[비즈한국] The first-instance court has ruled in favor of the government in a damages suit filed against KT, LG Uplus, and SK Broadband regarding bid-rigging for public dedicated line projects. The court determined that the three telecom companies’ joint illegal acts caused financial losses to the government and ordered the trio to pay approximately 4.4 billion won in collective damages.
Planning a “36.9 Billion Won” Scheme Across Sejong, Daejeon, and Seoul
According to the legal community on the 15th, the 30th Civil Division of the Seoul Central District Court (Presiding Judge Kim Seok-beom) ruled partially in favor of the plaintiff on the 9th in a damages suit filed by the government against KT, LG Uplus, and SK Broadband. The court set the total damages at 4.428 billion won, which is half of the amount originally claimed by the government (8.856 billion won).
This lawsuit stems from a 2016 bid-rigging case involving the Ministry of Employment and Labor’s national information and communication network construction project. The government filed the claim alleging that KT, LG Uplus, and SK Broadband had restricted competition by pre-determining the successful bidders and participation methods, thereby causing financial damage to the state.
In April 2016, the Public Procurement Service announced the project, which targeted 696 lines across 313 locations for the Ministry of Employment and Labor and its affiliated agencies. The project, divided into two phases to diversify telecom providers, was valued at approximately 18.6 billion won for each phase.
It was found that the three companies’ sales teams held multiple meetings between December 2015 and May 2016—before the announcement—at coffee shops near the Government Complex Sejong, coffee shops near LG Uplus in Daejeon, restaurants near KT’s office, and cafes near SK Broadband’s office in Seoul to discuss their bidding strategy.
They agreed that the incumbent operator, KT, would win the first bid, and the incumbent operator, LG Uplus, would win the second. SK Broadband agreed to participate as a “decoy” in both bids. The price of their collusion was also set in advance: after winning the bids, KT and LG Uplus signed contracts to lease some lines from SK Broadband, paying 2 billion won and 3 billion won respectively, regardless of whether the lines were actually used.
The actual bid results matched their agreement. In the first bid, KT won with a bid of 18.422 billion won (a 98.6% ratio to the expected price), while LG Uplus lost after bidding 18.59 billion won (99.455%). In the second bid, LG Uplus was selected as the preferred bidder with 18.535 billion won. In both instances, SK Broadband submitted identical bids of 13.9 billion won (74.363%), far below the expected price.
This case is one of 12 instances of bid-rigging in public sector dedicated line projects uncovered by the Korea Fair Trade Commission (KFTC) seven years ago. For over two years starting in April 2015, the three companies colluded by pre-determining winners and decoys, or by intentionally abstaining from bids to allow for private contracts.
In terms of scale, the bidding value of this case was 36.957 billion won, making it the second-largest project behind the Korea Post’s “re-selection of the postal infrastructure network operator” (44.8 billion won), which KT won via a private contract. Even if the first and second phase bids were viewed as individual projects, this would be the third-largest, following the Ministry of the Interior and Safety’s “national information network backbone construction project” (24.9 billion won), which KT won with Sejong Telecom acting as a decoy.
At the time, the KFTC issued corrective orders and imposed total fines of 13.327 billion won on the three companies and Sejong Telecom (KT: 5.743 billion won; LG Uplus: 3.895 billion won; SK Broadband: 3.272 billion won) and referred KT to the prosecution.
Court Rejects Telecoms’ Defense, Rules “Decoys Share Responsibility”
During the trial, the three telecom companies argued that the government did not actually suffer financial losses or that their scope of liability should be limited, but the court rejected most of these arguments.
The companies argued that as a large-scale client, the government has always contracted at prices lower than the market rate, and there would not have been a significant difference in contract amounts even without collusion. They also argued that it was difficult to acknowledge damages given that they provided additional equipment and services—such as backbone switches and intrusion prevention systems—at no extra cost after the contracts were signed.
However, the first-instance court ruled that the government had indeed suffered losses when considering the prices that would have been formed under normal, competitive conditions without collusion. The premise is that once normal competition was restricted, the state lost the opportunity to contract at lower prices.
The court also noted that the lower rates or additional services could be seen as contractual obligations already included in the initial request for proposal.
The scope of liability for SK Broadband, which did not win the bids but acted as a decoy, was also a point of contention. SK Broadband argued that since it could not have won the first bid under the project’s structure, it should not be liable for damages regarding the second bid won by LG Uplus. The court rejected this, ruling that since the three companies designed the collusion structure for the entire bidding process and agreed on divided roles, they are all liable as joint illegal actors.
The three companies also argued that, based on the liquidated damages clauses in the integrity pacts, the compensation could not exceed a certain percentage of the contract amount. The court ruled that these clauses could not be used to limit the government’s right to claim damages resulting from illegal acts. Other arguments, such as the set-off of gains and losses, were also rejected.
However, considering the uncertainty in calculating the exact amount of damages, the defendants’ liability was limited to 50%. As a result, 4.428 billion won—half of the total damages of 8.856 billion won—was set as the compensation amount.
While KT has filed an appeal, LG Uplus and SK Broadband stated they would review the ruling before deciding whether to appeal.
Meanwhile, apart from this case, telecom companies have been suffering a string of losses in damages suits filed by individual ordering agencies following KFTC sanctions.
In April of this year, a first-instance ruling in a lawsuit filed by the National Information Resources Service ordered the four companies—KT, LG Uplus, SK Broadband, and Sejong Telecom—to pay over 3 billion won in damages. That case involved the previously mentioned 24.9 billion won Ministry of the Interior and Safety backbone project. In a first-instance ruling related to the Korea Meteorological Administration, KT, LG Uplus, and SK Broadband were ordered to pay over 900 million won. The three companies have appealed both these cases.
Previously, a lawsuit filed by the Korea Institute of Science and Technology Information against KT reached the Supreme Court, which finalized a 1.2 billion won compensation in October last year. In a lawsuit filed by the Military Manpower Administration, the first-instance court ruled in February last year that KT should pay 280 million won and SK Broadband 100 million won.