Market dominance

Market dominance (시장지배/市場支配) is a measure of the strength of a brand, product, service, or company, relative to competitive offerings. In defining market dominance, the regulators consider to what extent a product, brand, or firm controls a product category in a given geographic area. There are several ways of calculating market dominance. The most direct is market share. This is the percentage of the total market serviced by a firm or brand. A declining scale of market shares is common in most industries: that is, if the industry leader has say 50% share, the next largest might have 25% share, the next 12% share, the next 6% share, and all remaining firms combined might have 7% share. However, the influences of customers, suppliers, competitors in related industries, and government regulations must be taken into account. Although there are no hard and fast rules governing the relationship between market share and market dominance, the following are general criteria:
 * A company, brand, product, or service that has a combined market share exceeding 60% most probably has market power and market dominance.
 * A market share of over 35% but less than 60%, held by one brand, product or service, is an indicator of market strength but not necessarily dominance.
 * A market share of less than 35%, held by one brand, product or service, is not an indicator of strength or dominance and will not raise anti-competitive concerns by government regulators.

Key words
market dominance status, fair trade, abuse, sanction

In Korea
The issue of market dominace under the Monopoly Regulation and Fair Trade Act (hereinafter the "Fair Trade Act", 독점규제 및 공정거래에 관한 법률) was dealt by the Supreme Court case 2002Du8626 in November 2007.

On November 22 2007, the Korean Supreme Court vacated and remanded the High Court's decision upholding the findings by the Korea Fair Trade Commission (KFTC) that POSCO, the largest steel manufacturer in Korea, has abused its market dominance in refusing to supply certain hot coils to Hyundai Hysco, an affiliate of Hyundai Motor Group manufacturing steel sheets for automobiles. This landmark decision effectively ended a seven-year dispute over the KFTC's sanction on POSCO.

Facts
In 1999, Hyundai Hysco built a plant manufacturing cold coils for the purpose of exclusively supplying steel sheets for automobiles to Hyundai Motor Group and requested POSCO to supply hot rolled stainless coils, necessary for the manufacture of cold coils. POSCO, who had supplied steel sheets to Hyundai Motor Company Group, refused to supply the cold coils to Hyundai Hysco for the reason of maintaining an integrated manufacturing system for cold coils. The KFTC found that such refusal by POSCO constituted an unfair abuse of market dominance (therefore, unfair refusal to deal) and imposed a surcharge of W1.64 billion (US$1.7 million) as well as a corrective order.

POSCO appealed in 2001, but the High Court upheld the KFTC's decision. In August 2002, POSCO filed an appeal with the Supreme Court against the High Court's decision as well as an action for stay order. The Supreme Court issued a stay order on the enforcement of the KFTC's decision, and since then, it has been through a five-year-long review and deliberation on the case before finally issuing a decision in November 2007.

At Issue
Throughout the KFTC and subsequent court proceedings, many issues have been raised and disputed by the parties, such as (i) whether POSCO has market dominance for the purpose of the Fair Trade Act; (ii) whether POSCO's refusal to supply in this case was unfair or anti-competitive; and (iii) further in relation to the market dominance, what the relevant market is in terms of product (whether the market for hot coils for automobiles constitutes a separate product market) and geography (whether the relevant geographic market is Korea or northeast Asia). Among these issues, the core issue that was rather fiercely disputed and debated by the parties was: what is the boundary under the Fair Trade Act on the freedom of a company with market dominance to engage in market activities or to enter into contractual relationships? In other words, the question is under what circumstances the exercise by such company with market dominance of its freedom to choose its business counterparty, which should be protected under the civil law principle, may be considered a violation of the Fair Trade Act.

KFTC's Position
On this issue, the KFTC took the position that, in the case of refusal to deal by a company with market dominance, if such refusal caused disadvantages in the counterparty's business, it would be deemed to be unfair or anti-competitive without further showing that such disadvantages actually caused the market foreclosure or substantial interference with the counterparty's business.

Therefore, in this case, the KFTC argued that POSCO's refusal to supply had forced Hyundai Hysco to entirely rely on imports in procuring supply of hot coils and to experience difficulties due to the additional costs from importing (for example transportation, customs and loading expenses), unstable supply (difficulty to secure consistent supply, reduction in productivity due to the mixed use of materials, inflexibility to adapt to the market change due to the lengthy transportation time and foreign exchange risks, and so on) and loss of bargaining leverage in negotiating with foreign sellers because of its inability to procure hot coils within Korea. Based on these difficulties, the KFTC found that the unfairness or anti-competitiveness of the refusal had been sufficiently established.

POSCO's Position
POSCO argued that, since, even in the case of a company with market dominance, the freedom to engage in market activities or to enter into contractual relationships should be in principle protected, in order to regulate such freedom there should be an objective concern that the competition in the market may be restrained as a result of the activities by the company with market dominance.

Accordingly, the finding of the abuse of market dominance should be limited to the circumstances where the market foreclosure or substantial interference with the counterparty's business actually occurs, not in the case where the counterparty as a consequence experiences mere difficulties or disadvantages in its business. In this case, therefore, there was no evidence of anti-competitiveness because, considering that Hyundai Hysco had been fully operating its manufacturing facilities with the hot coils it imported from Japan and realizing a normal level of profitability in its business, there was no market foreclosure or substantial interference with Hyundai Hysco's business.

In addition, POSCO claimed that the decision on the question whether POSCO should sell to its competitors hot coils, which are intermediary materials for the steel sheets, or consume them all on its own for its integrated manufacturing system, was up to POSCO, not subject to interference by the antitrust laws. Further, the freedom to make choices on the business transactions should be protected to a greater extent in the case of refusal to begin a new transaction, as opposed to refusal to continue a business relationship.

Supreme Court Decision 2002Du8626
On the issue of the abuse of market dominance, the Supreme Court mostly accepted POSCO's position and held in a 6:3 majority opinion that POSCO's refusal to supply in this case was not anti-competitive.

The Supreme Court acknowledged without further reasoning that POSCO is a company with market dominance. However, in terms of the issue of the abuse of market dominance, the Supreme Court held that the unfairness or anti-competitiveness of refusal to deal by a company with market dominance would be established only when such refusal causes a substantial anti-competitive impact on the market. The mere fact that the counterparty has suffered difficulties or disadvantages in its business would be insufficient to prove the unfairness or anti-competitiveness.

The Supreme Court held:
 * "[I]t is not sufficient to find refusal to deal by a company with market dominance unfair based on the mere fact that the company with market dominance refused to deal with a particular counterparty with an unfair intent or purpose or such counterparty has suffered or is expected to suffer certain difficulties in its business due to the refusal. The refusal to deal by a company with market dominance would be found unfair when both of the following requirements are met: (i) that the refusal was made with the intent or purpose to artificially influence the market order by restraining free competition in the market, such as to maintain or strengthen the monopoly, and (ii) that the refusal was objectively viewed as an act that could have such anti-competitive effect."

In addition, the Supreme Court ruled:
 * "[T]he difficulties pointed out by Hyundai Hysco in this case are only specific disadvantages that Hyundai Hysco has suffered by POSCO's refusal to deal and do not evidence that an anti-competitive effect on the relevant market has been actually resulted in. On the contrary, according to the materials submitted to the High Court, despite POSCO's refusal to deal, Hyundai Hysco continued its manufacture of steel sheets using the hot coils imported from Japan and has been in normal operation as the manufacturer and supplier of steel sheets, constantly realizing profits since 2001 when the newly built steel sheet manufacturing plant began its operation. In addition, there has been no indication of restraint on the competition after POSCO's refusal to deal, such as reduction in production of steel sheets in Korea or increase in price, etc. Therefore, it is difficult for this court to uphold the High Court's decision that there was restraint on the competition."

In a dissenting opinion, certain Justices expressed their view that, in the case of refusal to deal by a company with market dominance, the unfairness should be presumed, and accordingly, the company with market dominance should prove the absence of anti-competitiveness effect. The other dissenting opinion expressed that the refusal should be found anti-competitive if it causes difficulties in the business of the counterparty regardless of the actual concern of restraint on the market competition.

Implications
The noteworthy implications from this Supreme Court decision may be summarized as follows:

Firstly, the Supreme Court made it clear what needs to be shown in finding a refusal to deal by a company with market dominance anti-competitive. In other words, this is the first case addressing the permissible scope of regulation on the freedom of a company with market dominance to engage in business activities, by clarifying that, even in the case of a company with market dominance, unless the refusal by such company is viewed to substantially restrict the market competition, the mere fact that the counterparty suffered disadvantages in its business as a result of the refusal is not sufficient to establish the anti-competitiveness of such refusal.

In addition, among the types of refusal to deal, the Supreme Court differentiated the refusal to newly begin a business relation from the refusal to continue a business relationship and stated that, although the refusal to continue to deal is likely to have an anti-competitive impact by reducing the number of the existing competitors or restricting the business capability of such competitors, it would be difficult to find the refusal to newly begin a business relation anti-competitive on its own unless there is a substantial barrier to market entry. The Supreme Court's recognition and application of this legal principle is consistent with the regulation of the monopolization or attempt to monopolize under Article 2 of the Sherman Antitrust Act in the US and the regulation on abuse of market dominance under Article 82 of the EC Treaty. In this regard, it is also meaningful that the Supreme Court has recognized the standard that has been adopted by anti-competition authorities in other major jurisdictions.

Secondly, this Supreme Court decision is expected to have a significant influence on the regulation on abuse of market dominance in general, not only with respect to the refusal to deal.

Under the Fair Trade Act, a refusal to deal by a company may be subject to sanction either as abuse of market dominance under Article 3-2 or unfair business practices under Article 23, depending on whether it is a market dominant firm. This is different from the other major jurisdictions including the EU or the US, in which only a market dominant firm or a firm with monopoly power is subject to antitrust prohibition of a refusal to deal. In the case discussed here, the Supreme Court has made clear that, in the case of the abuse of market dominance regulated under Article 3-2 of the Fair Trade Act, objectively showing the effect of restraint on the market is required, unlike in the case of the regulation of unfair trade practices under Article 23 of the Fair Trade Act, in which the unfairness may be rather simply assessed in the relationship with the counterparty.

Therefore, in relation to other types of abuse of market dominance, such as tying, exclusive dealings and predatory pricing, simply showing that the counterparty has suffered certain disadvantages without proving that the competition in the market has been substantially restrained, would not be sufficient to hold the company with market dominance liable for violation of the Fair Trade Act.