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

“X Company” is a U.S. 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 Continue reading