APPC Homepage

Ⅰ. THE FOURTH INDUSTRIAL REVOLUTION AND MODERNIZING COMPETITION LAW

The advent of the Fourth Industrial Revolution is ushering in an era where aritificial intelligence (AI) maximizes automation and connectivity. In addition, IT digital technologies such as the Internet of Things (IoT), the 5G Communication Network, and the Big Data are combined with advanced manufacturing technologies such as additional manufacturing and robot engineering to expand and disseminate new utilities. In short, the industrial spreading effects are likely to be maximized. As the Fourth Industrial Revolution progresses, the digital market is growing faster than ever. These markets provide real-time customized services to consumers based on patterns and trends that use services interlocked with Big Data such as data collection and analysis technology, IoT, and machine learning. In addition, the digital market helps to promote interaction between them. Thus, the Fourth Industrial Revolution is expected to serve as a turning point for significant economic and social changes, bringing about various optimistic expectations and pessimistic concerns.

At the government level, South Korea is rushing to come up with various proactive measures against the changes cused by the Fourth Industrial Revolution. From the viewpoint of fair competition, the Korean government has reformed policies as follows: improvement of regulations for the new industrial sectors (information and communication technologies [ICT], healthcare, etc.) (2018); reinforcement of monitoring abusive monopolistic activities by innovative technology companies (2017~); identification (2017) and improvement (2018) of the competition-limiting regulations impeding new entries or innovative business activities in ICT, healthcare, new renewable energy industries, etc.; and increasing the penalty to reinforce the effectiveness of the law (amendment to the Fair Trade Act, 2018). In addition, the KFTC presented “Supporting the Establishment of an Industrial Ecological System Facilitating Innovative Competition” as one of the five business support policies in its 2019 Work Plan.

On the other hand, competition law is at a crossroads between maintain the traditional principles and frameworks of the Fourth Industrial Revolution or introducing additional elements in other fields of law. In recent years, major countries have responded to digital market cases, such as mergers and acquisitions between major platform businesses and abuse by market controlling businesses, and have published reports on the role of competition law in a new competitive environment. Relevant German and French institutions have said that the traditional principle of competition law is sufficient to cope with market failures and thus that there is no need to introduce additional elements from other laws. The House of Lords of the United Kingdom has submitted an opinion that it opposes any platform-specific regulation, as current competition laws address new types of abuse occurring in online platform areas. Therefore, related organizations in major countries are reluctant to regulate platforms. Nevertheless, it continues to discuss and examine which elements of the digital economy pose new threats to the existing economic order and what problems can be resolved by legislative measures.

Under these circusmtances, the KFTC promoted the full amendment of the Fair Trade Act to modernaze competition law following the Fourth Industrial Revolution, building innovative corporate ecosystems and revitalizing new industries. Additionally, National Assemblymen Byeongdu Min, Hakyoung Lee, and Byeongwan Jang, respectively, proposed amendments to the Fair Trade Act draft: Bill No. 16674, on November 19, 2018, Bill No. 17999, on January 2, 2019, and Bill No. 18067, on January 7, 2019. Their common purpose was to establish a fair and innovative market economy conforming to the changed economic environment in the twenty-first century.

This paper discusses the newly emerging competition-limiting behaviors and means due to the Fourth Industrial Revolution, focusing on the amendment of the Fair Trade Act suggested by the government (Bill No. 16942) and, thereupon, examines the details of the competition law in relation to the new industries.


Ⅱ. CHANGING COMPETITION LAW TO CONSTRUCT AN INNOVATIVE BUSINESS ECOLOGICAL SYSTEM

A. Deregulation of the Venture Holding Companies

Venture holding companies are clearly defined in Paragraph 2 (Definitions) of the Act on Special Measures for the Promotion of Venture Businesses and Paragraphs 1 and 2 of Article 8-2 of the Act as “companies holding 50% or more of the entire subsidiary companies’ stock prices.” It is an ordinary holding company distinguished from a financial holding company. It may also exist as an intermediate holding company within the ordinary holding company structure.

This system was introduced into the Fair Trade Act in 2001 to help promote venture businesses, but a venture holding company’s acquisition of non-affiliated companies’ stocks is limited as with ordinary holding companies. Moreover, like ordinary holding companies, venture holding companies have restrictions on the establishment of subsidiaries. For this reason, the venture holding system is criticized for being over-regulated so that few business people have used it. Hence, the amendment of the Fair Trade Act stipulates how to induce investments in, and M&As of, venture businesses. While the venture holding company may hold a 20% stake of its subsidiary companies, special cases for holding shares of the subsidiary company should be allowed when a holding company establishes its subsidiary as a venture business. Thus, the limits on acquiring a non-affiliated companies’ shares would be abolished (Article 18, Paragraphs 2-4, of Fair Trade Act amendment).

However, while large companies are reluctant to acquire venture capital, the problem is that it is almost impossible for a holding company to acquire corporate venture capital (CVC ) for a start-up investment and an M&A. The current Fair Trade Act stipulates that CVCs and start-up investment companies may not be owned as subsidiaries based on the Separation of Financial Institutions from Industrial Capitals. A CVC is recognized as a financial affiliate.

The KFTC decided not to allow CVCs, which venture businesses have continued to demand. Accordingly, the separation between finance and industry is prioritized over protecting small and medium-sized businesses or promoting venture businesses. For this reason, the current level of deregulation is ineffective in revitalizing start-ups and venture businesses. On the other hand, other experts opine that to activate venture investment CVC may well acquire the shares of venture businesses, but the principle of separation between finance and industry should not be abandoned. In the same context, the argument for allowing large companies to invest in venture businesses through their CVC should be reviewed for the possibility that even venture investments would be monopolized by large companies.