patent infringement or trade secret misappropriation, and are expected to contribute to stronger protection of intellectual property in Korea.

2. "Reasonably expected" royalties as basis for damages calculation7

The current Patent Act calculates royalty damages based on the royalty that would be “ordinarily expected” from an arm’s-length license. This has often led to difficulties in royalty calculation where there are not many examples of royalties for a particular technology in the market, or information regarding “ordinary” royalties is not easily available, contributing to the


By Jay (Young-June) Yang ([email protected]), Duck Soon Chang ([email protected])and Seung-Chan Eom ([email protected])

6 See new Article 128, Paragraphs 8 and 9 of the Patent Act, new Article 14-2, Paragraphs 6 and 7 of the Trade Secret Act.7 See Article 65, Paragraph 2 and Article 128, Paragraph 5 of the Patent Act.


common perception in Korea that royalty damages awards tend to undervalue damages to patentees.

However, the Patent Act Amendment changes the term “ordinarily expected” to “reasonably expected,” essentially allowing courts to calculate a royalty that may be reasonable under the totality of the circumstances, regardless of whether similar royalties have actually been granted.

Impact:

The increased flexibility is expected to encourage courts to award larger damages amounts where royalties are the basis for the damages calculation.

3. Accused patent infringer denying infringement must describe the actual product/process used8

Due to the limited discovery that is available in Korea, it can be difficult for a plaintiff to access relevant information regarding infringing activity that takes place within an infringer’s premises. Often, an accused infringer will simply deny any infringement on the basis that the plaintiff bears the burden of proof, without presenting any evidence to the contrary, even if the plaintiff has made a prima facie showing that there is a good chance infringing activities are being committed by the accused.

The Patent Act Amendment makes it more difficult for an accused infringer to simply deny infringement where the plaintiff has shown it is plausible that the infringer is using the patent, by requiring the accused infringer to provide details regarding the product or process it is actually using. If an accused infringer unjustifiably refuses to present such details, the court may presume that the alleged infringer has actually committed the infringing activity claimed by the plaintiff.

Impact:

This new requirement applies to patent enforcement actions initiated after the effective date of the Patent Act Amendment, an d is expected to make it easier

for patent plaintiffs to prove meritorious infringement claims as well as speeding up patent litigation proceedings in general.

4. Lowered maintenance requirement for trade secrets9

Under the current Trade Secret Act, a “trade secret” is defined as technical or managerial information useful for business activities which is: (i) unknown to the public (i.e., secret); (ii) has independent economic value; and (iii) has been maintained as secret through

“reasonable efforts.”

In practice, this third requirement has often been a difficult hurdle, as courts often find that efforts to maintain secrecy have been lacking, particularly for small or medium-sized companies that may have difficulty implementing systematic trade secret protocols. In fact, this requirement was already previously reduced in 2015 (lowering the requirement from “substantial efforts” to “reasonable efforts”), but proving this element has remained difficult even after the change.

The Trade Secret Amendment further eases the third requirement by deleting the phrase “by a reasonable effort” entirely, effectively meaning that as long as secrecy is simply maintained, the third requirement will be considered met, without reference to the

“effort” of maintenance at all.

Impact:

It is expected that the Trade Secret Amendment will substantially expand the scope of confidential information that can be protected as trade secrets in Korea.

5. Stronger criminal penalties for trade secret misappropriation10

The current Trade Secret Act only provides for criminal penalties for acts of acquiring, using or disclosing to a third party the trade secret of another party for the purpose of obtaining an unjust benefit or harming the trade secret owner.

8 See new Article 126-2 of the Patent Act.9 See Article 2, Item 2 of the Trade Secret Act.10 See Article 18, Paragraphs 1 and 2 of the Trade Secret Act.

Newsletter

Under the Trade Secret Amendment, however, the scope of criminally punishable acts has been expanded to include: (i) removing a trade secret from an authorized location to an unauthorized location for the purpose of obtaining an unjust benefit or harming the owner; (ii) continuing to possess another’s trade secret after receiving the owner's request to delete or return the trade secret for the purpose of obtaining an unjust benefit or harming the owner; (iii) acquiring a trade secret by theft, deceit, threat or other illegal means; and (iv) acquiring or using a trade secret knowing that it may have been misappropriated.

Further, the Trade Secret Amendment increases the criminal penalties for trade secret infringement: (i) misappropriation of a trade secret involving use of

the trade secret overseas or knowledge that such overseas use will occur generally may be punished with imprisonment of up to 15 years or a fine of up to KRW 1.5 billion (increased from ten years or KRW 100 million); and (ii) all other trade secret misappropriation generally may be punished with imprisonment of up to 10 years or a fine of up to KRW 500 million (increased from five years or KRW 50 million).

Impact:

It is expected that the substantially increased criminal penalties under the Trade Secret Amendment will more effectively discourage parties from disclosing or misusing others’ trade secrets without authorization.

ENVIRONMENT

By Yoon Jeong Lee ([email protected]) and Hyeongjun Hwang ([email protected])

Amendment to the Atmospheric Environment Conservation Act Proposes to Strengthen Regulations on Air Pollutants

On August 3, 2018, the Ministry of Environment (“ME”) issued a public notice of a proposed amendment (the “Regulation Amendment”) to the Enforcement Regu la t ion o f the Atmospher i c Env i ronment Conservation Act (“AECA”), which is expected to strengthen the regulations on air pollutants. The Regulation Amendment is expected to become effective on January 1, 2020.

Also, on September 17, 2018, the ME proposed an amendment (the “Act Amendment”) to the AECA, which would prohibit operators or business owners of air pollutant emission facilities from giving directions to

air pollutant measurement agents, which may interfere with their measurement of the air pollutant level.

Key Changes Being Proposed:

1. Establish emission standards for eight specific hazardous air pollutants

The Regulation Amendment will establish emission standards for chloroform, polycyclic aromatic hydrocarbons, 1,2-dichloroethane, acrylonitrile, tetrachloroethylene, styrene, ethyl benzene, and carbon tetrachloride (see table below).


As a result, businesses will have to pay close attention to their facilities’ emission levels for these eight air pollutants and take necessary measures in accordance with the Regulation Amendment (e.g., report whether a new prevention facility was established or whether an existing emitting facility was modified).

Moreover, the ME expects to establish emission standards for eight additional air pollutants in 2019, which would include acetaldehyde and beryllium.

2. Strengthened emission standards for air pollutants

Currently, the AECA categorizes air pollutants into general air pollutants and specific hazardous air pollutants, and establishes emission standards for each category of air pollutants.

The Regulation Amendment proposes to strengthen the emission standards:

■ For “dust,” “nitrogen oxides,” “sulfur oxides” and

“ammonia,” all of which are known to be a source

Specific Hazardous Air Pollutant

Emission Standard

Chloroform 5 ppm

Polycyclic aromatic hydrocarbons(Benzopyran)

0.05 mg/Sm3

1,2- Dichloroethane 12 ppm

Acrylonitrile 3 ppm

Tetrachloroethylene 10 ppm

Styrene 23 ppm

Ethyl benzene 23 ppm

Carbon tetrachloride 3 ppm

of fine dust (a type of general air pollutant) – approximately 30%;

■ For other general air pollutants (e.g., “hydrogen sulfide”) – between 3% and 67%; and

■ For 13 specific hazardous air pollutants, which include “mercury,” “lead,” “cadmium,” “hydrogen chloride,” and “phenol” – approximately 33%.

Regarding categories of facilities, 52 out of the total 69 categories of facilities would be subject to stricter emission standards under the Regulation Amendment.

3. Unlawful influence on air pollutant measurement agent prohibited & criminally punished

Under the AECA, air pollutant emission facilities are required to measure the level of air pollutants emitted during operation either by itself or by outsourcing it to an independent air pollutant measurement agent. However, it has been reported that some facility operators or business owners have put pressure on air pollutant measuring agents in an attempt to tamper the measurements (i.e., influence them to produce more favorable data). As a result, the credibility of the measurements by air pollutant measuring agents is often undermined and questioned.

To resolve these issues, the ME proposed this Act Amendment to prohibit any direction by an operator or a business owner that may have an influence on measurement analysis results. If violated, a facility operator or a business owner may be subject to imprisonment up to one year, or a criminal fine not exceeding KRW 10 million (approx. USD 8,800).

Significance:

As the ME has been recently trying to strengthen its enforcement on air pollutants (e.g., concerning fine dust), business owners who own air pollutant emission facilities will need to prepare response plans to the heightened enforcement.

Newsletter

National Assembly Enacts Special Act on Fine Dust Abatement and Management

On August 14, 2018, the National Assembly enacted a Special Act on Fine Dust Abatement and Management (the “Special Act on Fine Dust”) to effectively reduce and manage fine dust emissions aimed at addressing growing public health concerns. The Special Act on Fine Dust will become effective on February 15, 2019.

Key Aspects:

■ Particulate matters with 10 micrometers or less in diameter are defined as fine dusts. Particulate matters with 2.5 micrometers or less in diameter are defined as micro-fine dusts. Nitrogen oxide (NOx), sulfuric oxide (SOx) and volatile organic compounds (VOCs) are defined as precursors to fine dusts.

■ If a concentration level of micro-fine dusts is expected to exceed the level to be set by the Ministry of Environment on any given day, the mayor or governor in the area of concern may take any of the following measures (the “Emergency Reduction Measures for Fine Dusts”):

(i) Restrict vehicle use; (ii) Order air pollutant-emitting facilities to change

its uptime or rate of production, or to improve efficiency of on-site air pollutant preventive facilities; and

(iii) Order the hours for construction activities to be changed.

Unless a justifiable excuse for non-compliance is provided, a violator may be subject to administrative fines up to KRW 100,000 (for a violation of the first measures) or KRW 2 million (for a violation of the second or third measures).

■ In addition to the implementation of the Emergency Reduction Measures for Fine Dusts, the mayor or governor may recommend a business owner or facility operator to temporarily suspend operations or to adopt a flexible work schedule. However, no penalty provision is currently included in the Special Act on Fine Dust for a failure to comply with such recommendation.

Significance:

Once the Special Act on Fine Dust becomes effective, businesses may be ordered to adjust operation hours or rate of production and/or adopt flexible work schedule at their facilities. As the details of the law will be supplemented through lower regulations in the future, businesses are advised to closely monitor the status of lower regulations.


Effect ive November 1, 2018, The Hong Kong International Arbitration Centre (“HKIAC”) recently amended its International Arbitration Rules.

The amended rules have incorporated various new provisions to ensure efficient and speedy arbitration proceedings, including provisions for a disclosure of third-party funding, single arbitration for multiple contracts, ear ly determinat ion procedure, and notification of expected award issue date.

The HKIAC amendments are in line with demands expressed in on-going debates within the arbitration industry worldwide for arbitration institutions to improve their rules to ensure more efficient arbitration proceedings. For example, the London Court of Arbitration, the Korean Commercial Arbitration Board, and the International Chamber of Commerce have all made significant amendments to their arbitration rules in the last few years.

Key Amendments:

1. Disclosure of third-party funding

In recent years, one of the popular trends in arbitration is third-party funding of a party’s expenses in the arbitration proceeding. Jurisdictions differ as to whether this practice is permitted, and if yes, how such funding should be allowed has been subject to much debate.

Hong Kong, through the amendment of the Hong Kong Arbitration Ordinance in 2017, has allowed third parties to fund arbitration expenses, if such a funding party has no legal interest with the disputing parties.

In its amendment, HKIAC’s amended rules conform to this by allowing third-party funding. Specifically, the amended rules provide that a party receiving third-party funding must immediately disclose its funding agreement with the third party, and the identity of the third party. Also, as an exception to the confidentiality obligation for arbitral proceedings, a party may disclose information regarding the arbitration to the third party providing the funding, or to a third party from whom the party is seeking third-party funding.

Further, the arbitra l t r ibunal may take into consideration the third-party funding when allocating the arbitration costs.

2. Single arbitration for multiple contracts

When multiple disputes arise from multiple contracts – which relate to a single transaction or related transactions, and the disputes involve the same legal or factual relations – there may be a benefit in having a consistent and uniform dispute resolution process across the several disputes.

HKIAC’s amended rules allow for a wide application of such a provision, and allows the parties to resolve these types of disputes under a single arbitral proceeding. Hence, even in cases where the parties to the contracts are not the same, multiple parties may be able to consolidate the disputes for resolution through a single arbitral proceeding.

3. Early determination procedure

The HKIAC’s amended rules have incorporated a new

“Early Determination Procedure” for an expedited proceeding.

Hong Kong International Arbitration Centre Amends Its HKIAC Administered Arbitration Rules

INTERNATIONAL ARBITRATION & CROSS-BORDER LITIGATION

By Byung-Chol(B.C.) Yoon ([email protected]), Byung-Woo Im ([email protected]) and Bo Ram Hong ([email protected])

Newsletter

At the request of a party and after consulting with all other parties, the arbitral tribunal has the power to decide, by way of an “Early Determination Procedure,” on a certain point of law or facts if: (i) such points of law or fact are manifestly without merit; (ii) such points of law or fact are manifestly outside the arbitral tribunal’s jurisdiction; or (iii) if no award could be rendered in favor of the party against whom the Early Determination is sought, assuming that all the points of law or fact(s) in question are decided against the applying party (and in favor of the non-applying party).

In terms of timing, the tribunal is required to decide whether to allow for the Early Determination Procedure within 30 days from one of the parties filing of the request for such a procedure. If the tribunal decides to proceed with this procedure, the tribunal must decide on the matter within 60 days from the date of its decision to proceed.

Through this Early Determination Procedure, it is expected that the parties will be able to clear away issues at an early stage of the arbitration, and ultimately, save time and costs.

4. Notification of anticipated date of rendering of award

Once the proceedings are closed, the parties are naturally anxious to know when the tribunal will render the award, and to receive the award as soon as possible.

To address these user needs, the HKIAC’s amended rules have a new provision requiring the tribunal to inform the HKIAC and the parties of the anticipated date by which an award will be communicated to the parties.

While some extensions may be allowed by the HKIAC or upon parties’ agreement, the key principle is that the award should be rendered no later than three months from the date on which the tribunal declares the entire proceedings or the relevant phase of the proceedings closed.

Significance:

HKIAC is considered an arbitration institution of choice by parties in Asia, including Korea, and especially for cases where a party to the arbitration agreement is from China. Thus, parties considering arbitration in Hong Kong are encouraged to become familiar with the newly amended HKIAC arbitration rules so they can be deployed to their benefit, as appropriate.


SELECTED REPRESENTATIONS

CORPORATE

Kim & Chang Advises SK Telecom and Macquarie in the Acquisition of ADT Caps from Carlyle for Nearly KRW 3 Trillion, Creating New Market Synergies

Kim & Chang Advises Hoban Construction Housing in the Acquisition of Resom Resort under Rehabilitation Proceeding, Involving Some 10,000 Resort Members

SK Telecom Co., Ltd., a telecommunications service provider (“SKT”), and Macquarie Korea Opportunities Management Ltd. (“Macquarie”) jointly acquired 100% of the issued and outstanding shares of Siren Holdings Korea Co., Ltd., which wholly owns, among others, ADT Caps Co., Ltd. (“ADT Caps”), from the Carlyle Group for approximately KRW 3 trillion.

The transaction, which will combine telecommunication services with security services, is expected to create new synergies in the market.

The transaction involved a consortium of SKT and Macquarie, each respectively acquiring 51% and 49% of the shares of Siren Holdings Korea, and as a result, now hold joint control of ADT Caps, Capstec and ADT Security.

Our Representation:

Kim & Chang advised the consortium in devising the optimal transactional structure, including refinancing outstanding liabilities, and preemptively mitigated potential legal risks, meeting the needs of multiple investors.

Our firm provided comprehensive legal services, including due diligence, examining a variety of legal issues and drafting key transaction documents, including the share purchase agreement and shareholders’ agreement, as well as facilitating the successful closing of the transaction.

Hoban Construction Housing Co., Ltd. (the entity which preceded the current Hoban Co., Ltd. “Hoban Construction Housing”) acquired all of the shares of Resom Resort Co., Ltd. (“Resom”), a resort operator, at a purchase price of KRW 250 billion through a “stalking horse” bid process in Resom’s rehabilitation proceeding.

The transaction, which is considered to be of a substantial size for a distressed M&A deal, involved around 10,000 resort members as interested parties, and attracted considerable public attention.

A stalking horse bid is a relatively new transactional method in the context of rehabilitation or bankruptcy proceedings, whereby a debtor pre-selects the best initial bidder, offering certain protections (e.g., break-up fees) before the public auction.

Our Representation:

To facilitate the process, Kim & Chang structured the transaction after persuading the custodian and the court, and conducted due diligence on a variety of issues specific to the resort industry and rehabilitation proceedings.

After Hoban Construction Housing was selected as the purchaser, Kim & Chang advised in effectively convincing the resort members to agree to the acquisition based on our in-depth expertise of rehabilitation proceedings and tourism-related laws.

Newsletter

Kim & Chang Advises Pearl Abyss in Acquiring the Icelandic Video Game Developer, CCP Games, Most Known for Its Popular “Eve Online” Game

Samsung Fire and Samsung Electro-Mechanics Sell Their Stake in Samsung C&T in a Block Deal to Improve Corporate Governance

On September 6, 2018, Pearl Abyss Corp. (“Pearl Abyss”) acquired CCP ehf. (“CCP Games”), an Icelandic video game developer, for approximately KRW 252.5 billion.

CCP Games developed “Eve Online,” which boasts more than 40 million subscribers worldwide. As a homegrown Korean game developer, Pearl Abyss’ successful acquisition of a global player in the gaming industry exemplifies the expansion of Korean game developers in the global market.

Our Representation:

As CCP Games had a number of subsidiaries around the world, Kim & Chang conducted extensive due diligence on the target’s intellectual properties (deemed the most important asset of game developers) as well as on financial and tax issues, while consulting local law firms and the Bank of Iceland to address local requirements.

Since CCP Games’ shares were held by a number of minority shareholders, our firm provided tailored and strategic advice on the transactional documents so as to secure Pearl Abyss’ control over the management of CCP Games.

With extensive experience in advising domestic companies in acquiring foreign companies, Kim & Chang successfully navigated Pearl Abyss throughout the transaction to successfully close the deal.

On September 21, 2018, Samsung Fire & Marine Insurance Co., Ltd. and Samsung Electro-Mechanics (the “Sellers”) sold their 3.98% stake in Samsung C&T Corporation (“Samsung C&T”) at approximately KRW 930 billion through a block deal (after-hour trading of substantial volume of stock).

The transaction signifies Samsung Group’s effort to improve its governance structure by delinking some of the cross holdings among the group companies. Of the link of seven cross-holding relationships among six Samsung Group companies, three links were dissolved earlier in April 2018 through Samsung SDI’s block sales of 4,040,000 shares in Samsung C&T. The current transaction dissolved the remaining four links in Samsung Group’s cross-holding relationship.

From preliminary legal review to the closing, Kim & Chang successfully advised the Sellers in minimizing legal risks and realizing optimal terms for the transaction.

LITIGATION

Supreme Court Rules That Policies of Three Major Mobile Carriers to Provide Sales Incentives Was Not an Act Inducing Distributors to Pay Unfair Discriminatory Subsidies to iPhone Users

Recently, the Supreme Court upheld an appellate court decision affirming that the three of Korea’s top mobile carriers and their responsible officers were not guilty in a case where “three major mobile carriers – specifically


Our Representation:

On behalf of LG Uplus, Kim & Chang’s lawyers successfully persuaded the Court. Our team demonstrated thorough understanding of the sales incentive policies of the three mobile carriers, and provided in-depth analysis of the MDDIA and issues presented in the indictment of the Prosecutors’ Office. Specifically, we reasoned that although the terms “unfair discriminatory subsidy” and

“induce” under Article 9(3) of the MDDIA should be strictly construed, the sales incentive policy of LG Uplus was not an act “inducing” the payment of “unfair discriminatory” subsidy as set forth in Article 9(3) of the MDDIA. Further, citing the legislative intent of the MDDIA, we argued that the Prosecutors’ Office had unreasonably determined that an act which failed to meet the requirements for a violation of Article 9(3) of the MDDIA constituted a violation.

Ultimately, our client, LG Uplus, was found not guilty.

Significance:

The Supreme Court’s ruling on this case is significant, given that the Court accepted our reasoning that Article 9(3) of the MDDIA should be strictly construed and applied in accordance with the principle of statutory criminal punishment, but found that the current sales incentive policies of the three major mobile carriers should not be subject to criminal sanctions under the MDDIA.

LG Uplus, SK Telecom, and KT – and their responsible officers were indicted by the Prosecutors’ Office for violating the Mobile Device Distribution Improvement Act (“MDDIA”) by entering into an agreement with their distributors in or around October or November 2014, whereby the distributors: (i) were required to pay subsidies in excess of the maximum cap, through retailers, to iPhone 6 users who transferred to or newly subscribed to the service plans of the said mobile carriers; and (ii) were thereby induced to pay unfair discriminatory subsidies to users depending on the types of the service plans to which they had subscribed.”

Under Article 9(3) of the MDDIA, “in concluding an agreement with their agents, mobile carriers shall not instruct, coerce, demand, induce, etc. their agents to provide unfair discriminatory subsidies to users or include special provisions or conditions which make agents recommend specific additional services, service fee plans, etc. to users in an unfair discriminatory manner.”

Here, the issue was whether the iPhone 6-related incentives paid by the three mobile carriers to their distributors in or around October or November 2014 can be deemed to be connected to the discriminatory subsidies paid by the distributors to consumers, and thus, constitute an “act of inducing agents to provide unfair discriminatory subsidies to users” under Article 9(3) of the MDDIA.

Grounds for Indictment:

■ The three mobile carriers, including LG Uplus, increased the amount of incentives payable to distributors, and notified their distributors that under the policies, they are instructed or otherwise required by their standard distribution agreement to pay additional subsidies to users who would change to or newly subscribe to the service plans of the said mobile carriers just in time for the iPhone 6 release; and

■ The term “induce” used in Article 9(3) of the MDDIA should be broadly interpreted in line with the legislative intent of the MDDIA.

■ Accordingly, the above conduct of the three mobile carriers constitutes acts of inducing distributors to pay unfair discriminatory subsidies to users through retailers.

SECURITIES

Kim & Chang Advises MKIF in the First-of-Its-Kind Dispute in Korea over Managerial Control Against a Collective Investment Vehicle

Macquar ie Korea Infrastructure Fund ( “MKIF ” ) successfully defended a managerial dispute raised by Platform Partners Asset Management (“Platform Partners”).

Newsletter

INSURANCE

MBK Partners Sells Its Majority Interest in Orange Life

On September 5, 2018, MBK Partners, the largest shareholder of Orange Life Insurance Co., Ltd. (formerly known as ING Life Insurance Co., Ltd.) (“Orange Life”), sold its 59.15% equity stake in Orange Life for approximately KRW 2.3 trillion, by entering into a share sale and purchase agreement (“SPA”) with Shinhan Financial Group Co., Ltd. (“Shinhan”).

Once each of the conditions precedent of the purchaser and the seller is satisfied, closing will take place, and Shinhan will obtain the necessary approval from the financial regulator on the acquisition, making the acquisition official.

TAX

Supreme Court Sets Precedent on the Scope of Certain Financial Services from VAT Exemption

The Supreme Court recently rendered a significant decision on the scope of asset securitization services and asset management business, which are exempt from Value Added Tax (“VAT”) under the Value Added Tax Law (“VATL”).

Background:

In this case, the credit information company conducted debt collection business that was classified as a financial business other than its own. The credit information company initially reported VAT, because the company thought that the service was not eligible for VAT exemption.

Afterwards, the company concluded that such a service was actually eligible for VAT exemption under the Presidential Decree of the VATL, and filed a VAT refund request with the National Tax Service (“NTS”). The NTS rejected this request, and the credit information company then appealed the rejection, and eventually won a final decision from the Supreme Court.

Article 26 of the VATL (Article 12 under the former VATL) enumerates businesses that are eligible for VAT exemption, and Article 40 of the Presidential Decree of the Act (Article 33 under the former VATL) lists specific

In an extraordinary general meeting held on September 19, 2018, the shareholders rejected Platform Partner’s agenda to replace MKIF’s manager, Macquarie Korea Asset Management (“MKAM”), which was MKIF’s corporate director.

Our Representation / Significance:

This was the first case in Korea of a managerial dispute raised against a collective investment vehicle. In fact, MKIF is the only fund listed on the Korea Exchange, aside from exchange-traded funds.

Kim & Chang’s team provided comprehensive legal advisory services throughout the process of defending the managerial claims, including preparing the extraordinary general shareholders’ meeting, proxy solicitation, and petitions for preliminary injunctions. In particular, our lawyers reviewed and analyzed complex and unprecedented legal issues arising from the differences of a joint stock company (in Korean, jusik hoesa ) under the Korean Commercial Code and an investment company under the Financial Investment Services and Capital Markets Act.

Our Representation:

Kim & Chang provided comprehensive advisory services to MBK Partners, the seller, including designing the transaction structure, conducting legal due diligence, negotiating and drafting the terms of the SPA, as well as preparing and filing the reports and all other closing-related matters necessary for the completion of this transaction.


businesses in the financial/insurance business (which is exempt under Article 26(11) of the VATL) that qualify for the exemption.

That said, prior to the amendment of the Presidential Decree of the VATL (on February 15, 2013), debt collection services provided by a credit information company until December 31, 2012, was explicitly stipulated as eligible for VAT exemption; however, starting in 2013, this exemption was abolished due to the sunset of the above provision.

Details:

Against this backdrop, the key issue was whether a debt collection service performed by a credit information company (limited to the collection service on asset securitization debt related to the asset securitization business) was eligible for VAT exemption.

The NTS decided debt collection service performed by a credit information company was not eligible for VAT exemption, and denied the VAT refund requests filed by the credit information companies.

Then, the credit information companies filed a lawsuit for cancellation of the above denial of the refund requests. The two main issues in this appeal were:

■ Article 33(1)(15) – rather than Article 33(1)(12) – of the former Presidential Decree of the VATL stipulates that VAT exemption applies to asset securitization and asset management business conducted by an asset securitization company and asset manager. Thus, the issue became whether debt collection services provided by a credit information company (limited to the collection service on asset securitization debt related to the asset securitization business) may be eligible for the VAT exemption under the above provision, even if the credit information company does not satisfy the conditions for being an asset manager prescribed under the law; and

■ Even if the credit information company cannot satisfy the above conditions, the service at issue should be eligible for VAT exemption based on Article 33(2) of the former Presidential Decree of the VATL, based on which VAT exemption is available for a person operating a business other than the financial business prescribed under Article 33(1) (which provides the same or similar services as its ancillary business).

On these issues, the first and second-level courts accepted the taxpayer’s arguments, and decided that the debt collection services provided by the taxpayers were eligible for exemption under the VATL. In reaching this decision, the courts considered that if the VAT is imposed on debt collection services, which are part of the asset securitization business, then based on abolishment of the exemption provision for ordinary debt collection services, such imposition would not be consistent with the legislative purpose to provide tax support for asset securitization businesses.

On September 13, 2018, the Supreme Court affirmed the lower level courts’ decision.

Significance:

Efforts by our tax litigation team led to development of new case law. After prolonged and fierce battles with the tax authorities, our professionals successfully represented our clients at all three court levels.

The courts’ decisions are significant, because the decision on VAT exemption was reached by taking into account not only the literal meaning of the law, but also its legislative purpose.

In addition, with the courts providing some standards for interpretation of Article 33(2) of the former Presidential Decree of the VATL (currently, Article 40(2) of the Presidential Decree of the VATL), where there were no clear precedents, this decision should provide guidance on numerous future disputes related to VAT exemption for financial/insurance services.

Moreover, this case has implications beyond the VATL; that is, since this decision may be interpreted to support the proposition that tax effects consistent with the legislative purpose should be considered if the text of the tax law and its Presidential Decree are unclear, disputes involving other tax laws may now cite this decision for arguments based on legislative purpose.

Newsletter

REAL ESTATE

“Centropolis” Sold for the Highest Ever Purchase Price Paid for an Office Building in Korea

LB Private Qualified Investor Real Estate Investment Trust No. 10 (the “Fund”), a trust-type fund managed by LB Asset Management Inc., acquired a newly constructed office building known as Centropolis (“Centropolis”) from Apple Tree PFV Co., Ltd.

Background & Significance:

Centropolis is located in the Insa-dong District, one of the most regulated cultural heritage preservation areas in Seoul. The Fund signed a forward sale and purchase agreement (“SPA”) to purchase Centropolis while the building was still under construction. Construction ended on July 30, 2018, and closing took place roughly three months later on October 23, 2018.

Centropolis boasts a total floor area of 141,474.68 m2, 26 floors above-ground, and eight floors underground. It prides itself as being one of the highest-end office buildings in Korea, and it was purchased for the highest purchase price ever paid for an office building in Korea to date: KRW 1.12 trillion.

Our Representation:

Kim & Chang represented the Fund on all stages of the transaction. The acquisition of Centropolis required carefully crafted multi-faceted considerations and advice on zoning, construction, and financing-related issues.

The transaction presented particular challenges as the Fund agreed to purchase the building while still in construction, and the completion of construction depended on whether various regulatory approvals would be granted.

Notably, an excavation during construction revealed buried cultural heritage artifacts underground, and the government ordered an exhibition hall on the first


Supreme Court Overrules Lower Tribunal to Recognize That a Patent for a Sustained Release Pharmaceutical Composition Satisfies the Description Requirements

The Korean Supreme Court recently overturned the Patent Court’s (2nd level Court of Appeals) decision to invalidate a Novartis patent for a sustained release formulation invention, where the pharmacological data was described based on animal testing for failing to meet description requirements.11

In its decision, the Supreme Court clarified what kind of data in the specification would be sufficient to satisfy the description requirements for a sustained release formulation invention by applying legal principles regarding description requirements for a product invention.

Background:

Novartis obtained a patent directed to a sustained release pharmaceutical composition comprising octreotide or a pharmaceutically-acceptable salt thereof as an active

basement floor of the building to preserve the artifacts. The Fund also required a minimum amount of lease income after closing.

Among the notable aspects of our team’s representation included advising on setting up an escrow account, where part of the purchase price would be deposited by the seller from which the Fund could draw any shortage in actual rent income. We also assisted the Fund in establishing a detailed set of leasing guidelines for the seller to follow up until the closing. Lastly, we advised the Fund in getting a KRW 470 billion loan to finance parts of the purchase price.

11 Supreme Court Decision 2016Hu601, October 25, 2018.


ingredient and two different polylactide-co-glycolide polymers (PLGAs) as further defined in the claims.

Octreotide is used for the treatment of acromegaly and symptom relief of carcinoid syndromes associated with gastroentero-pancreatic carcinoid tumors. The pharmacological effects of octreotide were already known before the priority date of Novartis’ patent. The claimed composition continuously releases octreotide for about three months without large fluctuations in the plasma level.

The patent specification describes that the claimed pharmaceutical composition allows a sustained release of the active ingredient over a period of more than three months, preferably between three and six months and that during the release of the active ingredient, the plasma levels of octreotide are within the therapeutic range. The specification also provides working examples regarding the method for an experiment where the compositions were administered to rabbits and the plasma levels of octreotide were measured for 96 days, as well as data obtained from the experiment.

Procedural History:

Dongkook Pharmaceutical filed an invalidation action with the Intellectual Property Trial and Appeal Board (“IPTAB”) against Novartis’ patent, arguing lack of novelty, lack of inventiveness, and failure to meet description requirements.

The IPTAB held that Novartis’ patent is novel and inventive, and that both the specification and the claims met the description requirements.

Dongkook Pharmaceutical appealed the IPTAB’s decision to the Patent Court. The Patent Court held that a person skilled in the art could not have properly understood the long term treatment effect of the patented invention from the rabbit data in the specification unless undue experimentation was carried out or special knowledge was added.

Thus, the Patent Court found that Novartis’ patent should be invalidated for failing to meet the description requirements prescribed in Article 42(3) of the Korean Patent Act. In its decision, the Patent Court indicated that a person skilled in the art could not have estimated the human plasma level profile from the rabbit data, and determined the therapeutic effect in humans based on

such estimation. In other words, the Patent Court had determined that the animal test data disclosed in the specification was not enough to meet the description requirements.

However, the Supreme Court reversed the Patent Court decision and found the patent to be valid. Specifically, the Supreme Court held that (i) according to the rabbit data described in the working examples, octreotide is continuously released for 89 days within a stable range of plasma level; (ii) the sustained pharmacological effect can be verified by confirming whether the plasma level of the active ingredient is continuously maintained after the sustained release formulation is administered; (iii) the method of predicting the plasma level in humans through test results regarding measurement of the plasma level of a specific active ingredient in animals had been widely used in the field of sustained release formulations at the time of the priority date; (iv) as described in the specification, if the plasma level of octreotide measured after administration at the appropriate dose of octreotide in rabbits was constantly maintained over a certain level for about three months, then a person skilled in the art could have predicted that the plasma level of octreotide in humans would be constantly maintained for a similar period based on the rabbit test results; and (v) as long as a person skilled in the art could manufacture and use the sustained release pharmaceutical composition of the patent and also could have predicted the effect of the patented invention on the basis of technology level at the time of the filing date of Novartis’ patent application, even if clinical trial data was not provided in the specification, it is recognized that the description requirements have been satisfied.

Significance:

The Supreme Court decision explicitly rejects the Patent Court’s application of an unreasonably strict description requirement to Novartis’ patent which is in conflict with the Korean patent practice, and provides legal principles regarding description requirements for a sustained release formulation invention, which are largely consistent with the legal principles established by the Supreme Court for a product invention.

Kim & Chang represented Novartis and obtained a favorable outcome for Novartis.

Newsletter

TECHNOLOGY, MEDIA & TELECOMMUNICATIONS

Government Approvals Obtained for Sale of D’Live’s Seocho SO Business

Under the Broadcasting Act and the Telecommunications Business Act (“TBA”), the sale (the “Transaction”) of the Seocho region system operator (“SO”) business by D’LIVE (the “Company”), a cable television system SO, to Hyundai HCN required various government approvals.

After obtaining the necessary consent and approvals from the Korea Communications Commission (“KCC”) and the Ministry of Science and ICT (“MSIT”) in October 2018, the parties successfully closed the Transaction.

The Transaction is the first approved SO sale deal involving a divestiture in Korea. Kim & Chang was able to obtain the necessary regulatory approvals that suited the Company’s timeline. As the first deal of its kind, the Transaction is highly significant as a precedent for future restructuring deals in the broadcasting industry.

Details:

The Transaction was structured as a share transfer following the divestiture of the Seocho region SO business. A key issue was that the various permits and licenses held by the Company (i.e., the SO license under the Broadcasting Act, the facility-based telecommunications service provider (“FSP”) license, and the specific service provider registration under the TBA) needed to be changed based on the aforementioned share transfer.

Considering that the Transaction involved a variety of regulatory concerns (including the Broadcasting Act), and since there was no precedent in the Korean market regarding the divestiture and sale of a SO business, our team faced the challenge of interpreting relevant laws and consolidating such interpretations into a logically coherent argument and persuade the regulatory authorities to approve the Transaction.

Our Representation:

Acting as counsel for the Company in the Transaction, Kim & Chang’s team examined required approvals from the beginning of the planning of the business structure in a systematic, comprehensive manner to come up with the ideal approval strategy best suited for the Company’s timeline.

We provided a logical and persuasive interpretation of applicable laws governing the unprecedented transaction structure, while continuing to consult with the regulatory authorities to ensure that our interpretations were compliant with the relevant laws as well as the actual practice of the regulatory authorities in question.

Further, to avoid any delay for the Transaction, we timely obtained the MSIT’s approval for the divestiture/change, the new establishment of the FSP business entity, and the change of the largest shareholder that followed prior consent from the KCC.


FIRM NEWS

AWARDS & RANKINGS

Only-Ranked Korean Law Firm for Fifth

Consecutive Year – The American Lawyer’s Global 100 (2018)

Highest Ranking Korean Firm in the Asia-Pacific Region – The American Lawyer’s Asia 50 (2018)

Winner of Six Consecutive “Korea Law Firm of the Year” Titles – ALB Korea Law Awards 2018

For the fifth year in a row, Kim & Chang is the only Korean law firm ranked in The American Lawyer ’s “The 2018 Global 100” rankings.

Remaining as the only Korean firm to rank in the top 100 on all three charts, we placed 51st in the “Most Revenue” category (gross revenue), 55th in “Most Profits” category (gross revenue per equity partner), and 67th in the “Most Lawyers” category (average full-time equivalent for the 2017 fiscal year).

About The Global 100: The American Lawyer, a leading US legal magazine, issues the special rankings edition,

“The Global 100,” every year, based on survey responses and independent research of law firms across the globe. The special rankings edition assesses law firms in the following categories: “Most Lawyers,” “Most Revenue,” and “Most Profits.”

In the 2018 edition of the “Asia 50,” an annual special rankings published by The American Lawyer , Kim & Chang ranked 14th among the top 50 law firms in the Asia-Pacific. Since the inception of the “Asia 50” in 2013, our firm has continued to be the highest ranking Korean law firm on the list.

About the Asia 50: Annually published by The American Lawyer, a market-leading legal publication, the “Asia 50” rankings draw from surveys and independent research of law firms in the Asia-Pacific region to identify the top 50 firms based on the number of full-time equivalent lawyers.

At the ALB Korea Law Awards 2018, Kim & Chang won “Korea Law Firm of the Year” for the sixth year in a row. Kye Sung Chung, our firm’s senior partner, was named “Managing Partner of the Year” for the third time, having been so named in 2013 as well as in 2016.

On top of retaining the “Korea Law Firm of the Year” title since the inception of the ALB Korea Law Awards six years ago, we earned five firm awards, five deal awards, and one individual award. In taking a total of 12 awards – the highest number of recognitions given to a firm at this year’s ceremony – we continue to solidify our position as the market-leading law firm in Korea.

The following are the details of our wins:

Firm Award Categories - Sole Winner ■ Korea Law Firm of the Year ■ Banking and Financial Services Law Firm of the Year ■ Construction and Real Estate Law Firm of the Year ■ Regulatory and Compliance Law Firm of the Year ■ Tax and Trusts Law Firm of the Year ■ Technology, Media and Telecommunications Law Firm

of the Year

Individual Award Categories - Sole Winner ■ Managing Partner of the Year: Kye Sung Chung

Deal Award Categories - Co-winner ■ Equity Market Deal of the Year: Kakao Corp ’s

Issuance of GDRs ■ M&A Deal of the Year: SK Hynix’s Investment in the

Acquisition of Toshiba’s Chip Unit ■ Projects, Energy and Infrastructure Deal of the Year:

Canakkale Turkey Bridge and Motorway Project ■ Real Estate Deal of the Year: Acquisition of the

Signature Tower in Seoul ■ Technology, Media and Telecommunications Deal

of the Year: HP’s Acquisition of Samsung’s Printer Business

Newsletter

Top Tier Across the Board for 15 Consecutive Years – IFLR1000 (2019)

For Fourth Consecutive Year, “National Law Firm of the Year - South Korea” – Asialaw and Benchmark Litigation Dispute Resolution Awards 2018

Kim & Chang earned the highest ranking (“Tier 1”) in all six practice areas in the 2019 edition of IFLR1000 . We are the only Korean firm to have received top tier ranking in all categories for 15 consecutive years.

IFLR1000 also recognized 30 Kim & Chang attorneys as “Highly Regarded,” “Market Leaders,” “Rising Star,” and “Notable Practitioners.” In describing our firm’s accomplishment, IFLR1000 stated, “Kim & Chang is the largest and possibly the most recognisable law firm in Korea. It dominates the market across all practice areas where it secures a top tier berth.”

The following is our firm’s 2019 rankings details:

Firm Rankings (Tier 1 in all six practice areas) ■ Banking and Finance ■ Capital Markets ■ Competition ■ M&A ■ Project Development ■ Restructuring & Insolvency

On September 20, 2018, Kim & Chang was named

“National Law Firm of the Year - South Korea” for the fourth consecutive year at the Asialaw and Benchmark Litigation Dispute Resolution Awards 2018.

Our firm was also honored with recognitions in “Best in Insurance” and “Best in TMT,” which are among the 14 practice area awards. Each practice area award is given to one leading law firm in the Asia-Pacific region. Additionally, Jin Yeong Chung, a senior member of our Litigation Practice, received the “Disputes Star of the Year - South Korea,” an award given to only one individual in each country.

About Asialaw and Benchmark Litigation Dispute Resolution Awards: Asialaw, a leading legal media affiliated with Euromoney, annually hosts the Asialaw and Benchmark Litigation Dispute Resolution Awards.

ALB Korea Law Awards: Asian Legal Business (ALB), a leading legal publication affiliated with Thomson Reuters, annually hosts the ALB Korea Law Awards to celebrate outstanding law firms, deals, private practitioners, and in-house teams in various categories. The winners are chosen based on law firm submissions, independent research, and an independent judging panel comprised of experts in the legal industry. This year’s awards ceremony took place at the Grand Hyatt Seoul on November 9, 2018.

Based on law firm submissions and independent research, Asialaw identifies and celebrates noteworthy dispute resolution cases, law firms, and lawyers in 14 practice areas across 14 jurisdictions in the Asia-Pacific region. This year’s awards ceremony took place in Hong Kong.

Our firm won the following awards:

■ National Law Firm of the Year - South Korea ■ Best in Insurance ■ Best in TMT ■ Disputes Star of the Year - South Korea: Jin Yeong

Chung


Again the Only Korean Law Firm Given Highest Ranking in All 24 Categories Ranked – Asialaw Profiles 2019

In the 2019 edition of Asialaw Profiles, Kim & Chang was once again the only Korean law firm to receive “Outstanding,” the highest possible ranking, in all 24 practice areas and industry sectors. Honored with the top ranking category in every practice area and industry sector, including the newly added sectors, we have established ourselves as the only Korean law firm that possesses exceptional capabilities across a wide range of practice areas and industries.

The following is a list of our recognitions in the Asialaw Profiles 2019:

Firm Rankings (“Outstanding” in all 24 categories)

Practice Areas ■ Banking and Finance ■ Capital Markets ■ Competition/Antitrust ■ Construction ■ Corporate and M&A ■ Dispute Resolution ■ Intellectual Property ■ Investment Funds ■ Labour and Employment ■ Private Equity ■ Regulatory ■ Restructuring and Insolvency ■ Tax

Industry Sectors ■ Aviation and Shipping ■ Banking and Financial Services* ■ Consumer Goods and Services* ■ Energy ■ Industrials and Manufacturing* ■ Infrastructure ■ Insurance ■ Media and Entertainment* ■ Pharmaceuticals and Life Sciences* ■ Real Estate ■ Technology and Telecommunications

(*newly added industry sectors)

About Asialaw Profiles : Asialaw Profiles is an annually published legal directory by Asialaw, a legal media associated with Euromoney, covering law firms in 25 jurisdictions across the Asia-Pacific region. Asialaw draws from law firm submissions, interviews, and surveys of legal practitioners and clients, as well as from its independent research to rank law firms in one of the following four categories: “Outstanding,” “Highly recommended,” “Recommended,” and “Notable.” Korean law firms were researched on 13 practice areas and 11 industry sectors.

Highly RegardedKye-Sung Chung, Ick-Ryol Huh, Chiyong Rim, Jin-Yeong Chung, Jong-Koo Park, Hi-Sun Yoon, Chang-Hyeon Ko, Gene-Oh (Gene) Kim, Chang-hee Shin

Market LeaderKyung-Taek Jung, Young-Kyun Cho

Rising StarMyoung-Jae Chung

Notable PractitionerBong Suk Koo, Hoin Lee, Hye Sung Kim, Hyeon Deog Cho, Ie Hwan Yoo, Jae Myung Kim, Jong Hyun Park, Joon-Ho Lee, Kwon-Eui Park, Kyung Yoon Lee, Robert Gilbert, Sookyung Lee, Sun Yul Lee, Sung Uk Park, Yong-Ho Kim, Young Man Huh, Young Min Kim, Yun Goo Kwon

About IFLR1000: IFLR, a leading f inancial law publication affiliated with Euromoney, annually publishes the IFLR1000 as a global guide to law firms and lawyers. The guide ranks firms in six practice areas based on surveys and independent research.


Again Ranked in the Top Tier in South Korea – ALB M&A Rankings 2018

According to the “ALB M&A Rankings,” published in the September 2018 edition of Asian Legal Business (ALB), Kim & Chang was again listed as a

“Tier 1” (top tier) firm in South Korea. As our firm continues to rank “Tier 1” every year, we continue to prove our dominant position as the leader in Korea's M&A market.

About ALB M&A Rankings: ALB, a leading legal publication in Asia affiliated with Thomson Reuters, annually publishes the rankings based on law firm submissions, Thomson Reuters M&A data, interviews, editorial resources, and market suggestions. Law firms are evaluated on various criteria, including volume, complexity and size of work, presence across Asia, and key client assessments.

About Kim & Chang’s M&A Practice: Our firm’s M&A practice is widely recognized in Korea and throughout Asia for providing the highest quality advice and services. Our team of experts provides clients a full range of legal services from pre-deal to post-transaction stages, including transaction structuring, closing, and Post-Merger Integration (PMI).

Twice this past winter, Kim & Chang attorneys and K&C Friends (staff volunteers) of Kim & Chang Committee for Social Contribution had the opportunity to engage in gimjang, a Korean tradition of preparing large quantities of kimchi for the winter, and share the kimchi with members of our community. First, on November 4, 2018, our volunteers participated in the Seoul Kimchi Festival 2018, and became part of the 3,500 participants who made the Guinness World Record for the most people making kimchi simultaneously. The festival, hosted by the Seoul Metropolitan Government, provided an opportunity to share Korea’s gimjang culture as well as experience the joy of giving.

The 9,000 boxes of kimchi prepared on this day were delivered to 25 food banks and 13 social service agencies through the Seoul Council on Social Welfare. Also, on November 17, 2018, our volunteers continued a tradition from past years and participated in gimjang with the Central Foster Care Family Center. The kimchi made on this day were delivered to 100 foster families, and the volunteers also hand-delivered 36 boxes of kimchi to Hannangok Senior Citizen Center and to Deulggot Youth World, an organization dedicated to caring for and educating children in need.

PRO BONO

Kim & Chang Committee for Social Contribution Helps Achieve New Guinness World Record and Shares Kimchi with the Local Community

39, Sajik-ro 8-gil, Jongno-gu, Seoul 03170, Korea

Tel: +82-2-3703-1114 Fax: +82-2-737-9091/ 9092 E-mail: [email protected] www.kimchang.com

This publication is provided for general informational purposes only and should not be considered a legal opinion of KIM & CHANG nor relied upon in lieu of specific advice. If you wish to change an address, add a subscriber, or comment on this newsletter, please e-mail [email protected]. For more newsletters and client updates of KIM & CHANG, please visit our website - www.kimchang.com

© Kim & Chang 2019.

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