Cancellation of Corporate Income Tax due to Spin-Off
Lee & Ko prevailed in the Seoul High Court to cancel the corporate income tax from a spin-off of the gas supplying sector of the client’s business as a separate subsidiary. In this case, the Korean tax authority made assessment of corporate income tax by arguing that the split-off did not satisfy all the requirements for a tax-free spin-off, and therefore the deferred tax cannot apply for the purposes of corporate income tax on SeAH Holding Corp. In that regard, Lee & Ko examined legal principles on a spin-off, presented the facts and circumstances concerning the spin-off by the client at issue, and thoroughly explained why the spin-off satisfied the two requirements for a tax-free spin-off under the relevant tax law including (i) spin-off of a business sector which can be operated as an independent business, and (ii) transfer of assets and liabilities falling within the eligible business sectors. As a result, both the lower court and appellate court ruled in favour of the client, and cancelled the corporate income tax assessment by the Korean tax authority. This case is the first case where the court made detailed legal analysis regarding the requirements to apply deferred tax to an appropriate spin-off. Based on the success it obtained from this case, Lee & Ko will be able to provide valuable advice and representation to clients with similar tax issues of an appropriate split-off in the future.
Supreme Court of Korea Found Copyright Infringement in Selection, Arrangement or Combination of Elements in Games for the First Time
The First Supreme Court Decision for Copyright Infringement in Games is Issued in June, 2019. On June 27, 2019, the Supreme Court of Korea issued a decision in a case for copyright infringement in substantially similar selection, arrangement and combination of the elements in games. This ruling is the first Supreme Court decision recognizing copyright infringement in copied games including mobile games. Lee & Ko represented the plaintiff, King.com, throughout the proceedings before the lower courts as well as the Supreme Court, and played important role in achieving the ground breaking decision of the Supreme Court.Facts of the Case and Questions PresentedKing.com, a prominent game company and creator of “Farm Heroes Saga,” brought a copyright infringement suit against the defendant who distributed another game, “Forest Mania” which was substantially similar to Farm Heroes Saga. Both games expressed the game rules through similar movement and order of introduction but had different game characters. Seoul Central District Court found no copyright infringement but held that the defendant violated the Unfair Competition Prevention and Trade Secret Protection Act (the “UCPA”) and on appeal, Seoul High Court held in favor of defendant, finding no copyright infringement and no violation of the UCPA. King.com appealed the decision of Seoul High Court. On the appeal case heard before the Supreme Court, Lee & Ko presented how the “creative characteristics” of Farm Heroes Saga were actualized through selection, arrangement and combination of game rules. Given the nature of the case where many contentious issues were based on visual expressions, the Supreme Court allowed both sides rare opportunities of presenting the arguments before the court using visual materials and Lee & Ko successfully presented convincing evidence of substantial similarities between Farm Heroes Saga and Forest Mania. Finding copyright infringement based on Forest Mania’s copying of the creative characteristics of Farm Heroes Saga, the Supreme Court held in favor of King.com, thereby reversing Seoul High Court’s decision and remanded the case back to Seoul High Court. In King.com case, defendant’s game had design elements such as characters which were different from such elements in plaintiff’s game but selection, arrangement and combination of game rules were substantially similar in both games. In the decision, the Supreme Court explained that a game can be protected under copyright if its elements are selected, arranged and combined in accordance with certain intention so that the resulting game has creative characteristics distinguishing itself from other games. This case is the first Supreme Court case where the court recognized copyright infringement in substantially similar games.Implications in Game IndustryA game is a complex work which combines narratives, music, visual design, video and computer programs. Until King.com decision, there has been no clear precedent on to what extent the copyright protection is available for games, especially on whether a copyright infringement can be found for a game which imitates original games but changes the design of characters. With King.com decision, the court provided a guideline for determining copyright infringement for games by recognizing creative characteristics in selection, arrangement and combination of game elements.
Represented Lead Managers in USD1.5 billion Sustainability Bonds of the Korean Government
Lee & Ko performed a key role as legal advisors for the lead managers in connection with the 2019-06-19 US$ 1.5 billion issuance of Foreign Exchange Stabilization Fund Bonds, (including a tranche of green/sustainability bonds). This deal is particularly significant due to it being the first such issuance of green/sustainability bonds by a government entity and due to the historically low yield rates of 2.177% for the 5-year bonds and 2.677% for the 10-year bonds for each tranche of the bond issuance. This deal is widely regarded as a particularly successful and precedent-setting bond issuance. The lead managers for the deal were Citigroup Global Markets Inc., Crédit Agricole Corporate and Investment Bank, The Hongkong and Shanghai Banking Corporation Limited and J.P. Morgan Securities LLC. Attorneys Hyunjoo Oh, Seung-A Hyun, Dong Yon Kim and Sang Hyun Ahn, who are all members of Lee & Ko’s Capital Markets Practice Group, participated as advisors to the lead managers. As this issuance of Foreign Exchange Stabilization Fund Bonds may be regarded as the most significant issuance of debt securities that has been handled by Lee & Ko’s capital markets team, the firm is particularly proud of the exemplary professionalism demonstrated by the above-named attorneys at every stage of the deal.Lee & Ko Acts as Legal Advisor for LG Chem Issuance of Global Green Bonds.
Lee & Ko successfully represents Big Hit Entertainment against unauthorized use of BTS’ photos
Lee & Ko, on behalf of Big Hit Entertainment (“Big Hit”), obtained the first-ever decision in Korea to recognize the entertainment companies’ right to independently request for injunction against those who free-ride on the customer attractiveness that is based off of popularity and fame of the artists managed by the companies. This landmark decision is expected to serve as an important pedestal in protecting the legitimate interest of entertainment companies (domestic as well as international) that manage famous artists and entertainers and remain vulnerable to unfair competition of free-riders. Big Hit is the mastermind behind the global sensation BTS, also known as the Bangtan Boys (방탄소년단), one of the most popular boy bands in the music industry today. Ever since BTS’ conception, Big Hit has been the engine and fuel behind all aspect of BTS’ activities. As BTS rose to global fame, however, rampant exploitation of their fame grew in high demand and merchandises using BTS’ name, portrait and photo without Big Hit’s permission started to flood the market. Fans who purchased these merchandises (specifically photobooks with collection of BTS’ portraits and photos) by believing them as official goods were disappointed to learn the truth, and poured complaints to Big Hit. Lee & Ko was engaged as Big Hit’s legal representative to take legal measures against these unauthorized merchandises. At the time Lee & Ko sought to take action, however, the Korean court’s then-current position was that the entertainment companies are not entitled to seek legal protection for their artists’ right to publicity when there is no explicit legislation governing such right. This called for an immediate introduction of new legal basis that can protect the entertainment companies from the free-riders of their artists’ fame. To do so, Lee & Ko developed a new legal basis for protection based on the Unfair Competition Prevention and Trade Secret Protection Act (“UCPA”). The UCPA prohibits actions that infringe another person’s economic interest by using such person’s achievements, which are the result of substantial efforts and investments for many years, without permission for unjust profit. Using the UCPA, Lee & Ko asserted that the economic value of BTS (e.g., BTS’ name, logo, portrait, photo, etc.) correspond to Big Hit’s enormous achievement resulting from many years of tremendous efforts and investments, by emphasizing the fact that Big Hit has planned and managed BTS’ entire career from debut to their present tremendous success. Lee & Ko argued that the very act of selling the unauthorized merchandises of BTS constitutes an act of unfair competition prohibited by the UCPA. Convinced by Lee & Ko’s argument, the Seoul Southern District Court entered an injunction order on November 30, 2018 prohibiting all unauthorized production, distribution, sale and export of BTS photobooks, and also imposed a strict penalty by ordering a payment of 20 million KRW (approximately 20 thousand USD) won per day in the event of continued violation. Despite the Court’s order, once the publishing companies were not allowed to make photobooks using unauthorized photos, they found ways to circumvent the court’s scrutiny by creating and selling photobooks fronted as entertainment magazines (that still included large number of BTS photos) and claiming freedom of press. Publishing companies started to print magazine-like photobooks as shown below Use of unauthorized BTS’ photos within the magazine In response, Lee & Ko filed an injunction to stop the publishing company from selling such “magazines” in name only. The Seoul Central District Court, however, denied the claim by holding that since the magazines still cover stories of other artists as well, they constitute legitimate media coverage and are protected under the freedom of press. Lee & Ko appealed the decision by showing the court that the magazines were serving as actual photobooks to the fans (which was verified through fan surveys, general perception of the public, comparison with other legitimate entertainment magazines, etc.), and that the publishing companies were using such guise to free-ride on the fame and popularity of BTS. After reviewing the exhaustive evidences submitted by Lee & Ko, the Seoul High Court on May 30, 2019 expressly acknowledged that the magazines in effect constitutes a “photobook” or “photobook-like magazine” similar to the official photobooks produced and sold by Big Hit and further held that the publishing company’s act of publishing and selling such magazines exceed the scope of ordinary media coverage and therefore cannot be protected under the freedom of press. The Seoul High Court granted an injunction relief and ordered the publishing company to pay Big Hit 10 million KRW (approximately 10 thousand USD) per day in the event of continued violation.The two recent Korean Court’s decisions are significant in that they serve as first-ever decisions to recognize that entertainment companies are also independently entitled to legal protection for their artists’ name, logo, portrait, photo under the UCPA, therefore extending the scope of legal protection from artists to the entertainment companies that built the artists’ customer attractiveness through substantial investments and efforts.
KWN 1.2 trillion acquisition of KCF Technologies by SKC
Mergers & Acquisitions
Lee & Ko advised SKC Co. (a chemical and tech material producing unit of South Korean conglomerate SK Group) in its acquisition of 19,139,160 shares (100%) of KCF Technologies (KCFT). KCFT is the country’s leading battery copper foil and flexible copper clad laminate maker owned by U.S. based investment firm, Kohlberg Kravis Roberts (KKR). The total deal value of this transaction is KRW 1.2 trillion. Lee & Ko has previously advised LS Group in its transfer of automobile parts business and LS Mtron’s copper foil / thin film business to KKR. Due to high praises of the successful completion of the deal, Lee & Ko received another opportunity to prove its extensive knowledge and experience in this field.
Samsung Electronic’s acquisition of Samsung Electro-Mechanics’ Panel Level Package (PLP) business
Mergers & Acquisitions
Lee & Ko represented Samsung Electronics and its acquisition of Samsung Electro-Mechanics’ Panel Level Package (PLP) business. The transaction was signed on April 30, 2019 and successfully completed on June 1, 2019. Through this transfer of business, Samsung Electronics acquired all assets, liabilities, and labor relations related to PLP business. Lee & Ko advised Samsung Electronics, providing comprehensive advisory in regards to examination of the transaction structure, due diligence, and business transfer agreement that led to a successful completion.
KRW 1.38 trillion acquisition of Lotte Card by MBK Partners
Mergers & Acquisitions
Lee & Ko advised MBK Partners Private Equity Fund, which are managed by MBK Partners, in their acquisition of 59,664,814 shares of Lotte Card Co., Ltd. owned by Lotte Corporation Co., Ltd. (which comprised 79.8% of all shares of Lotte Card Co., Ltd.) at a total purchase price of KRW 1,381,054,910,030. MBK Partners seeks for potential transfer of 20% of the total number of issued shares to Woori Bank and its subsidiaries. This transaction caught much attention in the M&A market as MBK Partners and Hahn & Co. became the top two potential bidders of the KRW 1.3 trillion transaction. This transaction proved to be complex and posed various challenges from both acquirer and seller’s perspective. Lee & Ko was required carefully crafted multi-faceted concerns and advice such as competitive bidding, examining a variety of legal issues, transaction risks (from the acquirer’s perspective) following with transaction certainty, and successful signing of the share purchase agreement (from the buyer’s perspective) in appropriate due time. Following the successful signing of the transaction, Lotte Group will remain a minority stakeholder with approximately 20% of Lotte Card’s shares. In consideration of all potential shareholder structure of Lotte Card, Lee & Ko provided comprehensive legal advisory services to establish proper corporate governance. Overall, this transaction is acknowledged to be among the mega-deals of 2019 as it required significant time and efforts in devising optimal deal structure, such as building strategic alliance and partnership between parties.
Represented the Client in Tax Litigation on Secondary Tax Liability of Controlling Stockholder
In this case, Lee & Ko Tax Practice Group representing Korean Veterans Association (“KVA”) received a favourable ruling from the Supreme Court to cancel the tax assessment of corporate income tax in the amount of USD 8.4 million. The basis of the tax assessment imposed by the Korean tax authority was that KVA is secondarily liable for tax payments originally payable by a delinquent company of which KVA was the controlling stockholder of the immediate parent. Lee & Ko refuted with such position taken by the Korean tax authority in an effective and thorough manner, which put the brakes on the Korean tax authority’s unreasonably aggressive attempt to tax. The outcome of this case sets the precedent as to what extent the “secondary tax liability” can occur and how a “controlling stockholder” should be interpreted in the context of secondary tax liability as provided under the Basic Law on National Taxes. Furthermore, through the ruling of this case, Lee & Ko also brought significant value in terms of enhancement of taxpayer’s rights. It is expected that Lee & Ko will have more opportunities to represent and advise taxpayers, especially Korean conglomerated which are in circular cross-holding ownership structure, on similar issues in the future.
KRW 1.06 trillion merger between SK Broadband and T-Broad
Mergers & Acquisitions
Lee & Ko successfully advised as lead counsel in SK Broadband’s triangular acquisition of T-broad, a multiple system operator, and its subsidiaries T-broad Dongdaemun and Korea Digital Cable Media Center. Shares to be held by existing shareholders of T-broad (excluding Taekwang Co., Ltd.) will be sold to certain financial investors. The transaction is a large deal in which total equity value of SK Broadband’s acquisition of Target Companies exceeds 5 trillion won. Through this transaction, SK Broadband seeks to maximize its business synergy by gaining access to, and utilizing, two platforms of IPTV and CATV. The merger agreement of this transaction was executed on April 26, 2019. This complex transaction involves various legal issues including: (i) in a regard that it is merger between non-affiliate companies, computation of the purchase price and various issues relating to the transaction structure, (ii) in a regard that Target Companies are involved in licensed business as a system operator, obtaining permits from government authorities involving approval of change of largest capital investor and change of license as a system operator, (iii) in a regard that Target Companies are involved in telecommunications carrier business, public interest review and merger approval by the KFTC, (iv) restrictions to be imposed on SK Telecom Co. as a holding company in regards to its ownership of shares in SK Broadband to which, as a result of this transaction, Target Companies become subsidiaries, and (v) merger filing. Lee & Ko’s M&A team, providing advice on various legal, taxation and license/permit issues, coordinated extensively throughout the transaction which also included execution of share purchase agreement and shareholders’ agreement with the prospective FIs.
KWN 1.6 trillion acquisition of Hyundai Oilbank by Saudi Aramco
Mergers & Acquisitions
Lee & Ko successfully acted as lead counsel in Saudi Aramco’s acquisition of 17% of Hyundai Heavy Industries Holdings’ shareholding in Hyundai Oilbank for KRW 1.37 trillion on April 15, 2019. Saudi Aramco was also granted call option to acquire 2.9% of Hyundai Oilbank shares for KRW 234 billion. Lee & Ko has been providing legal advice to Saudi Aramco since 2018 on matters involved with the overall transaction, including due diligence, review of antitrust matters, review of merger filing requirements, share purchase agreement and shareholders agreement negotiations, and execution of those agreements. Through this transaction, Saudi Aramco became the second-biggest shareholder of the Hyundai Oilbank.