Companies Entangled in Lawsuits, Bearing Costs for Years and Image Decline 'Scarlet Letter' [Class Action, Right or Power(1)]

The spread of class actions is increasing the concerns of companies. Class actions that started over a decade ago have recently seen an increase in the number of lawsuits and their scale. Even if large-scale lawsuits do not lead to actual damages, companies cannot avoid the cost burden of responding to lawsuits and the risk to their reputation, creating a tense atmosphere. In particular, small and medium-sized enterprises (SMEs) and startups, which have weak legal response infrastructure, may find their very survival threatened if they become embroiled in lawsuits.

■ 'Concerns' over the spread of class actions

According to the legal community on the 27th, class actions are following the hacking incident of SK Telecom (SKT) USIM information. The law firm Daegun, which secured the most participants in the lawsuit, announced that over 160,000 people expressed their intention to participate in the class action. In addition to Daegun, law firms such as Rojipsa, Nova Law Office, and Daeryun are also preparing class actions involving thousands to tens of thousands of people. Combined, they exceed 200,000 people.

In Korea, class actions typically refer to damage compensation lawsuits jointly filed by a large number of victims who suffered similar damages. Because law firms proceed with the lawsuit in a joint litigation form after being delegated by the victims, costs are distributed, reducing the burden on individuals. Thanks to this, posts such as "Various law firms are conducting class actions, so be sure to participate and receive compensation, even if small" and "If you haven't participated in a class action, make sure to do it" are continuously posted on SNS.

However, as this atmosphere spreads, the industry is trembling with fear that the class action atmosphere may spread.

In fact, when Kakao services, including KakaoTalk, were temporarily paralyzed due to the SK C&C Pangyo Internet Data Center (IDC) fire in 2022, some consumers filed a damage compensation lawsuit against Kakao. At that time, the first trial court ruled in favor of Kakao, stating, "The service disruption is not the company's fault, and it is difficult to see that mental pain was suffered enough to claim damages," but Kakao had to bear the risk for nearly a year and a half until the second trial mediation process. Earlier in 2014, in connection with the KT personal information leakage incident, over 24,000 victims gathered to file a damage compensation lawsuit. Subsequently, in December 2018, the Supreme Court ruled that "KT has no liability for compensation," but KT suffered a significant image blow during the four-year lawsuit period.

Even if a lawsuit is not actually filed, worsening public opinion becomes a significant burden for companies. In 2022, Baedal Minjok, which almost went to court with the Self-Employed Union over issues such as single delivery fee increases and new advertising products, is still suffering from negative public opinion.

A company official said, "As the number of lawsuit participants increases, the scale of damages becomes larger than individual lawsuits, and if the issue turns into a public opinion battle, it can significantly damage the company's image and credibility."

■ SMEs and startups face 'bankruptcy'

For small-scale SMEs and startups, class actions can be even more burdensome. Compared to large companies, they lack financial capacity and do not have separate legal teams, making their legal response capability weak, so once they become embroiled in a class action, it can lead to bankruptcy. Jeong Yeonseung, a professor of business administration at Dankook University, added, "SMEs and startups are not in a situation where they can systematically handle legal responses or external communication, so the impact of class actions is much greater than for large companies."

For this reason, companies are recently worried that the sparks of class actions may spread to other incidents. The current class action atmosphere could become a 'trigger point' for large-scale shareholder class actions. There is a great fear that if the amendment to the Commercial Act becomes a reality after the presidential election, shareholder lawsuits related to stock price declines and management issues will follow. An industry official lamented, "When the class action system was first introduced in Korea in 2005, the biggest concern was that it could lead to large and small lawsuits, and we are worried that it will lead to lawsuits against companies after the Commercial Act amendment."
welcome@fnnews.com Jang Yuha, Jeong Kyungsoo, Jo Eunhyo, Kwon Junhowelcome@fnnews.com Jang Yuha, Jeong Kyungsoo, Jo Eunhyo, Kwon Junho