South Korea

The landscape of gaming regulation is undergoing significant changes both in Korea and abroad. In a landmark development, Korea will introduce enhanced legal protections for consumers in probability-based game item disputes starting August 2025. These protections include treble damages and a reversed burden of proof in civil litigation relating to probability-based game items. While probability disclosure requirements have been mandatory under the Game Industry Promotion Act (the “GIPA”) since March 2024, these additional consumer safeguards were secured through a partial amendment to the GIPA (the “Amendment”) passed by the National Assembly in December 2024 and approved by the cabinet on January 21, 2025. This regulatory shift in Korea coincides with heightened scrutiny of probability-based game practices globally. In a notable case, Genshin Impact's developer reached a $20 million settlement with the U.S. Federal Trade Commission (“US FTC”) to resolve allegations of children's privacy violations and misleading marketing practices regarding probability-based items. These developments signal a transformative period for the Korean gaming industry, as regulatory frameworks evolve to address consumer protection concerns in both domestic and international markets. 1. Background 2. Enhanced Legal Framework for Probability-Based Game Items in Korea 3. Global Precedent: Genshin Impact's $20M US FTC Settlement 4. Strategic Implications for Gaming Companies 1. Background The Korean gaming industry faces significant regulatory changes as the Ministry of Culture, Sports, and Tourism (“MCST”) implements new special legal provisions for probability-based game items. The Amendment, which was passed by the National Assembly on December 31, 2024 and approved by the Cabinet on January 21, 2025, strengthens consumer protections by addressing the challenges in proving and remedying violations of probability disclosure requirements. These provisions build upon the mandatory probability disclosure system implemented in March 2024, recognizing the dispersed and collective nature of damages in such cases. In parallel developments, the global gaming industry witnessed a landmark case as Genshin Impact's developer agreed to a $20 million settlement with the US FTC. The settlement addresses allegations of privacy violations concerning children and deceptive marketing practices related to probability-based items. 2. Enhanced Legal Framework for Probability-Based Game Items in Korea Article 33-2 of the GIPA, newly established in the Amendment, introduces key legal provisions strengthening consumer protection in probability-based gaming disputes: Reversed Burden of Proof: Game operators must demonstrate absence of intent or negligence to avoid liability Simplified Damage Claims: Courts are empowered to determine damages through holistic review considering all available evidence and circumstances when precise damage calculation proves challenging Enhanced Penalties: Treble damages for intentional violations of disclosure requirements Institutional Support: MCST to establish dedicated game dispute resolution center centralizing reporting and remediation processes for user complaints This framework significantly strengthens consumer protection while establishing clear procedural guidelines for dispute resolution. 3. Global Precedent: Genshin Impact's $20M US FTC Settlement A. Market Context While some jurisdictions like Belgium have banned probability-based items entirely, the U.S. regulatory approach has focused on consumer protection and transparency. The Genshin Impact settlement, reached between Cognosphere (HoYoverse's global service subsidiary) and the US FTC in California Federal Court, marks a significant precedent in U.S. gaming regulation. B. Settlement Requirements The settlement agreement mandates: Age verification for probability-based purchases (parental consent required under 16) Direct purchase options using real currency as an alternative to virtual currency Accurate representation of probability rates, pricing, and functionality Transparent disclosure of probability and currency exchange rates Deletion of under-13 user data collected without parental consent Full COPPA compliance regarding notice and consent C. Regulatory Violations The US FTC investigation revealed multiple infractions beyond COPPA violations: Misrepresentation of item probability rates Deceptive pricing practices for rewards Exploitative virtual currency systems targeting minors Improper marketing of probability-based items to underage users 4. Strategic Implications for Gaming Companies A. Preparing for Special Legal Provisions for Litigation: Strategic Considerations The global regulatory landscape for probability-based items is evolving, with Korea taking a leading position through its enhanced legal framework. The implementation of special legal provisions for litigation concerning probability-based game items presents immediate challenges, particularly regarding the reversed burden of proof. Companies must now conclusively demonstrate absence of intent or negligence in violations—a standard requiring robust documentation of operational processes. Risk mitigation hinges on comprehensive preparation. Companies should establish and maintain detailed records covering their entire probability-based item ecosystem, from conceptualization through implementation and adjustments. Based on recent Korea Fair Trade Commission (KFTC) proceedings, successful defenses have centered on documented planning procedures and systematic decision-making frameworks. Companies should prioritize: Implementing systematic documentation protocols Establishing clear decision-making hierarchies Conducting regular compliance audits B. US Regulatory Landscape: Lessons from Genshin Impact Korea has established a mature regulatory environment for probability-based gaming items through comprehensive legislation, setting it apart from the U.S.'s emerging approach. Korean laws—including the GIPA, Personal Information Protection Act, and E-commerce laws—already address the concerns highlighted in the recent US FTC actions regarding COPPA and FTC Act compliance. While "intuitive" probability disclosure requirements may be subject to interpretation, adherence to Korean regulatory standards generally ensures robust compliance. That said, the key significance of the Genshin Impact case lies in its clarification of the US market entry requirements: Age-restricted access to probability-based purchases (under-16) Direct currency purchase options Transparent probability and pricing disclosures Enhanced data protection for users under 13 Companies must also exercise particular vigilance regarding violations highlighted by the US FTC, including misrepresentation of item probabilities, false statements about reward costs, and unfair marketing of multi-layered virtual currency systems targeting minors. Yoon & Yang Game Center combines deep industry expertise with regulatory insight to provide strategic guidance on gaming industry legal matters. For assistance navigating these requirements, please contact our team.

The recent amendments to the Act on Testimony and Appraisal Before the National Assembly, expected to take into effective in March 2025 (subject to change depending on official promulgation), strengthen corporate obligations for parliamentary testimony and introduce significant penalties for non-compliance. This alert outlines key changes and compliance recommendations for businesses operating in Korea. 1. Major Legislative Changes 2. Corporate Compliance Action Items 3. How We Can Help 1. Major Legislative Changes 1) Enhanced Attendance Requirements •  Mandatory attendance for CEOs and executives at National Assembly proceedings •  Remote participation options available for those unable to attend in person •  Physical absence due to illness or travel no longer exempts from participation   2) Data Submission Requirements •  Mandatory compliance with data submission requests •  Personal information, sensitive information or trade secrets must be submitted without exception when requested •  Enhanced penalties for non-compliance, such as refusal to submit, submission of false information or document destruction   3) Penalty Framework •  False information/document destruction: Up to 5 years imprisonment or KRW 50 million fine •  Obstruction of testimony/data submission: Up to 3 years imprisonment or KRW 10-30 million fine   4) Expected Implementation Schedule •  March 2025: Core provisions effective (attendance and data submission requirements) •  June 2025: Remote attendance system implementation for plenary sessions   2. Corporate Compliance Action Items  1) Risk Management •  Implement system for tracking and managing National Assembly requests •  Review and update internal compliance procedures •  Establish clear response protocols   2) Data Protection •  Strengthen information security measures •  Implement protocols for handling sensitive data requests •  Review trade secret protection mechanisms   3) Organizational Preparation •  Conduct executive and employee training programs •  Develop government relations strategy •  Establish clear communication channels   4) Legal Compliance •  Engage legal counsel for interpretation and guidance •  Document compliance procedures •  Maintain records of all National Assembly interactions 3. How We Can Help 1) Review current compliance systems against new requirements 2) Develop response protocols for information requests 3) Train relevant personnel on new procedures 4) Establish documentation systems for all interactions 5) Maintain regular legal counsel consultation

On February 6, 2025, the Ministry of Employment and Labor (the “MOEL”) released an updated labor-management guidance on ordinary wage (the “Guidance”) in response to the recent Supreme Court en banc decisions overruling its previous position on ordinary wage. The Guidance aims to clarify the newly established legal principle on ordinary wage and mitigate potential disputes and confusion surrounding its application. On December 19, 2024, the Supreme Court issued two en banc decisions and overruled its previous decision on ordinary wage (i.e., the December 18, 2013 en banc decision, the “2013 Supreme Court Decision”) by eliminating the “fixed” element of the requirement of ordinary wage. The 2013 Supreme Court Decision held that wage items that are paid to employees only if the employee is employed at a particular time are not “ordinary wage” because they are neither compensation for “prescribed labor” nor meet the “fixed” requirement for ordinary wage. Although this has been considered a well-established court precedent on this issue, the Supreme Court recently overruled this position and presented a new basis for determining which wage items should be included in ordinary wage. The new en banc decisions abolished the “fixed” element and reestablished the definition of ordinary wage as “…compensation for prescribed labor that is paid on regular and uniform basis…” In other words, the Supreme Court held that employees who provide prescribed labor in its entirety will not be denied the inclusion of relevant wage items in ordinary wage merely because there are certain conditions attached to the payment of such wage items (e.g., the condition that the employee must be employed on the day of payment or that the employee must work a minimum number of days during the prescribed working days to receive the wage item). The Guidance summarizes the MOEL’s response to some of the most frequently raised questions surrounding the Supreme Court’s en banc decisions in a Q&A format. We highlight some of the key clarifications below. (1) Should a wage that is conditioned on current employment (i.e., employed on the day of payment) be considered ordinary wage? If the wage is pre-determined in consideration of the prescribed work and is paid on a “regular” and “uniform” basis, it will fall under the scope of ordinary wage even if it is conditioned on current employment. Case example: Regular bonuses paid quarterly to current employees constitute ordinary wage. (2) For a new employee who has not yet become eligible to receive a regular bonus due to his/her short tenure, would the regular bonus still fall under ordinary wage? If the regular bonus meets the requisite criteria and is thus treated as ordinary wage, it should be included in the calculation of ordinary wage even if the employee has not yet become eligible to receive it. Case example: Even if an employee joins the company after the bonus payment date and is thus not yet eligible to receive the bonus, the annual regular bonus should nonetheless be included in the ordinary wage for the calculation of overtime work allowance. (3) How should a regular bonus be factored into the calculation of ordinary wage? Pursuant to Article 6, Paragraph 2, Items 5 and 7 of the Enforcement Decree of the Labor Standards Act, ordinary hourly wage shall be calculated by dividing the “annual aggregate regular bonus” by the “annual total hours for the calculation of ordinary wage.”(4) Should wages conditioned on “current employment” or the “number of completed working days” be paid in proportion to the completed service period? In line with the Supreme Court decision, the validity of the conditions attached to the “payment” of a regular bonus should be reviewed separately from the question of whether it should be included in ordinary wage. Therefore, unless there is a reason to determine otherwise, such “payment” conditions are valid and employers are not obliged to pay such regular bonus if its conditions are not satisfied.To facilitate the seamless application of the new legal principle and the updated guidelines under the Guidance, the MOEL announced that it will (i) conduct labor-management explanatory sessions and meetings, (ii) provide guidance on updating collective bargaining agreements, rules of employment and employment agreements, and (iii) assist businesses in restructuring their compensation structures. Employers that have the payment of certain wage items conditioned on the employee being employed on the day of payment or on the employee having to work a minimum number of days will have to review and revise their salary system and/or prepare for potential disputes. Unions will also take a keen interest on the development of these issues. https://www.kimchang.com/en/insights/detail.kc?sch_section=4&idx=31856    

Lee & Ko was selected as a Tier 1 law firm in Korea for the following 9 categories by ‘Benchmark Litigation Asia-Pacific 2025’, a world-renowned publication which highlights the fields of dispute resolution and litigation. Firm Ranking - Commercial and Transactions - Competition/Antitrust - Construction - Insolvency - Intellectual Property - Labor and Employment - Product Liability and Recall - Tax - White Collar Crime In addition, 51 Lee & Ko attorneys were selected as either ‘Litigation Stars’ or ‘Future Stars’ in recognition of their achievements in their respective fields. Ranked Lawyers - Litigation Star Competition/antitrust: Jangwoo Park, Jeong-Ho Sun, Pyoung Keun Song, Mi Ji Lee, Hwan Jeong Commercial and transactions: Won Seok Ko, Jae Heon Park, Dajoo Jung, Jin Soo Han Construction: Myung Jong Kim, Seon Tae Kim, Chanik Jang Intellectual Property: Un Ho Kim, Jae Hoon Kim, Keum Nang Park, Hayoun Chun International arbitration: Sang Hoon Han Insolvency: Wan Shik Lee, Jung Hyun Lee, Jiwoong Lim Labor and employment: Young Jin Kim, Hyunseok Song, Sang Hoon Lee, Chang Soo Jin Product liability and recall: Dajoo Jung Tax: Tom Kwon, Sung Hwan Kim, Ok Hyun Ma, Byeong Jun Son, Kyung Tae Kim White collar crime: Jae Deog Bae, Jin So, Tae Yop Lee, Young Sub Jang - Future Star Competition/antitrust: Byong Ki Chung Construction: Janghee Yoon, Joo Hye Hong Intellectual Property: Hyeon Gil Ryoo International arbitration: Saemee Kim, Grace Yoon Labor and employment: William Kim Product liability and recall: Yangsuk Han Tax: Steve Minhoo Kim, Soo Hyuk Yim Future Star(Practice Not Stated): Se young Kang, Jaewoo Kwak, Ki Jung Sung, Soo Yeon Oh, Jung Ho Ryu, Kyeong-Seop Yoon, Kiri Yi, Gang Cheol Chu Benchmark Litigation conducts its annual rankings based on in-dept analysis of law firm submissions and interviews with legal practitioners, clients, and litigation experts.