[Law Talk] Amendment of the E-Commerce Act in 20 years redresses unfair practices on online platforms

Users of delivery apps, online secondhand marketplaces and social network services have greatly increased due to the continued pandemic. The aggregate turnover of food delivery service providers in South Korea has increased by 78.6 percent in 2020 compared to the previous year, and monthly active users of Karrot -- an online secondhand marketplace -- increased threefold every year over the past three years. As such, the online market is rapidly growing and transactions are transforming to center around online platforms.

The Act on Consumer Protection in Electronic Commerce Transactions (the E-Commerce Act) is the primary law that governs business-to-consumer transactions. The E-Commerce Act, which was enacted in 2002, focuses on traditional forms of commerce that involve orders by mail or telecommunication. Thus, the current E-Commerce Act is inapt to effectively regulate the obligations and liabilities of platform operators and online sellers and protect the interests of consumers. Hence, the Korea Fair Trade Commission released its proposed bill to amend the E-Commerce Act early this year, reflecting the market changes that took place over the last 20 years. The amendment contains the following key changes:

Applies to cross-border online transactions

The application of the amended E-Commerce Act extends to platform operators and online sellers outside of Korea even if the act or omission took place overseas, if such act or omission harms consumers in Korea. Large companies that are located overseas and do not have an office in Korea are required to appoint a local agency mainly for the purpose of handling consumer claims. The standard for online businesses that must have in place a local agency has yet to be determined but such businesses will be determined based on their sales and the number of users.

Restructured to reflect actual practices in e-commerce

Online businesses are categorized into online platform operators, online platform users and independent online mall operators. In three-party transactions among the online platform operator, platform user and the consumer, the platform operator is also subject to the application of the amended E-Commerce Act, in addition to the platform user.

Enables consumers to make reasonable purchasing decisions based on sufficient information

Online businesses are required to indicate whether the products that appear on search results are advertisements as well as the key criteria that the businesses used to rank the search results. The foregoing requirements are to prevent the consumer from being misled. In addition, notifications must be provided when advertisements are targeted at a certain consumer based on their preferences, to avoid misrepresenting the advertised product as a top-selling product. Online businesses are also required to disclose information related to the processing and selection of user reviews.

Online intermediation platforms may be held jointly liable

Online intermediation platform operators are required to distinguish between direct sales and third-party sales, and provide notification thereof to the consumer so that the consumer is clearly aware of the identity of the counterparty to the transaction. Platform operators must also indicate what its role is in the transaction (e.g., processing payments, refunds or delivery) to enable the consumer to easily determine the party liable for the harm that it suffered and seek remedies accordingly. In the event the platform operator causes the consumer to believe that it is the seller, instead of an intermediary, or causes harm while performing its role, the platform operator and the platform user will be jointly and severally liable.

Protects consumers on consumer-to-consumer platforms

Platform operators must collect personal information of the seller on consumer-to-consumer platforms such as Karrot, and make such information available in the event of a dispute. Buyers frequently suffer harm resulting from losing contact with the seller during a transaction or the seller’s refusal to issue a refund. The amendment imposes a duty on the platform operator to cooperate and take necessary measures to resolve any such disputes between buyers and sellers.

The last amendment in particular has aroused criticism because of privacy concerns. To address such issue, the KFTC recently announced its revision to the proposed bill so that the personal information of the seller will only be provided to a dispute resolution center or a court in the event of a dispute.

The amended E-Commerce Act is expected to enhance enforcement of the law and address consumer grievances. Given the public opinion that measures to control unfair practices and consumer harm rampant in the online platform market is urgently needed, it is likely that the amendment to the E-Commerce Act will pass the National Assembly by December this year.

By Kim Mi-jung and Lee Min-ji

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

By Korea Herald (koreaherald@heraldcorp.com)