Firms circle wagons on lawsuits

SK Telecom Co. set up early this year a task force specializing in intellectual property rights. The team comprises legal experts and engineers, and more lawyers will be added. The formation of the new legal affairs unit was a timely measure, reflecting the rise in lawsuits related to intellectual property, a direct result of the increasing proliferation of mobile content services. Peering at potential problems down the road, SK Telecom's Information Communication Division is also set for legal disputes over telecommunication-related intellectual property rights. Along with the defensive measures has come a change in work assignments, with the company's legal affairs team involved in the company’s new ventures from the outset. Just two years ago legal affairs did not become involved with business activities unless asked. But the new proactive stance mean they are involved in the legalities of new projects at an early stage. “Because of the growth in corporate litigation, the legal affairs team has expanded constantly since the latter half of 2000,” said Shin Seung-kuk, head of the department. We grew from seven people in 2000 to 15 in 2001, and now we have 30 people on the legal staff, including five American lawyers. Such moves to find a path through the expected thicket of legal challenges are taking place at many companies in Korea. Firms are strengthening their in-house legal affairs staff to deal with problems that were not even pondered just a few months ago. A product liability law was passed last July, and with the launch of President Roh Moo-hyun's “participatory government,” the adoption of stock-related class-action lawsuits is widely anticipated. Companies, big and small, are expected to face a big uptick in lawsuits. With the government-led push for greater accounting transparency, stemming from the fallout from the financial crisis five years ago, tougher bookkeeping standards have been implemented, increasing the need for attorneys to decipher the new language. Also, with the rise in overseas activities, companies are forced to interpret various local regulations. According to a survey by the Korea Chamber of Commerce and Industry, there were 106 stock-related civil lawsuits against corporations in 1997, a figure that doubled in 2000. This year, the total number of such lawsuits is estimated to exceed 1,000. The introduction of class-action lawsuits is expected to lead to tens of thousands of court cases annually. To avoid being buried under an avalanche of adjudication, the nation’s 30 largest business groups have set up their own legal affairs departments, which they are shoring up with a constant stream of experts on the laws that govern corporate governance. LG Electronics Inc. recently recruited an attorney, Kwon Oh-jun, who was a legal advisor to LG Group, to add weight to its legal brigades. Mr. Kwon said another lawyer will join the department early next year, boosting the staff to 25. Not only the density but also the structure of legal department at LG Electronics has changed. The staff is divided according to tasks related to each product line, a switch from duties assigned by region. Group 1 is in charge of home appliances, group 2 digital display products and group 3 oversees legal issues in the realm of information communication devices. The reorganization was undertaken to achieve the maximum efficiency. Division of labor by product line was implemented to concentrate resources by specialty. “The company will be able to promptly cope with rising instances of product-related lawsuits and legal problems,” said Choi Byung-ku, head of LG's legal department. In another break with the past, companies are finding new uses for their legal staff, bringing them into the decision-making process on management issues. The newly acquired importance of the legal aspect of business management is illustrated by LG Group’s “Global Legal Risk Management,” a plan the conglomerate is hawking to its affiliates. The idea is to minimize the risk of legal disputes. The company says it is a “preventive action” aimed at avoiding lawsuits by conducting legal reviews at every stage of planning and execution. One result of the risk management plan is an upsurge in the workload. LG Electronics says its legal affairs people will handle more than two thousand cases this year. Last year, there were 1,500. Hyundai Motor Co. is transferring thousands of documents to its legal staff, which will review them before new projects are launched. The plan is to root out all possible areas of trouble early in the process. The new legal awareness is not confined to manufacturers, even though they have been the most visible targets of court action. Shinsegae Department Store is conducting an intensive education of all its employees on legal propriety. Last month, employees were instructed to carefully check notices for possible problems before they are posted on the company’s Web site. To avoid product liability, the company issued specific orders to sales staff not to exaggerate claims in advertisements. Seok Bong-woo, a lawyer at LG Electronics, said, “Negligence in legal matters can sometimes pose a threat to a company’s future. Companies in many Western countries are considering the costs for legal advice as a needed investment in a product’s future.” by Choi Hyeong-gyu, Yeom Tae-jung