SM’s History of Losing: Icon of defeat

SM’s History of Losing: Icon of defeat 

Prior to our ‘Ode to Joy’ soon, I’m pleased to post SM’s history of Losing as SM is due to add another case on its losing history.  You’ll realise how pathetic this company is as this slave contract issue has been continued for more than 10 years, but the company still insists that its contract has no problems.

It’s a blessing that our JYJ members don’t belong to such company, and they will not ever be there again. XD

<July 28, 2002>
Fair Trade Commission Korea ordered 8 companies including SM to correct their unfair actions and imposed penalty surcharge(900Milion KRW)

– 8 companies including SM had founded the company called ‘I-KPOP’ together and sold their albums only through this company[illegal sole distribution] so that occupied 53.9% of total album market.

– Especially FTCK exposed that SM made unfair contracts with the members of H.O.T, Fly To The Sky and other artists. The contracts contained the clauses saying ‘an artist must pay 3-5 times as much amount as the estimated profits plus 50 milion-100 million KRW when he/she cancels the contract’.
(Can you see such similarity to the contract that JYJ is fighting against? SM has been doing this for more than decades.)

Funny thing is, SM filed a lawsuit for nullity against the above decision of FTCK.
Shall we see what the High Court decided? 

<April 05, 2004>
Seoul High Court ruled against SM, saying “The corrective order that FTCK ordered against SM’s contracts which force its artists to pay excessive penalty was a RIGHT ORDER”.

– Quoted from High Court’s decision:
“An investor must take his/her risk of investment him/herself and SM abused its position by making excessive compensation for damages in order to re-collect the invested money used for one singer from another successful singer.”

<September 03, 2004>
Seoul Central District Court sentenced Soo Man Lee to 2 years in prison with 3 years of probation on charge of embezzling 1.15 billion of company funds.
– He was pardoned in 2007 by the government for 4th anniversary of the president. 

<October 16, 2006>
SM’s model Min Ho You won a lawsuit to clarify invalidity of exclusive contract against SM Ent.
(See there was the exactly the same lawsuit 6 years ago and SM lost the case?)

– Quoted from the Seoul Central District Court’s ruling
“The clauses regarding compensation for damages and the terms of the contract infringe the plaintiff(Min Ho You)’s economic freedom too much, therefore, the contract is invalid by the article 103 in the Civil Law** which defines ‘an action violates public morals and orders is invalid’.”
“Terms and compensation for damages are essential parts of an exclusive contract, so whole of this contract should be invalid because those key parts are invalid.”
“The defendant(SM)’s insists cannot be justified because an investor[SM] must take a risk of investment, also high profits are expected when high-risk business is successful even if it takes a lot of money and time for training.”
“The amount of compensation for damages is too excessive as well as it gives too much financial burden to the plaintiff whereas there is no compensation for damages if the defendant violates the contract, therefore this contract has immoderate imbalance between the rights and duties of the both parties.”

<September 13, 2007>
Fair Trade Commission ordered SM to correct its slave contract
(poor FTCK.. I can’t even count how many times FTCK ordered the same things now..)

–  SM actor Ji Hoon Kim notified SM about cancellation of unfair exclusive contract on Dec 2004 and the both were having disputes for a long time (almost 3years) at the court.

– His contract stated that 1) the terms of contract was 5 years from the date of his first appearance as a feature player and first album releasing date, and 2) he must pay 5 times as much amount as the total invested money plus the total estimated profits for the remaining period of the contract plus additional 100 million KRW.
– FTCK intervened in this case and ordered SM to correct its contract regarding unfair amount of compensation for damages and long terms.

<October 27, 2009>
Seoul Central District Court approved the 3 members of TVXQ’s application for injunction to terminate exclusive contract.

– Quoted from the ruling from the court
“The above-stated exclusive contract which mainly contains long terms and excessive amount of compensation for damages infringe economic freedom and basic human rights too much because the management company exercised unfair domination and imposed inordinate benefits in return and unfair responsibilities on its artists by abusing its prominent position.”
“This is an action that violates public morals and orders, therefore, there is a possibility that the validity of the all/parts of the clauses on the contract are invalid or subject to lapse as the reasonable period of existence has been expired.”
“The respondent[SM] MUST NOT 1) make or negotiate any contracts against the applicants[Jaejoong/Yuchun/Junsu]’ wills related to their entertainment activities such as appearances in broadcasting/movies, concerts, production of albums and other entertainment events with any third parties, 2) raise an objection to broadcasting companies, album labels, production agencies and other third parties regarding the applicants’ entertainment activities that the respondent is not involved and 3) interfere their entertainment activities by requesting any third parties to break relationships and other way until the decision for ruling of the lawsuit on the merits is finalised.”

– Legal expert Chan-Jong Park commented on this slave contract as:
“SM took an enormous profit by abusing the members’ weak position as minors/trainees and making unfair contract. The company bound the members of TVXQ by maximum 13 years of contract which can be considered ‘lifetime employment’ when they were minors(under 19 years old), did not show the original written contracts to them and share the profits unfairly (ex: the members only could receive 10 million KRW for the next album if a previous album was sold more than 500,000 copies).”

SM filed an objection against this decision and another injunction to terminate the validity of the exclusive contract between C-JeS and JYJ. You’ll see how the court reacted on these arrogant actions below.

<December 23, 2010>
Fair Trade Commission ordered SM to correct its unfair contracts made with its artists and trainees. 

– Fans in Korea filed the petition with FTCK regarding SM’s unfair contract on Sep 09, 2009 after JYJ’s injunction.
– FTCK started investigation on SM (again!).
– SM ‘voluntarily’ corrected the conditions of contract with its artists after the investigation started, but also extended its contract with the trainees for additional 3 years in secret and FTCK warned such actions and ordered SM to correct this 3-year of extended contracts with its trainees as well.
– Ironically, the fans’ action against the slave contract made SM artists (that we hate as much as SM itself) had better contracts.

<February 17, 2011>
Seoul Central District Court ‘rejected’ the objection against the approval of the above injunction.

– Quoted from the court’s refusal letter against SM’s objection
“The court hereby confirms the injunction approved on Oct 27, 2009, to terminate the validity of exclusive contract between the two parties.” (=the injunction approval in 2009 has no problem and still valid) 

“The debtor(SM) pays all expenses for objection.”

<February 17, 2011>
Seoul Central District Court also rejected SM’s injunction to terminate the validity of the exclusive contract between C-JeS and JYJ.

– Quoted from the court’s refusal letter against SM’s injunction
“C-JeS Entertainment and the respondents(JYJ) only made a contact for agency business in order to manage their entertainment activities on behalf of them, therefore the applicant(SM)’s insist that they made an exclusive contract which has subordinative clauses is cannot be acknowledged.”

<February 24, 2011>
Seoul Central District Court ordered indirect order to SM to pay 20 million of penalty per each interference on JYJ’s activities

– Quoted from the orders from Seoul Central District Court
“Even after the court approved the injunction to terminate the exclusive contract on Oct 27, 2011, SM Entertainment held a press conference to force the members to follow the contract on Nov 02, 2011 and sent the contents-certified mail to Warner Music Korea to ask Warner Music not to produce/distribute JYJ’s World Wide Album. Those actions are acknowledged as interference in JYJ’s entertainment activities, therefore, the court hereby orders indirect order.”

Well what’s next?
I’m sure that another case will be added to this history of losing, in the very near future. XD

Translator’s note: Definition of Article 103 in the Civil Law**:  ‘an action that violates public policies and morals is invalid’. It defines an action that violates public policies and moral as: 1) an action against justice (Ex: a contract inciting a crime with rewards), 2) an action against humanity (ex: prostitution), 3) an action extremely restricts personal liberty (ex: a contract restricts person’s psychological/physical/financial freedom too much, human traffic), 4) an action that one side forces unfairness on the other side by abusing prominent position (ex: excessive penalty for breach of contract) and etc.

(The court also used this article on the approval of the injunction applied by JYJ. )

In Korea, if something is considered as an action that the Article 103/104 in the Civil Law defines as violation of public policies and morals, it is considered as ‘absolute invalidity’ and no third party can insist on its validity any more. When the court brings up this article as the referred provision to judge the injunction of JYJ, it means that the contract between SME and the JYJ is invalid ‘unconditionally’ because it is considered an action that the Article 103 of the Civil Law defines.

5 thoughts on “SM’s History of Losing: Icon of defeat

  1. Hey, I was wondering if FTCK performs this verdict execution monitoring method? In most countries, FTC like this usually has team that monitors if the reported party has conducted what the verdict was ordered them to do. When the reported party (under certain time limit) doesn’t conduct everything stated in the verdict, FTC can submit an application to district court so that forceful measures are applicable to execute the verdict. Is this kind of provision apply in Korea? (Not to mention Seoul High Court’s verdict that amplified the verdict made by FTCK.)

    I just don’t understand how come SMEnt can get away so easily even with this list of losing battle the company is possessed T.T

    Is there any government or court (etc) website there that provides copies of verdicts you mentioned above? If yes, I think it will be better to attach the links for those verdicts as well.

    Oh almost forget, since we know the hearing is delayed (again), I guess I can assume that this time the district court accepted the arbitration application made by SMEnt. Have you gathered any information on why the application was accepted?

    Lastly, is there any websites that provides Korean prevailing laws and regulations in English? I’d love to take a look at it if they ever existed.

    Thanks in advance.

    • I know it’s frustrating and I feel exactly the same way. Yes FTCK also ‘can’ file an administrative litigation if an ordered company does not obey its order, but practically they tend not to do so. Sadly, the cases like SM seems to be a less serious case among thousands of cases FTCK is dealing with. Currently High Court is also processing another lawsuit between SME and FTCK, filed by SM. (SM sued FTCK -again!- in order not to pay another fine of 129million KRW) It will verdict this in Aug too. Sometime FTCK’s order is a mere show.
      Like this, normally an ordered party files a lawsuit against FTCK then High Court decides whether FTCK’s order is right or wrong. And even if SM pays penalty without complaints, papers also tend not to make a fuss about it. These situations are so complicated because large entertainment companies has back-scratching alliance with branches of government and medias, especially cultural-related ones. (You may be able to guess if you see how our government desperately tries to promote K-POP using entertainment companies.) Those are such shames of the countries. I wish I could give logical answers, but these relationship between entertainment industry-media-government is too unconvincing by logical assumption.

      And the verdict are on Supreme Court’s websites or still existing on the news but I just summarised as they were too many so could’ve made the post less clear. I’ll add links from the next time.

      Also for the arbitration, I just didn’t wanna make a fuss in order to give better summaries soon in the future, but maybe I shall need to make some comments. 🙂 TBA!

      I’m not sure about the ENG information you mentioned lastly as I’m not an expert T^T Sorry for this and hope you could understand. Thank you very much and hope this helps you a little bit more. 🙂

      • I regret that FTCK prefer not to take any further action to make the reported party to comply with the verdict. What they did is wrong, no matter what considerations they have for taking such decision. Because at the end, they only left the case hanging without a certain finalization. And how can these companies ever feel wary if the authorized parties there don’t enforce the penalties that these companies were imposed to pay?!

        It’s okay. I understand what you mean. There’s just too much conspiracy between the government, medias and entertainment companies there. Sadly this conspiracy is the thing that makes the entertainment industry there grows unhealthily and full of injustice behaviors. It’s such a pity how we’re cheering for the artists and pouring our money to these companies without even knowing if the hard work of our idols are being paid off properly by their agencies. At least, that’s what I was doing when DBSG were still 5. But not anymore now.

        Ah yes, I guess it will be better if in your future article you include the link. Just for those Korean speaker/reader who has such curiosity can read it by themselves and not just thinking you copy this from some unknown sources 🙂

        Cool. I’ll be waiting for your next article on the arbitration matter.

        No worries. I’m actually interested to study more about Korean law system. That’s why I was wondering if such websites existed so that I can read the law and learn to understand it. If only I speak Korean then it would be different.

        Thanks anyway for your response. Keep up the good work.

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