EXO-CBX File Official Complaint Against SM Entertainment With The Fair Trade Commission Over Contract Terms

Published Categorized as Kpop
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EXO members Baekhyun, Xiumin, and Chen have filed a complaint against SM Entertainment with the Fair Trade Commission.

On June 5, Attorney Lee Jae-hak from the law firm Linn announced the decision through a third statement, “We have filed a lawsuit against SM Entertainment with the Fair Trade Commission regarding their ‘abuse of market dominance’.”

They also released some parts of Baekhyun’s exclusive contract.

▶ The following is the full statement from EXO-CBX side:

June 5, 2023 (3rd statement)

I am Attorney Lee Jae-hak from the law firm Linn, who is representing EXO members Baekhyun, Xiumin, and Chen (Byun Baek-hyun, Kim Min-seok, Kim Jong-dae, hereinafter referred to as ‘the artists’).

On behalf of our clients, we have filed a lawsuit with the Fair Trade Commission (hereinafter referred to as ‘FTC’) against SM Entertainment (hereinafter referred to as ‘SM’) for their ‘abuse of market dominance’ through the electronic submission system of the National Petition Center on yesterday’s date (June 4, 2023).

Through this lawsuit, we have reported to the FTC that despite the FTC issuing corrective orders to SM twice in October 2007 and January 2011, unfair contract practices that disregard these corrective orders have continued to occur blatantly at SM.

Furthermore, we have requested the FTC to conduct a thorough investigation into these violations by SM and to take prompt corrective measures, as well as to conduct a comprehensive investigation into the exclusive contracts of SM-affiliated artists.

In reality, our clients, the three artists, have suffered continuous damages due to SM’s abuse of market dominance, as they have been forced to enter into unfair contracts that do not reflect the corrective measures ordered by the FTC.

Failure to rectify the situation even after receiving corrective orders from the FTC falls under the category of “failure to comply with corrective measures under Article 49, Paragraph 1” as stipulated in Article 125, Paragraph 1 of the Monopoly Regulation and Fair Trade Act, which can result in criminal punishment of up to two years of imprisonment or a fine of up to 15 million won.

The following is the detailed position of our legal representative regarding the lawsuit filed against SM with the FTC.

1. Despite the Fair Trade Commission’s prohibition decisions against SM in 2007 and 2011, SM did not take corrective measures.

Leading up to the lawsuit filed with the Fair Trade Commission, the artists made a difficult decision after careful consideration.

This is not an isolated incident.

Since 2007 and 2011, the Fair Trade Commission has repeatedly issued prohibition decisions against SM, not any other company, for their abusive market dominance, and this situation continues to this day in 2023.

On October 8, 2007, the Fair Trade Commission’s Decision No. 2007-488 (2007SeoGyeong0209) determined that (1) clauses that set the debut date as the starting point for the contract period and (2) contract clauses that unreasonably disadvantage the contract period compared to other entertainment agencies in the same industry were unfair. (Refer to pages 3-5 of the decision)

Furthermore, on January 13, 2011, SM received the Fair Trade Commission’s Decision No. 2011-002 (2009SeoGyeong2741), which stated that (3) it is not permissible to apply extended contract periods to trainees based on reasons such as overseas advancement, thereby causing harm to the trainees. (Refer to pages 6-7 of the decision)

However, SM completely disregarded the Fair Trade Commission’s official rulings and repeated their unjust actions by signing exclusive contracts with Baekhyun, Xiumin, and Chen. This is a direct violation of the Fair Trade Commission’s judgments against SM itself, and it is an act of defiance against the authority of the state.

The repeated practices and behaviors of SM are not limited to the issues concerning Baekhyun, Xiumin, and Chen. Considering other trainees and artists, the scale of the damage could be significant. Furthermore, considering the possibility of these unjust actions being repeated in the future, we could not stand idly by, thinking about the well-being of our junior trainees and artists.

Therefore, Baekhyun, Xiumin, and Chen have made the decision, with the assistance of our legal representative, to file a lawsuit against SM for their abuse of market dominance with the Fair Trade Commission.

We sincerely hope that our efforts and courage can contribute as a small support and hope for the protection of the rights of our junior artists and the fair and sound development of the popular culture industry.

2. Setting the end date of exclusive contracts from the ‘debut date’ (rather than from the start of the exclusive contract) is an unfair practice of determining long-term exclusive contracts at the discretion of the agency.

Despite this unfairness being already established, SM continues to disregard the corrective measures imposed by the Fair Trade Commission.

The Fair Trade Commission’s Decision No. 2007-488 (2007SeoGyeong0209) on October 8, 2007, prohibited SM from the practice of “excessively extending the contract period by setting the end date of the exclusive contract as the ‘5th anniversary from the release date of the first album’ or the ‘5th anniversary from the date of appearing in a supporting role or higher in a drama.'” SM received a corrective action order to rectify this practice.

However, after receiving the aforementioned corrective action order from the Fair Trade Commission in 2007, SM repeated the same unfair clause precisely in the exclusive contracts with Baekhyun, Xiumin, and Chen, which were signed in 2010 and 2011. (Excerpt from the exclusive contract of the petitioner, Baekhyun)

By setting the expiration date of the exclusive contract based on the debut date for singers as “5 years after the release of the first album” or for actors as “5 years after the debut date of the first work,” SM intentionally used vague concepts of the contract’s start and end dates. This allowed the agency to interpret and excessively prolong the contract period at its own discretion, depriving artists of the opportunity to negotiate new conditions upon the expiration of their contracts or to engage in entertainment activities with other agencies through new exclusive contracts. Therefore, SM unilaterally established unfair transaction conditions for the artists.

The Fair Trade Commission’s Decision No. 2007-488 (2007SeoGyeong0209) also precisely determined this.

By repeatedly presenting and concluding the same unfair clauses even after receiving the corrective action order from the Fair Trade Commission in 2007, SM falls under the category of “those who do not comply with corrective measures under Article 49, Paragraph 1” as defined in Article 125, Paragraph 1 of the Monopoly Regulation and Fair Trade Act. This is a criminal matter that could result in imprisonment for up to 2 years or a fine of up to 150 million won.

3. Despite receiving a ruling from the Fair Trade Commission in 2007 that deemed the contract duration of “5 years from the debut date” excessively long (rather than from the contract date), SM went on to conclude contracts with even more unfair terms, setting the main contract period as ‘7 years’ and the supplementary agreement as ‘3 years.’

In the aforementioned Fair Trade Commission investigation, a comparison was made between the contract duration clauses in SM’s exclusive contracts and those of other entertainment agencies in the same industry. The Fair Trade Commission determined that even when compared, SM had established contract duration clauses that were excessively disadvantageous.

According to the investigation by the Fair Trade Commission at the time, (1) other entertainment agencies in the same industry had reasonably set the calculation date of the contract period from the ‘date of contract conclusion’ rather than using the debut date as SM did, and (2) the exclusive contract periods set by those agencies were within 3 to 5 years, which was shorter than the contract duration determined by SM.

Based on this investigation, as mentioned earlier, the Fair Trade Commission issued an order prohibiting the practice of “excessively extending the contract period by setting the end date of the exclusive contract as the ‘5th anniversary from the release date of the first album’ or the ‘5th anniversary from the date of appearing in a supporting role or higher in a drama.'”

However, despite this, SM proceeded to conclude contracts with unfair terms, failing to comply with the corrective measures of the Fair Trade Commission. As mentioned earlier, this constitutes a criminal matter subject to penalties, such as imprisonment for up to 2 years or a fine of up to 150 million won.

4. SM also continues to violate the orders of the Fair Trade Commission by employing the tactic of applying extended contract periods uniformly based on reasons such as overseas advancement, which were not even confirmed at the time of contract conclusion.

Furthermore, SM received another corrective action order from the Fair Trade Commission on January 13, 2011, in Decision No. 2011-002 (2009SeoGyeong2741). The order stated that “the respondent (SM), when entering into exclusive contracts with aspiring trainees, should not engage in acts that harm the trainees by uniformly applying extended contract periods without considering individual circumstances of trainees based on reasons such as overseas advancement that were not confirmed at the time of contract conclusion.”

The Fair Trade Commission also pointed out the “Attachment Agreement” in “Table 3” in the aforementioned decision, stating that SM uniformly concluded such attachment agreements, which were deemed unfair contract conditions.

Once receiving such corrective action orders, SM should no longer conclude contracts that violate the orders and should revise the already concluded contracts to align with the purpose of the corrective action order. However, even after receiving the aforementioned corrective action order from the Fair Trade Commission in 2011, SM repeated the same unfair attachment agreement clauses in the exclusive contracts concluded with Baekhyun, Xiumin, and Chen in 2010 and 2011. (Excerpt from Baekhyun’s exclusive contract, as provided by the petitioner)

According to the understanding of the petitioner artists, SM continues to conclude attachment agreements extending the contract period by 3 years for other artists as well, using reasons such as overseas advancement preparations.

By repeatedly presenting and concluding the same unfair clauses even after receiving the corrective action order from the Fair Trade Commission in 2011, SM falls under the category of “those who do not comply with corrective measures under Article 49, Paragraph 1” as defined in Article 125, Paragraph 1 of the Monopoly Regulation and Fair Trade Act. This is a criminal matter that could result in imprisonment for up to 2 years or a fine of up to 150 million won, separate from the violation of the 2007 Fair Trade Commission corrective action order mentioned earlier.

5. The subsequent exclusive contracts that automatically extend until the album sales reach a certain threshold without setting a minimum upper limit for the contract duration are extremely unfair.

As seen earlier, the trainee period was added to the exclusive contract period by calculating it from the debut date. Additionally, the supplementary agreement extended it by 3 years, and when combined with military service, the artists ended up in exclusive contract relationships lasting over 12 to 13 years.

This differs significantly from the standard exclusive contract for popular culture artists (centered around singers) set by the Fair Trade Commission, which established a contract period of 7 years at most. It exceeds the reasonable limit and goes beyond the minimum level. Yet, SM insists on claiming a minimum contract period of 17 or 18 years for each artist by having them sign subsequent exclusive contracts.

This act of concluding subsequent exclusive contracts constitutes “conducting transactions with the other party by unfairly exploiting the position in trade” under Article 45, Paragraph 1, Clause 6 of the Monopoly Regulation and Fair Trade Act. In other words, the forced long-term duration through subsequent exclusive contracts falls under the category of “compelling the provision of benefits” or “imposing disadvantages (establishing conditions that become disadvantages in the transaction)” listed in Annex 2 of the Enforcement Decree of the same law.

Furthermore, Article 5, Paragraph 1 of the subsequent exclusive contract states, “This contract shall be valid for five years from… However, if the minimum quantity of albums specified in Article 4, Paragraph 4 is not released within this period, the contract period shall be automatically extended until such performance is fulfilled.” There is no upper limit to the duration of the automatic extension.

The provision that allows the contract period to be automatically extended without any limit until the required album sales quantity is fulfilled is clearly a slave contract. The legal representative has already pointed out that it falls under “conducting transactions with the other party by unfairly exploiting the position in trade.” The artists also share the same view.

Moreover, it cannot be justified to conclude subsequent exclusive contracts of such long duration, without an upper limit, when the original exclusive contract still has over a year remaining. SM has not even paid the artists any signing fees for the subsequent exclusive contracts.

According to Article 3, Paragraph 2 of the “Standard Exclusive Contract for Popular Culture Artists (Centered around Singers)” announced by the Minister of Culture, Sports and Tourism, if the exclusive contract period exceeds 7 years, the singer can notify the management agency of contract termination at any time after 7 years have passed. If six months have elapsed since the management agency received the notification, the contract is considered terminated. However, SM binds the artists again by entering into subsequent contracts long before the initial contract expires.

6. We have decided to file a complaint with the Fair Trade Commission, hoping that our small courage will contribute to the establishment of fair popular culture and the protection of junior artists.

Despite the corrective measures by the Fair Trade Commission in 2007 and 2011, SM has repeatedly engaged in unfair contract practices.

Such actions disregard the legitimate exercise of national authority, and the resulting harm has been repeatedly inflicted on trainees and artists.

Therefore, Baekhyun, Xiumin, and Chen, with the assistance of our legal representative, have decided to file a complaint with the Fair Trade Commission against SM for its abuse of its position in trade.

We hope that our efforts and courage will serve as a small support and hope for the protection of the rights of junior artists and the fair and sound development of the popular culture industry.

Source: (A)

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