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Jan 26, 2011

Changes to Korea Insurance Business Act

The Insurance Business Act’s (promulgated on July 23, 2010) Enforcement Decree comes into effect this January 2011. The major changes to the Act and Enforcement Decree are listed below.

1. Credit-Linked Notes are Now Specifically Authorized

The previous Act banned providing any debt guarantees by third parties, thus, facially prohibiting many derivative-linked securities common throughout the Western world.

2. Enhanced Duties for Insurance Salespersons, Representatives and Insurers

Out of an impression by the government that many insurance companies are targeting the most vulnerable in society, the Act now provides many of the protections afforded to insurance customers provided by the Korean Financial Investment Business and Capital Market Act to financial product customers. Most of these duties are only applied to those selling to the “non-sophisticated” purchasers.

A. Duty to Recommend a Product Suited to the Needs of the Insured

Thus, the insurance representatives/agents (“agents”) should review the insured present policies, purpose for insurance, age, assets, financial capabilities, earning potential, subscription period etc. and recommend only a product that is suited to the specific needs of the customer. I fear that many of the present agents will be unable to analyze the needs, thus, hopefully insurance companies will enhance training and make internal guidelines based on sample demographics.

B. Duty to Explain Basics of Insurance Product

Agents will be required to explain, at a minimum, the basics of the policy including the purpose, proceeds, payment period, termination clauses, specific conditions for payment etc.

C. Duty to Confirm Purchase of Double Coverage

The Act imposes the duty on the Agent to explore whether the customer has overlapping cost-based health insurance coverage and explain to the customer that they have overlapping coverage and may not need the present coverage.
3. Increased Restrictions on Misleading Advertisement
The Act, in short, requires all advertising to contain specific disclaimers and for insurers not to engage in conduct that may mislead potential customers.


Jan 25, 2011

Liquidated Damages Necessary in Most Korean NDA and Non-Compete Agreements

For any company engaged in negotiations, agreements, pre-M & A due diligence, OEM outsourcing or other activities with a Korean business or individuals that may lead to you disclosing your companies intellectual property, know-how or other proprietary information, always include in your no-competition, non-use, non-circumvention and non-compete agreements liquidated damages clause. Without the clause – good luck in proving damages when a breach occurs.

If the other party refuses to the sign the clause, this is good sign that the party will breach. The clause is of course, only triggered when a breach occurs. I recently had a client that was very worried about losing "goodwill." Easy solution, blame the "lawyer."

For companies that are not engaged in active, continous and substantial business in Korea, the chance of finding evidence of damage, after a breach, is remote -at best. The reason stems from proof of market potential in Korea, the fact that the counter-party is in control over the evidence and Korean litigation realities that make it difficult to obtain evidence to satisfy the judge that damages have occurred.   Often, a breach will be established, but damages are not enough to even justify filing the case unless the plaintiff has a proven Korean trackrecord and rat from the defendant's camp.
Don’t forget my other basic recommendations in the posting entitled: Outsourcing: Legal Basics

1. Request and obtain the company’s business registration number and perform a credit check on the company. A basic credit check can be obtained through the Korean Investors Service ( 
2. Register all your intellectual property rights (copyright, patents, trademarks etc.) in Korea. Registration will help to prevent your competitor, a disgruntled distributor, or your manufacturer from counterfeiting your goods and exporting your product from Korea to your customers and potential customers. Registration in the United States and Europe does not guarantee that your intellectual property rights are protected in Korea. IP treaties only provide you a window of time to register in a member state.
3. Your Korean license, distribution, OEM agreements and other agreements used in other nations are not adequate for Korea. All “standard” distribution, license, OEM agreements and other agreements should only be used as guides in Korea. Korea has a unique legal system with unique business risks. If you are planning to deal only through a purchase order (PO), you are a goat waiting to be milked.

4. All agreements, to avoid any initial misunderstandings, should be drafted in English and Korean. A well drafted Korean OEM agreement is not complete until it is translated. Even the best English speaking Koreans, are ill prepared to understand agreements of this nature. Clear misunderstandings upfront and avoid legal fees down the road.

5. Know-how, trade secrets and the like should be protected through a written agreement. A standard non-disclosure agreement (NDA) is not enough. This agreement should be signed prior to any course of dealing and normally should include confidentiality, non-use, non-circumvention, non-competition clauses with liquidated damages clauses. 


Jan 9, 2011

Yes -you can Win a Lawsuit in Korea against Entertainment Managment Companies

The Seoul Central District court ruled in favor of Han Keng, a former member of Super Junior a leading Korean pop group formed by SM Entertainment, in ruling that his contracts with SM Entertainment were null and void.

The court opined that: "The exclusive contract between Han and SM Entertainment is considerably unfair to him as it is unilaterally advantageous to the management agency, which had superior leverage at the time of signing . . . Based on the precedent of other boy/girl bands, it seems that Han would be tied to SM Entertainment for most of the peak years of his career under the current contract."

Han signed the contract when he was still in high school.  The cotracts gave total ownership rights of albums and songs made during the contract to SM Entertainment, while prohibiting him from profiting from any songs he personally wrote as a solo artist.

Han joined SM Entertainment in 2001 through an audition in China.  He has been a member of Super Junior since 2005.  However, since filing of the lawsuit, he has been working in China.  SM has appealed the decision.

J & S Law Firm's IPG did not represent the entertainer or the entertainment company in this matter.  However, J & S Law Firm has one of the leading entertainment law practice teams in the Korean market.


Trade Stats Rarely Tell the True Story

A great article by Andrew Batson in the Wall Street Journal shows how trade stats are often misleading.

The article "Not Really 'Made in China': The iPhone's Complex Supply Chain Highlights Problems With Trade Statistics" illustrates how the entire value of the iphone is considered by present stats as part of the U.S. trade deficit with China, however, in value-added terms less than 4% of the value of the product is actually attributed to China, while 34% should be attributed to Japan; 17% to Germany; and 13% to South Korea.

The articles quotes the director-general of the WTO:
What we call “Made in China’ is indeed assembled in China, but what makes up the commercial value of the product comes from the numerous countries," Pascal Lamy, the director-general of the World Trade Organization, said in a speech in October. "The concept of country of origin for manufactured goods has gradually become obsolete."

Mr. Lamy said if trade statistics were adjusted to reflect the actual value contributed to a product by different countries, the size of the U.S. trade deficit with China—$226.88 billion, according to U.S. figures—would be cut in half.
The article may be found HERE.