2010 was something of a mixed bag for dealmakers in Korea. The market saw its fair share of high-value deals – the major insurance company IPOs and some consolidation on the domestic banking front, for example – but the megatransactions which became a fixture of Korea in the preceding three years were nowhere to be found.
“It was a solid year, but there was no ‘OB’ this year,” says Chang Yong Jae, a partner with Lee & Ko, referring to KKR and Affinity’s LBO of Oriental Breweries.
But already the country’s legal market is looking forward with optimism to the next 12 months, which is hoped will herald a return to the heady deal-making days of old. In addition to the finalisation of two deals (which will surely be contenders for the ‘Korean Deal of the Year’ award) – KEB’s acquisition of Hana Bank and the privatisation of Woori Financial Group – international companies look set to reacquaint themselves with Korean listings. Many domestic heavyweights will continue to look to outbound investments, especially in the energy & resources space.
As lucrative as these mandates will be for Korean law firms, the downtime has provided many with an opportunity to explore new frontiers. While most firms have also had a presence in areas like international arbitration and IP, it is the entry of new, hungry and aggressive competitors that is shaking up the market.
International arbitration: the race heats up
That international arbitration has become a permanent and important fixture in the Korean legal services market is perfectly evidenced by the explosive headcount growth in this sector that most firms have seen over the past 12 months. During this period, all of the country’s full-service law firms have either invested heavily in bolstering their resources, or have built new practice groups to battle for their share of this rapidly growing market.
Shin & Kim is the most recent entrant to the international arbitration arena, but the growth of its practice since it was established indicates that the firm is intent on making up for lost time. Benjamin Hughes, who was hired from US firm Shearman & Sterling to launch and co-chair the firm’s international arbitration practice in 2009, says that the growth of Shin & Kim’s practice has “exceeded expectations” in both financial and workload terms.
“The work has really been flooding in,” Hughes said. “We expected this to be a long-term investment, we even expected to lose money in the first two years, but the growth so far has been tremendous and we are actively looking to hire more people to deal with it.”
The situation at other law firms is similar. Yulchon, also a relative newcomer to the field (the firm only formally launched its international arbitration group in 2009) has seen its practice expand to such a degree that it needs reinforcements. Kim Jae Hoon, a senior partner at Lee & Ko, says that his firm intends to plough ahead with recruiting seasoned international arbitration lawyers in 2011, while heavyweights Bae Kim & Lee and Kim & Chang will also expand their presence this year.
The growth that firms in Korea are now seeing parallels that which others elsewhere in the region are witnessing. But, whereas in places like China and India arbitration has emerged as a vital protection against the vagaries of corrupt and inept judicial systems, he popularisation of arbitration in Korea is a function of clients finally becoming cognisant of its commercial and practical benefits. “Korean companies are becoming savvy about arbitration. They know how to use it and won’t hesitate to file,” said Hughes.
The latest statistics indicate that as many as fifty Korean entities are involved in newly registered ICC cases – which may seem on the small side when compared to figures coming out of the US, Europe or Singapore, but nonetheless is significant given that this number was in single digits just a few years ago.
Competition
While the proliferation of local firms practising in the area has shaken up the international arbitration hierarchy in Korea, it is somewhat surprising that lawyers interviewed by ALB cite international law firms as their largest competitors. Although the Korean legal services market remains closed to foreign law firms (for now, at least), international arbitration is definitely one area where many (the likes of Debevoise & Plimpton, Allen & Overy, Shearman & Sterling and Clifford Chance) already have a strong presence in Seoul.
“We see the foreign law firms as our competitors,” says John Rhie, a senior foreign lawyer with Kim & Chang. “They have established relationships with Korean clients and are receiving direct instructions.” Hughes concurs with Rhie, and said that he commonly encounters both US and British firms in pitches for international arbitration work. “They are here, and they are marketing themselves very actively,” he says.
But far from being intimidated by the presence of international players, Korean firms are relishing the challenge and contend that they are already winning the battle: they are more frequently being appointed as lead or sole counsel on international arbitrations, they say. This is because, according to Kevin Kim, head of Bae Kim & Lee’s international arbitration team, Korean clients are now confident that Korean firms can provide comparable service, if not better in some respects than international law firms, in a timely and cost-effective manner.
Park Eun Young, co-head of Kim & Chang’s international arbitration group, says that Korean law firms are successfully challenging foreign law firms because the latter can now boast a growing contingent of foreign lawyers with their practices. “We are a team of international lawyers, so we can compete with foreign law firms on their own terms,” he said.
Whatever the outcome of this battle for arbitration, lawyers believe that increasing competition for work is an inherently good thing for the legal services market. As Rhie says: “competition is a good sign. The presence of foreign law firms will help in increasing the amount of work on offer for everyone and help the industry to continue to grow.”
Will Seoul become the Singapore of South-East Asia?
As Rhie is quick to point out, as far as international arbitration has come it still has far to go, and further still if Seoul is to become the hub for commercial arbitration in North Asia that the Korean Commercial Arbitration Board (KCAB) desires. “To become a centre of trade and logistics in North-East Asia, Korea should operate a system that can solve trade and logistics disputes fairly and promptly at low cost,” said Kim Jae- Hyun, president of the KCAB. “In line with this, KCAB should take a leading role for arbitration of such disputes occurring in the region.”
But just how realistic is this goal? Is the KCAB capable of becoming to North-East Asia disputes what the SIAC has become to disputes in South East Asia? “I’d be disappointed if Korea doesn’t become something of a hub in the region,” says Rhie. “Seoul is a good location, the KCAB has great hearing rooms and facilities and the people there are very good as well.” Yet the consensus is that this is very much a long-term play. While KCAB has been successful in clawing back disputes that were in the past being heard in places like Hong Kong or Singapore, attracting big-ticket international disputes to Seoul is proving more difficult.
Much of this has to do with the rules that the KCAB operates under. Lee & Ko’s Kim Jae Hoon notes that for Seoul to be the seat of arbitration, both parties must agree to operate under its rules. Although these are based on ICC rules, he contends that he hasn’t seen many international cases in Seoul since the rules were made back in 2007. This may change in 2011 when the KCAB will make international rules the default rules for arbitrations involving international parties.
Kim Sae Youn, a partner in Yulchon’s international arbitration practice, believes that while the KCAB will be responsible for both driving the development of international arbitration in the country and making Seoul more appealing as a seat for cross-border disputes, lawyers also have a pivotal role to play. Just as Singaporean lawyers have become apparatchiks in the process which has seen ‘Singapore law’ firmly establish its foothold in South-East Asia, so too should Korean lawyers sell ‘Korean law’ to the world. “One of the reasons that London, in particular, is a favourite in the industry is because English procedural law is so popular and well-known,” she says. “If we want Seoul to make gains, we need to make sure that our civil procedure law is accessible to foreigners. Lawyers can do this by providing more information on how it operates to foreign clients.”
Kevin Kim of Bae Kim & Lee says nurturing young dispute resolution lawyers is also important. “This [process] also requires a commitment to develop the next generation of Korean practitioners and arbitrators,” he said. “Supporting students and young practitioners to obtain the international experience and knowledge that is necessary to succeed in this now globally competitive field.”
IP in Korea: diversification and innovation
For a country that has been the crucible of innovation in Asia for much of the last 30 years, it should come as no surprise that IP has been a staple area of practice for a number of large and small firms alike. Even though several law firms reported activity to be slower than expected in 2010, a number of new developments, particularly in the latter half of the year, have set the scene for a much busier 2011.
Getting tough on IP
One of the most notable changes in the industry over the past 12 months was the wholesale amendment of the ‘Guidelines of Reviewing the Unjust Exercise of Intellectual Property Rights’ by the Korean Fair Trade Commission (KFTC). Since the amendment, the KFTC has stepped up its investigation of the IP enforcement activities of both multinational and local companies in the pharmaceutical and IT sectors. Lee Hoo Dong, head 2010 amendment, corporations have now become much more cautious in entering into licence agreements and initiating IP litigation.
The KFTC seems intent on stepping up its efforts on this front in the year ahead and this may see work in some areas decline, yet the increasing vigilance of the KFTC may actually serve to broaden the work being handled by IP firms in Korea. Chun Yang, a partner in Kim & Chang’s IP practice, said that on such matters it is necessary to bring anti-trust lawyers to the table. Similarly, in the area of trade secret misappropriation (another area where IP lawyers cite an increase in work owing largely to the mobility of labour that has occurred since the end of the Great Recession) it is necessary to seek the advice of the firm’s fair trade lawyers.
“In trade secret misappropriation proceedings, for instance, the first round will be a criminal case so if you are defending it you need an IP lawyer plus a former judge who will be able to share knowledge on how to defend it,” he said. “It is similar to KFT of IP at Bae Kim & Lee, says that while similar guidelines existed in the past, these were seldom referenced or used and companies did not need to fear its effects. But since the 2010 amendment, corporations have now become much more cautious in entering into licence agreements and initiating IP litigation.
The KFTC seems intent on stepping up its efforts on this front in the year ahead and this may see work in some areas decline, yet the increasing vigilance of the KFTC may actually serve to broaden the work being handled by IP firms in Korea. Chun Yang, a partner in Kim & Chang’s IP practice, said that on such matters it is necessary to bring anti-trust lawyers to the table. Similarly, in the area of trade secret misappropriation (another area where IP lawyers cite an increase in work owing largely to the mobility of labour that has occurred since the end of the Great Recession) it is necessary to seek the advice of the firm’s fair trade lawyers.
“In trade secret misappropriation proceedings, for instance, the first round will be a criminal case so if you are defending it you need an IP lawyer plus a former judge who will be able to share knowledge on how to defend it,” he said. “It is similar to KFTC practice… the underlying subject matter is highly IT, but the agency that is running things is the FTC, so both patent attorneys and FTC professionals within the firm need to work together… We see that these new areas of practice are pushing IP into becoming more of an interdisciplinary practice.”
Specialists versus full-service law firms
Does the increasingly interdisciplinary nature of practicing IP law in Korea automatically rule specialist law firms out of the race? Kim Jae Hoon from Lee & Ko believes that these emerging areas will continue to be dominated by the country’s largest law firms, arguing that smaller players and specialists do not have the resources to deal with heavy-duty IP matters. He believes that the expanded scope of IP into areas like anti-trust and the increasingly hybrid nature of matters in the area put them out of the reach of small boutique firms.
Kim & Chang’s Yang also dismisses the threat posed by specialist law firms in these areas, and says that even some of Korea’s largest IP practices are still struggling to come to grips with the changes. “As the market demands more sophisticated interdisciplinary work, it is a challenge even for the full-service law firms to adjust internally and provide teams of attorneys in these new areas.” But Yang does concede that in certain areas, like patent filings and litigation, specialist IP firms are holding their own.
Cho & Partners is among a handful of specialist law firms to have made their presence felt over the past few years. Renowned for its enforcement expertise, the firm has an impressive stable of foreign and domestic clients. It is considered the ‘counsel of choice’ for a number of the world’s most prestigious brands. Seo Ik-Hyun, a partner at the firm, disagrees with suggestions that specialist firms such as his lack the bandwith to handle the most sophisticated matters in the market. He says a culmination of factors, including poor service standards at some full-service firms, a lack of personalised service as well as clients’ increasing willingness to split their IP work between large and small firms, has intensified the battle for work in the area. “There are very few cases that require that 400 people to work on them,” he says. “The only point where you may require a larger-than-normal team is in complex patent litigation. Most other cases are run by three or four people.”
Cho & Partners recently acted for designer brand Burberry in securing a favourable trademark dilution ruling. The decision means that companies may no longer to need to prove ‘actual harm’ in instances where their trademark is infringed; proving that there is a ‘likelihood’ of harm may be enough.
But while competition is already high at the moment, lawyers expect the entry of new players to affect the complexion of the legal market even further. The New Year may well bring with it a number of new specialist and boutique players, but the full-service segment of the market is likely to be where most of the activity occurs.
All the country’s full-service law firms boast relatively well-developed IP practices in the area with Kim & Chang’s and Lee & Ko’s being the largest by some way. While firms such as Bae Kim & Lee, Yulchon, and Yoon & Yang have outlined their desire to continue to build on their burgeoning practices in the year ahead, it is Shin & Kim who is the odd one out. While the firm is highly visible in its core areas of banking & finance, M&A and capital markets (and perhaps more recently dispute resolution) its profile is decidedly lower in IP, something which those in the industry suggest is set to change sooner rather than later. Whether the firm will opt to ‘cherrypick’ the best talent from rival firms or the judiciary, or looks to subsume a boutique IP practice (this is the route the firm opted for to build its commercial litigation practice in 2010) remains unclear.
What is clear is that Shin & Kim, along with a number of other law firms, now realise the important role that IP plays in the Korean legal services market. “A number of full service law firms have neglected their IP practices,” said Seo Ik-Hyun. “But in the evolution of a general practice law firm, one of the last things you add is an IP capability… I think most firms have now reached this stage in their development.”
Just how successful will law firms be in their IP expansion plans, and is the market in Korea large enough to sustain another entrant? Chun Yang said that while IP may be an extremely lucrative area for some firms, the barriers to entry are high. New players will face a tough time gaining a foothold in the market. “We had a very good year in 2010 but it was by no means easy. It was tough and it will get tougher,” he says. “Price competition is already very tight and it will be difficult for new firms to set up new practice groups in 2011.”
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