The growth of e-commerce following the transition to the digital economy is a global phenomenon, with the Republic of Korea ("Korea") being no exception. Such growth is giving rise to competition law issues distinct from those under traditional transactions. Various issues relating to competition law are being debated, some of which include displaying one's own or a subsidiary's products first by adjusting the algorithms affecting the search display ranking, distorting competition with most-favored-customer clauses as prerequisites for transactions, and monopolizing business opportunities by using gatekeepers and information concentration.
2. Regulatory Trends in Korea
2.1. Establishment of World's First Bill Prohibiting In-App Purchases
On September 14, 2021, Korea enacted the world's first law banning the compulsion of in-app payments, establishing legislative measures to prevent platform operators that dominate the app market, such as Google and Apple, from abusing their status to force specific payment methods or exert pressure on content providers.
Telecommunications Business Act
Article 50 (Prohibited Acts)
(1) No telecommunications business operator (limited to app market operator in subparagraphs 9 through 11, hereafter in this Article the same shall apply) may engage in any of the following conduct (hereinafter referred to as "prohibited acts") which undermine or are likely to undermine fair competition or users' interests, or allow other telecommunications business operators or third parties to engage in such conduct:
9. Unfairly using its superior bargaining position to force the use of a specific payment processing method on a business providing mobile content, etc. in mediating a transaction for mobile content, etc.;
10. Unfairly delaying the review of mobile content, etc.;
11. Unfairly deleting mobile content, etc. from the app market.
Thereafter, on November 17, 2021, draft enforcement decrees and notices were prepared and announced for the enforcement of the above Act. For clarity of the regulation on newly prohibited acts such as coercing a specific payment method, the types of prohibited acts that could occur during the operation and service of the app market were specified, and the standards for judging illegality and maximum fines were presented. The main contents are as follows:1
(Restriction of App Market Use and Services) (1) Refusing, delaying, restricting, deleting, or blocking the registration, renewal, or inspection of mobile contents, etc.; or (2) refusing, delaying, suspending, or restricting the use of the app market.
(Direct or Indirect Restrictions on Other Payment Methods) (1) Imposing technical restrictions; (2) Causing procedural difficulty or inconvenience; or (3) restricting one from setting different conditions of use for different payment methods within a reasonable scope.
(Prevention of Regulatory Circumvention, Etc.) Imposing unreasonable or discriminatory conditions or restrictions on fees, exposure, search, advertisements, or other economic benefits using supplementary provisions.
A draft enforcement decree was also drawn up to impose a penalty of 2% of sales for compulsion of a particular payment method and 1% or less of sales for delay of screening and deletion, and the criteria for filing a complaint were revised.
The legislation above holds great significance in that it is the world's first legislative solution to problems such as the expanding control of Google and Apple, foreclosure of competitors' entry into the market, and restriction of consumers' options, and people are paying attention to see whether this can induce policy changes at Google and Apple.
2.2. Discussions on Whether to Pass a Bill Directly Regulates Online Platforms Are in Progress
Meanwhile, in addition to the above Bill, many bills that directly apply to general online platforms have been proposed.2,3 Although the passage of the bills has been delayed due to various issues, such as the need for regulation, adequacy of regulatory content, and issues of overlapping regulations among domestic ministries, they are expected to pass soon as a significant consensus has been formed on the need for platform regulation.
In particular, the main contents of the Bill proposed by the Korea Fair Trade Commission (the "KFTC") are as follows:
(Ex Ante Regulation) Platform intermediaries shall issue agreements stating the "legal matters" to platform operators
(1) Matters concerning the term, amendment, renewal, termination, etc. of intermediary agreements; (2) matters concerning the contents, term, consideration, etc. of online platform intermediary services; (3) matters concerning the commencement, restriction, suspension, modification, etc. of online platform intermediary services; (4) matters concerning the return, exchange, refund, etc. of transacted goods and services; (5) matters concerning the order, form, standard, etc. of the display of transacted goods and services on the online platform; (6) matters concerning the distribution of damages arising during the transaction process; and (7) other matters stipulated and publicly notified by the KFTC as matters concerning the rights and obligations of parties of intermediary transaction agreements.
* Representative competition restrictive practices, such as self-preferencing, blocking multi-homing, requesting of most favored customer treatment, etc., were initially included in statutory matters, but since these practices could be assessed in a variety of ways, screening guidelines are being enacted in the form of notices rather than statutory items.4
(Ex Post Regulation) Unfair coercion to purchase, coercion to provide economic profits, damage transfer, imposition of disadvantages, and interference with business activities are prohibited, and specific types of actions are delegated to be stipulated by the Enforcement Decree of the Act.
(Dispute Resolution Regulations) Regulations on the execution of mutually beneficial agreements as a system for dispute resolution and regulations on the dispute resolution system through the Korea Fair Trade Mediation Agency under the Monopoly Regulation and Fair Trade Act.
The Bill is characterized by the "extraterritorial application provision," stipulating that in cases where an online platform operator mediates the commencement of transactions of goods or services between platform operators and domestic consumers, regardless of its location, it is subject to the Act given the traits of online platforms. Furthermore, to prevent excessive regulation, the Bill applies to online platform operators of a certain size, and discussions on the precise standards are ongoing.
As laws related to online platforms specify the extraterritorial application and e-commerce growth and the transition to a digitalized economy are expected to accelerate, this is considered an essential legislative issue for businesses engaged in economic activities and needs continuous monitoring.
1. See Korea Communications Commission Press Release dated Nov. 7, 2021.
2. In this regard, the EU has implemented the "Regulation (EU) 2019/1150 on Promoting Fairness and Transparency for Business Users of Online Intermediation Services" on July 12, 2020, and is in the process of carrying out the "Digital Markets Act" including regulations on certain large digital platform operators. In addition, Japan has enacted the "Act on Improving Transparency and Fairness of Specific Digital Platforms" (the "Japanese Transaction Transparency Act") in June 2020.
3. The representative bills are the "Fair Online Platform Intermediary Transactions Act" proposed by the KFTC and the "Online Platform User Protection Act" proposed by the Korea Communications Commission, and there are also several bills proposed by the members of the National Assembly.
4. See the Korea Fair Trade Commission Press Release dated November 17, 2021.
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