The case holding that an exclusive contract concluded unilaterally with an unfair content is null and void.

In a case where an artist sought confirmation of invalidity of an exclusive agreement entered into with an entertainment planning company, the case holding that since the important provisions of the contract, such as contract term, distribution of profits, rescission of the contract, and compensation for damages, are unilaterally unfair to an artist who is a party to the contract, the contract is null and void in violation of good morals and other social order stipulated in Article 103 of the Civil Act, and the remaining provisions of the contract cannot only achieve the purpose of the exclusive agreement itself, and the parties are not deemed to have entered into the exclusive agreement only with the remaining provisions,

Articles 103 and 137 of the Civil Act

[Defendant-Appellee] Plaintiff (Law Firm UBS et al., Counsel for defendant-appellee)

Defendant corporation

Seoul Central District Court Decision 2008Gahap98704 Decided April 8, 2009

February 24, 2010

1. The defendant's appeal is dismissed.

2. The costs of appeal shall be borne by the Defendant.

It is confirmed that the exclusive agreement entered into on July 17, 2006 between the Plaintiff and the Defendant is null and void.

The judgment of the first instance is revoked. The plaintiff's claim is dismissed.

1. Basic facts

[Evidence] Facts without dispute, Gap evidence Nos. 1, 2, Eul evidence No. 10 and the purport of the whole pleadings

A. The Defendant mainly aims at entertainment agency business, various sound records production, music records wholesale, etc., and the Plaintiff (the title of entertainment activity “△△△△”) was an artist belonging to the Defendant, who was employed by the Defendant as a group member of the name “○○○” with Nonparty 1, 2, and 3, who was employed by the Defendant.

B. On July 17, 2006, the Plaintiff entered into an exclusive contract with the Defendant to manage and act on behalf of the Plaintiff’s entertainment activities (hereinafter “instant exclusive contract”). The main contents are as follows.

[Purpose of Article 1]

The purpose of this case’s exclusive contract is to guide and foster the Plaintiff, who is an artist’s celebrat, and after the Plaintiff was a deluxation, to promote the mutual interest and development of the Plaintiff and the Defendant by managing and vicariously performing the Plaintiff’s entertainment activities.

[Period of Contract]

① The instant exclusive contract commences from the date of signing the contract, and is deemed to continue to exist for up to ten years from the date of the first music record.

(2) Where the plaintiff cannot engage in entertainment activities for a long time due to long-term overseas business trip, military service, health care, or other reasons during the period of the contract under the preceding paragraph, the contract period shall be automatically extended for the same period.

[Article 4 Vicarious Execution of Management]

(1) The defendant shall manage and act as an agent all acts related to the plaintiff's domestic and foreign entertainment activities, publicity, contribution, interference and entertainment activities.

(2) The plaintiff shall, upon receiving a request from the defendant for contribution, etc. to entertainment activities, comply with such request unless there is a compelling reason not to violate good morals and other social order.

(3) The plaintiff is prohibited from engaging in any entertainment activity without the consent of the defendant, such as publishing music records at will, making domestic or foreign broadcasting contributions.

④ The Plaintiff shall receive custody from a person designated by the Defendant.

(5) If deemed necessary, the defendant may entrust the management agency prescribed in paragraph (1) to a third party. In such cases, the trustee may exercise the defendant's right prescribed in the exclusive agreement of this case against the plaintiff.

[Reversion of Right]

(1) Under an exclusive agreement, the Plaintiff shall have the right to own, reproduce, distribute, broadcast, perform, and prepare derivative works of the Plaintiff’s writers, writers, valleys, sound works, and the Plaintiff’s musical works produced and recorded by the Defendant during the period of the exclusive agreement, and the right to own, reproduce, distribute, broadcast, perform, and prepare derivative works of the Defendant.

(2) The defendant shall have the right to use his/her name, stage name, person, pen name, photograph, copy of resident registration certificate, certified copy of resident registration certificate, etc. of the plaintiff as contract and others corresponding thereto.

③ During the instant exclusive contract period, either the author, the author, or the sound, or the sound, may not be used by anyone without the Defendant’s permission, and when the Plaintiff concludes a contract for the use of the author, the sound, or the sound, with others than the Defendant, the author shall act on behalf of the Plaintiff with the Defendant’s permission.

[Principle of Distribution of Profits]

All revenues derived from the instant exclusive contract shall accrue to the Defendant once, and the Defendant shall pay to the Plaintiff the remainder after deducting the expenses incurred therein, as set out below.

[Article 7 Distribution of Profits from Sale of Phonograms and Distribution of Mobile and Internet]

1. In the case of a single sound record published by the Plaintiff and sold by the Defendant, 50,000 won shall be paid at the time of selling the following report in the case of a single sound record: 10,000 won shall be paid at the time of selling the following report; and 100,000 won shall be paid if the records are sold at least one million won, and half of the sound records shall be paid in the case of a single sound record: Provided, That after five years from the time of selling the first report, the original and the Defendant may make an increase in the number by mutual agreement within the limit of

(2) The preceding paragraph shall apply only to the profits of the Plaintiff’s regular destruction crime, and where the Defendant re-sends the secondary compilations produced by the Defendant (rab records, ber records, ombudsman’s bus music records, and hair collection, etc.), the profits therefrom shall accrue to the Defendant: Provided, That where the Plaintiff, while selling the compilation destruction crime, has inserted the new grain of the Plaintiff that has not yet been sold, he/she shall pay the Plaintiff the profits equivalent to the number of new grains out of the total sum of grains, in proportion to the number of new grains.

(3) In the case of music records produced in foreign countries for the purpose of selling overseas markets, 10% of net earnings shall be paid to the Plaintiff for profits from online, wire and wireless Internet, and mobile music distribution (including the distribution of MP3 and other digital music files and video files and video files) and for music records produced in foreign countries.

[Article 8 Distribution of Profits from Entertainment Activities except Sales of Phonograms]

① The Plaintiff’s profits from contributions to the fixed broadcast media (public waves and cable TV) shall also be deemed the profits accrued under the instant exclusive contract, and the Defendant shall pay 40% of the profits to the Plaintiff.

(2) Profits earned from broadcasting contributions as well as fixed contributions shall be deemed appropriated for expenses for promoting the defendant.

(3) All revenues except for the sales of music records and revenues contributed by broadcast media among the plaintiff's entertainment activities shall be equally apportioned by the plaintiff and the defendant, except for cumulative operating expenses: Provided, That where the defendant consists of group and many other persons, the ratio of the plaintiff's distribution shall be 60%.

(4) The operating expenses referred to in the preceding paragraph include transportation expenses, lodging expenses, food expenses, cream business and codivane business, dance group and necessary stage personnel expenses, etc., which are general necessary expenses at the time of entertainment activities, such as transportation expenses, lodging expenses, food expenses, and codivane business, and all of the living expenses and entertainment expenses at the lodging and entertainment facilities.

(5) The distribution of profits prescribed in this Article shall be made within six months after revenue is generated.

[Waiver of Entertainment Activities]

① Even during the instant exclusive agreement period, the Plaintiff may freely waive entertainment activities and return to the living of non- Entertainers at any time.

② In the case of the preceding paragraph, the validity of the instant exclusive agreement shall also be automatically interrupted: Provided, That in the event that the Plaintiff renounces the entertainment activities but resumes the entertainment activities, the validity of the contract that was interrupted shall be resumed.

[Cancellation of Contract]

① The Plaintiff and the Defendant may rescind the instant exclusive agreement where the other party fails to perform any of the matters stipulated in the instant exclusive agreement and it is difficult to achieve the purpose of the instant exclusive agreement.

② The Defendant may rescind the instant exclusive agreement where he/she fails to discover the qualities of an artist within one year after entering into the instant exclusive agreement.

[Damages]

① When the Plaintiff breached the instant exclusive agreement, the Defendant shall compensate for all damages incurred by the instant exclusive agreement.

② Damage to the Defendant under the preceding paragraph includes expenses for new excavation and fostering, profits that the Defendant could have gained if the exclusive contract of this case was performed normally, and damage to external reputation that the Defendant suffered due to the breach of contract, etc. The amount equivalent to 3 times the total amount of investment (production cost and all other expenses paid or used in any form) and the amount equivalent to 2 times the estimated profits during the remainder of the contract period.

③ Where a contract is rescinded due to a cause attributable to the Plaintiff, the Plaintiff shall compensate the Defendant for the penalty for breach of contract, in addition to the damages under the preceding paragraph.

(4) Compensation for damage and penalty for breach of contract under this Article shall not affect termination of contract.

C. On December 14, 2006, the group ○○, to which the Plaintiff belongs, announced the “Maggle”, which is a Maggle No. 1st 14, 2006.

D. Meanwhile, on July 27, 2007, the Plaintiff’s mother as the Plaintiff’s legal representative ( Nonparty 4) made efforts with the Defendant to enable the group “○○○” affiliated with the Plaintiff to commence broadcasting activities through public frequency broadcasting or cable broadcasting until the end of 2007, but the Plaintiff may terminate the instant exclusive agreement, but in the opposite case, the Plaintiff agreed to continue to implement the terms and conditions of the instant exclusive agreement in good faith.

2. The parties' assertion

The plaintiff, around the other hand, entered into the exclusive contract of this case with the plaintiff, who is only an artist's celebbrance, and the contract of this case was set up for a long period of 10 years after the first music record sale, and the contract of this case was automatically extended if the plaintiff is unable to engage in entertainment activities due to the plaintiff's personal reasons. In the event that the plaintiff violated the contract, the contract of this case was entered into with an agreement to pay 3 times the total amount of investment and 2 times the lost profit and 100 million won separate from the contract of this case. The contract of this case is decided upon the defendant's subjective judgment, and the cancellation of the contract of this case is determined by the contract of this case. Since the contract of this case is merely an imbalance between the rights and obligations of both parties, to escape from the contract of this case, the contract of this case is null and void in violation of Article 103 of the Civil Code, and the remaining provisions except this provision cannot be seen as null and void since the contract of this case cannot be terminated as the exclusive contract of this case.

In this regard, the defendant, in order to be successful in the entertainment industry, has to invest a lot of time, expenses, and effort. However, since the success ratio is not high, the defendant's entertainment planning business operator like the defendant can recover the investment cost only to successful performers, it may cause the change of the entertainment planning company due to the occurrence of an individual activity or another competitor's suspicion after the counter-party to the contract success as an artist. As such, the investor determines the terms of the contract in consideration of these matters in determining the contract term, profit distribution, damages, or penalty as a means to recover the investment cost. As such, the exclusive contract of this case reflects the appropriate interest between the plaintiff and the defendant, and the defendant cannot be deemed null and void in violation of Article 103 of the Civil Act, and the defendant has the authority to terminate the exclusive contract of this case by concluding a modified agreement on the termination of the exclusive contract of this case with the plaintiff on July 27, 2007. Therefore, even under such a reason, the exclusive contract of this case cannot be deemed null and void.

3. Determination

A. Summary of the instant exclusive agreement

The purpose of the instant exclusive contract is to guide and foster the Plaintiff, who is an artist's celebrator, and after the Plaintiff's entertainment activities are managed and performed by the Plaintiff, and to foster the Plaintiff as a costr artist (Article 1 of the instant exclusive contract and the contract clause are indicated only as contract clause).

In order to achieve the purpose of this contract, the exclusive contract of this case consists of the terms of contract (Article 3), management and agency (Article 4), management and agency (Article 5), ownership of the right to copyrighted works created during the Plaintiff’s entertainment activities (Articles 6, 7, and 8), the Plaintiff’s renunciation of entertainment activities (Article 9), the Plaintiff’s authority (Article 9), the reasons for cancellation of the contract (Article 12), compensation for damages, and penalty for breach of contract (Article 13). These provisions are closely related to each other, and the matters necessary for the Plaintiff and the Defendant to perform the matters of the exclusive contract of this case.

We examine the invalidity of the instant exclusive agreement.

(b) Whether an individual contract clause is void;

(1) Contract term and the possibility of cancellation and termination of the Plaintiff’s exclusive agreement

The term of the instant exclusive agreement shall commence from the date of entering into the contract, and the first music record shall continue to exist for ten years from the date of entering into the contract, but the period of suspension of entertainment activities due to the Plaintiff’s circumstances is automatically extended as long as the contract period is that of that period (Article 3). According to the contents of the instant exclusive agreement, the date of the music record release shall only be after the date of entering into the instant exclusive agreement, and the period of suspension of entertainment activities due to the Plaintiff’s circumstances is excluded from the period of suspension of entertainment activities. As such, the term of the instant exclusive agreement shall exceed 10 years. However, in the case of the instant exclusive agreement, the Defendant may be relatively free from the binding force of the instant exclusive agreement, and the Plaintiff shall only act under the Defendant’s management for a longer period of ten years, and there is no other way to escape the binding force of the contract during that period

First, when examining the provisions of the instant exclusive agreement related to the Plaintiff’s activities, the Defendant may commission a third party to manage and act on behalf of the Plaintiff as well as the Plaintiff’s domestic and foreign entertainment activities. However, on the contrary, the Plaintiff may not refuse the request unless the request is in violation of good customs and other social order, and the Plaintiff’s voluntary entertainment activities without the Defendant’s consent are practically impossible (Article 4). In addition, if the provisions of the instant exclusive agreement concerning the period of the instant exclusive agreement concerning the management and agency of the Plaintiff’s entertainment activities incorporates the provisions concerning the period of the instant exclusive agreement, the Plaintiff is bound to respond to the Defendant’s request for entertainment activities for a longer period of not less than 10 years according to the instant exclusive agreement. This is to restrict the Plaintiff’s freedom for an excessive period of time.

Although the contract period for the exclusive license of this case has been set for a long period of not less than 10 years and the plaintiff should engage in entertainment activities only at the request of the defendant, if the plaintiff sufficiently guarantees the opportunity of the plaintiff to escape from the binding force of the exclusive license contract of this case even before the termination of the contract period, unfairness of restricting the plaintiff's freedom may be considerably mitigated. However, according to the exclusive license contract of this case, if the plaintiff fails to discover the quality of the exclusive license of this case within 1 year after the conclusion of the exclusive license contract of this case, it seems that the contract of this case can be revoked and it is difficult for the plaintiff to assert that the plaintiff's non-performance of the exclusive license of this case can not be seen as an exclusive license of this case as an exclusive license of this case (Article 12 (2)). The plaintiff's non-performance of the exclusive license of this case, other than the waiver of the exclusive license of this case, can not be asserted as a violation of the contract of this case by the plaintiff or the defendant's non-performance of the exclusive license of this case (Article 10).

Furthermore, in order for the Plaintiff to claim the rescission or termination of the instant exclusive contract against the Defendant, all damages incurred due to the instant exclusive contract shall be compensated. In light of the content, the sum of the total amount of investment equivalent to three times the total amount of profit expected during the instant exclusive contract, plus the amount equivalent to two times the expected profit during the remainder of the contract period, plus the penalty of KRW 100 million (Article 13), and as such, there is an excessive excessive damages and a duty clause on penalty as well as an excessive excessive damages. In addition, it is determined that the Plaintiff would not be able to cancel the instant exclusive contract until the contract term of the instant exclusive contract expires.

Ultimately, as seen above, the contract term of the instant exclusive agreement has been set up for a long period of not less than 10 years, and the Defendant may freely escape from the instant exclusive agreement through the provisions for rescission (a termination), while the Plaintiff is almost unable to assert the violation of the instant exclusive agreement against the Defendant and rescind (a termination). As long as the Plaintiff is extremely subordinate to the instant exclusive agreement during the contract term stipulated in the instant exclusive agreement, and the Plaintiff is bound to unfairly restrict its freedom of activities for an excessive period of time. As such, Articles 3(1) and (2) and 12(2) of the instant exclusive agreement violate good morals and other social order stipulated in Article 103 of the Civil Act.

(2) Distribution of profits

According to the instant exclusive contract, the Plaintiff received fixed amounts from the Defendant to KRW 25 million according to the actual sales volume of sound records, including KRW 500,000 and KRW 100,000,000, and after the lapse of five years from the date of sale of Albame, the Plaintiff may raise the profit of distribution by mutual agreement within the limit of 100% of the distribution amount. In the case of sound records produced in foreign countries for the purpose of selling mobile and Internet, 10% of the net profit shall be paid and 40% of the profit earned by the Plaintiff from the contribution to the fixed broadcast medium may be distributed (Articles 7(1) and (3) and 8(1)).

However, in light of the content of the instant exclusive agreement and the purport of the entire argument in the instant case, most of the royalties would actually occur before five years elapse. However, in the case of phonograms, the Defendant is the fact that it is difficult for the Plaintiff to make profits from the sale of phonograms in the current sound records market (the Defendant’s preparatory document on December 2, 2009) and the distribution of profits from the sale of phonograms seems to have no particular meaning for the Plaintiff. Furthermore, with respect to profits from the distribution of sound sources on mobile and Internet, only 10% of the net profits are allocated to the Plaintiff. As regards the distribution of profits from entertainment activities other than the sale of phonograms among the parts that the Plaintiff may assert as revenue, it is extremely weak for the Plaintiff to pay 40% of the profits from the distribution of the music records to the Plaintiff, but it seems that the profits from the distribution of profits from the sale of the music records, other than the fixed contributions, are appropriated for the Defendant’s public relations expenses, and thus, it seems that the Plaintiff will not be allocated from the Defendant’s donation to the Defendant.

On the other hand, according to the instant exclusive contract, the Defendant, without the Plaintiff’s consent, may re-enter the grains published by the Plaintiff on the secondary editing records, such as hybrid records, brust records, and ombudsman’s bus records, and the profits therefrom shall accrue to the Defendant (Article 7(2)). Moreover, due to the instant exclusive contract, the Plaintiff’s copyright of the author’s, writers’s, valleys, pictures, and videos produced by the Defendant during the contract period, and the Plaintiff’s name, stage name, pen name, book, photo, copy, resident registration certificate, certified copy of resident registration certificate, etc. are both vested in the Defendant and corresponding ones. In the event that the Plaintiff uses the copyrighted, composed, composed, and dried grains during the contract period, the Defendant obtained the Defendant’s consent (Article 5). Moreover, the Defendant also brings about various rights such as copyright expected to be guaranteed through the Plaintiff’s activities, etc.

Ultimately, the contents of Articles 5, 7(2), and 8(2) of the instant exclusive contract concerning the distribution of profits and the reversion of rights between the Plaintiff and the Defendant are extremely small, while the benefits alleged by the Plaintiff were extremely small, the Defendant is also related to the distribution of extremely unfair profits, and thus, the content thereof is in violation of good morals and other social order under Article 103 of the Civil Act.

(3) Compensation and penalty for breach of contract

According to the instant exclusive contract, if the Plaintiff violated the instant exclusive contract, the Defendant shall compensate for all damages incurred by the Defendant due to the instant exclusive contract. In this case, the details of compensation for damages are equivalent to three times the total amount of investment (production cost and all other expenses paid or used in any form) and the amount equivalent to two times the estimated profit during the remainder of the contract period, and in the event the contract is cancelled due to the Plaintiff’s fault, the Plaintiff shall be liable for damages equivalent to KRW 100 million to the Defendant as a penalty for breach of contract (Article 13). On the contrary, there is no provision regarding the compensation for damages or penalty for breach of contract where the Defendant breached the contract.

As such, it is unfair to determine damages or penalty for breach of contract only for one of the parties to the contract in this case. In light of the degree of damages and penalty for breach of contract under the exclusive contract in this case, damages are calculated by adding the amount equivalent to twice the anticipated profit during the remaining contract period of the Defendant’s total amount of the investment, to the amount equivalent to KRW 100 million, and it is difficult for the Plaintiff to anticipate the amount, and it is difficult for the Plaintiff to cope with it in reality.

Although the entertainment industry has to be successful in finding and fostering new persons, the entertainment planning business entity, such as the defendant, has no higher success ratio, and it is necessary to determine somewhat excessive compensation or penalty in order to prevent a successful artist from departing from the promising entertainment business, the scope of compensation for damages stipulated in the exclusive contract of this case should compensate for the amount equivalent to three times the existing investment amount. Furthermore, the amount of compensation for damages up to two times the estimated future profit which is difficult to objectively limit the value is paid up to 100 million won (the group of the plaintiff's employees should be paid up to 00 million won to the defendant in the first quarter of December 14, 2006). The defendant's assertion that the contract of this case is invalid in excess of the initial amount of compensation for damages in violation of the social order of the plaintiff's exclusive contract or the agreement of this case should not be considered to have more than 0 billion won when the defendant claimed that the contract of this case was invalid.

Ultimately, Article 13 related to damages and penalty among the exclusive contracts of this case also violates good morals and other social order stipulated in Article 103 of the Civil Act.

C. Determination as to the Defendant’s assertion on amendment of the contract content

The Defendant asserts that the instant exclusive contract is valid, as it concluded a modified contract granting the Plaintiff the right to terminate the instant exclusive contract after the conclusion of the instant exclusive contract, since the unfairness of the instant exclusive contract is lost.

The fact that the Defendant agreed on July 27, 2007 between the Plaintiff and the Defendant that if he did not contribute the Plaintiff to the public broadcast or cable broadcast by the end of 2007, the exclusive agreement of this case may be terminated is recognized as above.

However, according to the agreement between the Plaintiff and the Defendant on July 27, 2007, if a contribution was made, the Plaintiff shall continue to perform the terms and conditions of the instant exclusive agreement in good faith, and such agreement is merely an addition to the grounds for termination of the instant exclusive agreement on the premise that the validity of the instant exclusive agreement is maintained, and such agreement cannot be deemed to have essentially changed the contents that violate good morals and other social order as seen earlier among the instant exclusive agreement. Accordingly, the Defendant’s aforementioned assertion is without merit.

D. Scope of invalidity of the exclusive agreement of this case

As long as all important provisions such as contract term, distribution of profits, rescission of contract, compensation for damages, etc. in the instant exclusive contract are null and void in violation of Article 103 of the Civil Act, the remaining contract provisions alone cannot achieve the purpose of the instant exclusive contract itself, and the parties also cannot be seen to have concluded the exclusive contract with the remaining provisions even though they do not have such provisions. Accordingly, the instant exclusive contract is null and void.

4. Conclusion

Therefore, the plaintiff's claim seeking confirmation of invalidity of the exclusive contract of this case is accepted on the grounds of its reasoning, and as long as the defendant contests this issue, the plaintiff has a benefit to seek confirmation of invalidity of the exclusive contract of this case, and the judgment of the court of first instance is just in conclusion, and therefore, the defendant's appeal is dismissed and it is so decided as per Disposition.

Judges Lee Ki-taik (Presiding Judge)