[Law Talk] Recent legislative changes over online platform businesses in Korea

Big tech companies grew quickly in the pandemic-hit year of 2020, with many people working from home and purchasing more online, as well as tech giants cutting costs where it matters less and investing in areas that extend their advantage.

The growth of the IT industry and increasing power of the tech giants called for tightened regulation of the online platform market worldwide. The US administration appointed Lina Khan, who first attracted attention as a critic of Amazon, as FTC chair. US President Joe Biden signed the Executive Order on Promoting Competition in the American Economy to create a fair and open marketplace covering areas including internet services and big tech firms. And the US Department of Justice announced its antitrust review of big tech companies.

South Korea has taken similar steps to regulate online platform businesses. To realize its primary interest of enforcing competition law in the IT area, the Korea Fair Trade Commission established the ICT Task Force for a quicker and more focused review of antitrust violations by major platform companies domestic and overseas. The FTC also proposed a bill for the enactment of the Fair Online Platform Intermediary Transactions Act (“Online Platform Act”) and amendment of the Act on the Consumer Protection in Electronic Commerce (“Electronic Commerce Act”) because existing laws did not fully cover issues that arise in the online platform market.

The proposed Online Platform Act, currently before the National Assembly, broadly applies to open market operators, app market operators, app service providers such as delivery, hotel, rental car brokerage sites, price comparison sites, real property and used car information service sites. The proposed act mandates executing a written contract containing provisions related to the services provided and exchanging copies thereof between the online platform intermediary and the online platform business users, and prohibits the online platform intermediary from abusing superior bargaining power.

The proposed amendment to the Electronic Commerce Act newly introduces the term “online seller” and reclassifies regulated businesses into platform operators, platform-using business operators, and independent online mall operators. It also provides measures that platform operators and online sellers must take to protect consumers.

Apple and Google’s announcement last year that they would charge a 30 percent commission on all in-app purchases and force software developers to use their in-app billing systems triggered the National Assembly in South Korea to propose a bill to amend the Telecommunications Business Act. Also known as the “anti-Google Act,” it aims to protect the interests and rights of app developers as well as users. The bill, which was recently passed by the National Assembly, prohibits app market operators with market dominance from forcing certain payment systems on content providers and “inappropriately” delaying the review of, or deleting, contents from app markets. With such amendment, software developers and content providers are able to transact directly with consumers and bypass the platform operator’s charges.

The recent passage of the amended Telecommunications Business Act has become the center of global attention as the “first such curb by a major economy” and is expected to create ripple effect around the world. Similar legislation was introduced in the United States early last month by a bipartisan group of senators.

However, the introduction of such legislation in Korea is not without challenges. The FTC and the Korea Communications Commission locking horns over regulatory authority has delayed the enactment of the Online Platform Act. Furthermore, the issue of overlap between the amended Telecommunications Business Act and the FTC’s investigative authority resulted in the removal of the provisions prohibiting exclusion of competitors and discriminatory conduct from the proposed amendment.

To resolve such overlap, the amended Telecommunications Business Act prohibits the imposition of remedial orders or fines by other government agencies on companies with respect to acts that have already been sanctioned by the KCC in accordance with the Act. But whether such measures will completely resolve the issue of overlap in regulation remains in question.

Regardless of such setbacks, the general trend in Korea is directed toward tightening the regulation of online platforms. The digital economy in Korea is taking shape so that tech companies operating in Korea cannot evade regulations. Platform operators may need to overhaul their business models to bypass regulatory scrutiny by both the FTC and the KCC.

Kim Mi-jung and Lee Min-ji

Kim Mi-jung is a partner at Yoon & Yang, with expertise in antitrust and competition law. Lee Min-ji is a US-qualified attorney at Yoon & Yang, with expertise in the areas of antitrust, competition and corporate law. --Ed.

By Korea Herald (koreaherald@heraldcorp.com)