What Constitutes Unfair Business Practices in International Contracts Such as Copyright License Contract or Import Distribution Contract under Korean Laws?

“X Company” is a Hong Kong company which provides and sells Software Products in Korea through appointment of local distributors.  “X Company” would like to review its standard distribution contracts (the “Reseller Terms”) with Korean distributors and want to know whether there are any clauses in the Reseller Terms that may be deemed illegal under the laws of Republic of Korea.

In view of the nature of the Reseller Terms, under the Monopoly Control and Fair Trade Act of Korea (“MCFTA”), the type of the Reseller Terms may be characterized as both a “copyright license contract” and an “import distribution contract.”  MCFTA has published guidelines on the types and criteria for determining unfair business practices in international contracts (the “Guidelines”), and the Reseller Terms would need to be reviewed against the Guidelines.

For example, paragraph 11 of Article 3 (Transfer of Improvement Technology) of the Guidelines provides that “When a licensor requires a licensee to provide the licensor, without compensation, with the ownership of or the exclusive (non-exclusive) right to use the technology (product) improved by the licensee…,” the practice shall be unfair.

Moreover, because the Reseller Terms is a standardized type of contract applicable to all local distributors, the Reseller Terms may come into the purview of the Regulation of Standardized Contracts Act (“RSCA”).  The purpose of RSCA is to prevent business entities from imposing standardized contracts on their customers containing unfair terms and conditions that constitute abuse of their negotiating position.

For example, paragraph 1 of Article 10 of RSCA provides that “A clause which, without substantial reason, gives an enterprise the power to unilaterally determine or change the content of performance” shall be null and void.

It should be noted that, according to Article 7 of the International Conflicts of Laws Act, both MCFTA and RSCA does operate as mandatory provisions of Korean law governing a particular legal relationship which must be applied (with considerations of legislative intent), in spite of a foreign governing law, if the dispute at hand involves such relationship.

With respect to MCFTA provisions, the Korean Fair Trade Commission (“FTC”) has the authority under MCFTA to order the Korean importer/distributor (Reseller) to revise the provisions deemed unfair so that the corresponding contract does not provide for an unfair practice.  If Reseller fails to comply with such order of the FTC, FTC has authority to impose sanction on Reseller (imposition of an administrative fines, etc.).  However, the foreign exporter would not be subject to the sanction of FTC because the extra-territorial application of FTC is not generally approved.  However, because there is some tendency of expanding such extra-territorial application of MCFTA and also because the possibility of Reseller being subject tosanction could negatively reflect upon the reputation of foreign company, it would be advisable to make revisions properly.

With respect to RSCA provisions, if any provision of a contract is found to be a violation of RSCA, then such provision would be rendered void under the Korean Civil Code.  Therefore, it would also be advisable to make revisions in order to avoid the foregoing possibility.

If you have any question regarding this unfair business practice issue under Korea law, please send an E-mail to Mr. Wonil Chung at chungwi@nate.com

© 2008 Wonil Chung, a Korean Business Contract Lawyer/Chung & Partners, a Korean Business Contract Law Firm.  All rights reserved. Some copyrights, photos, icons, trademarks, trade dress, or other commercial symbols that appear on this post are the property of the respective owners.

Can an Employment Contract Entered in South Korea Exclude a Jurisdiction of Korean Court?

Recently I got a question about a jurisdiction of legal dispute arising of a labor contract made between a Korean company and a foreigner here in Korea.  The foreigner told me his contract had a exclusion clause which ruled out the jurisdiction of Korean court.

According to Article 2(1) of the Private International Act, a Korean court shall have the jurisdiction over an international trial in the case where the parties or the issue has substantial relation to South Korea, and according to Article 28(5) of PIA, the parties of an employment contract may make an agreement on the international jurisdiction only in cases where a dispute has already occurred or an employee is allowed to bring a lawsuit to a court in addition to the governing court in accordance with the PIA.

So even if parties of an employment agreement had agreed to rule out the jurisdiction of Korea n court before a dispute occurred, such agreement violates the PIA, so it has no effect under Korean law.

© 2008 Wonil Chung, a Korean Labor Lawyer/Chung & Partners, a Korean Labor Law Firm.  All rights reserved. Some copyrights, photos, icons, trademarks, trade dress, or other commercial symbols that appear on this post are the property of the respective owners.

How Does the Korean Court Confirm the Meaning and the Contents of Foreign Laws Applicable to Legal Relations Having Foreign Elements?

According to article 5 of the Private International Act(“PIA”) of Korea, a court shall investigate and apply the contents of the foreign law designated by the PIA on its own initiative. However, sometimes it’s not easy for Korean court to confirm the right meaning and contents of foreign laws.

In this regard, the Supreme Court of South Korea has ruled as follows, in a case where the both parties had different interpretation of relevant Polish laws in deciding who’s the real owner of a ship registered in Poland(2006da5130):

“In confirming the content and interpreting the meaning of foreign laws and regulations to be applied to legal relations having foreign elements, the interpretation and application shall be made in accordance with the meaning and the content through which the foreign law is actually interpreted in the home country, and the judgment by the highest court of the home country, unless under special circumstances, shall be respected, but if it is impossible to confirm the content because of the insufficiency in submitted data in the process of a suit about precedents or interpretation criteria, the court shall have no other choice but to confirm the meaning and the content of the law in accordance with general interpretation criteria of laws”

© 2008 Wonil Chung, a Korean Litigation Lawyer/Chung & Partners, a Korean Litigation Law Firm.  All rights reserved. Some copyrights, photos, icons, trademarks, trade dress, or other commercial symbols that appear on this post are the property of the respective owners.