[비즈한국] Companies sometimes make decisions that are hard to explain solely in terms of money. If you understand the laws and systems hidden beneath the surface, you can better grasp the details behind such moves. "Useful Business Law" introduces clues to help you understand the flow of business.
The core of domestic service brokerage and distribution has shifted from offline to online. This trend is easy to observe in our surroundings. While housing demand is rising, commercial buildings that mainly host offline stores stand empty. Direct sales and network sales, which rely on face-to-face interactions, are experiencing a continuous, uncontrollable decline in revenue. I personally stopped visiting big-box retailers some time ago, and sure enough, they are not only seeing falling sales but are also reducing the number of their stores.
Online, processes like searching, purchasing, and payment occur within the platform. Once a specific platform becomes the mainstream, users become dependent on it and rarely switch to others. Monopoly platforms secure their dominance in this way, which leads to the collapse of small and medium-sized distributors or smaller platforms, while the value added from product sales and service usage is captured by the dominant platform.
There is no business untouched by the influence of platforms. This applies not only to manufacturing and services but also to professional occupations like doctors and lawyers, which will inevitably be traded via platforms. While platforms open doors for new business in some ways, they lead to dependency in others.
Considering this reality, the most critical area under the current Fair Trade Act is platform transactions—the dealings between vendors, platforms, and consumers. While there are existing "specialized laws" (statutes created for specific matters) for areas like subcontracting, franchising, door-to-door sales, agency deals, and large-scale retail, platform transactions are significantly larger in scale. This is why regulation of platform transactions under the Fair Trade Act is more urgent.
Driven by this awareness, there were once discussions about legislating an "Online Platform Fairness Act." Curiously, public sentiment leaned heavily against such legislation. The reasons for opposition were that excessive prior regulation would hinder the growth of platform companies and stifle innovation. The fact that favorable public opinion for platforms exists shows that they are the dominant force in the domestic retail and service brokerage markets.
Ultimately, instead of enacting a specialized law like an Online Platform Fairness Act, the government is pushing to amend the existing Fair Trade Act. The details include: ① revising the provisions for presuming market-dominant entities (monopolies/oligopolies); and ② prohibiting four types of unfair business practices—self-preferencing, tying, restricting multi-homing, and demanding most-favored-nation status—across ③ six sectors, including brokerage, search, video, SNS, operating systems, and advertising.
At a glance, it might look like regulation on platforms is being strengthened, but that is not actually the case. The threshold for the ex-post presumption of market-dominant entities has actually been raised. Under the existing provisions, a 50% market share qualified a firm as market-dominant, but the amendment requires a 60% share. Under the proposed bill, Google, Apple, Naver035420, and Kakao035720 would be considered market-dominant, but Coupang and Baedal Minjok would not. At this point, the law seems quite mysterious.
Some argue that amending the Fair Trade Act is sufficient, and that enacting a specialized law would be redundant. While this may be true in theory, in reality, creating a specialized law leads to the establishment of dedicated departments within government agencies, organizational structuring, and budget allocation for active enforcement, making a significant difference in the intensity of regulation.
These discussions on legislation and amendment hint at fierce debates over future platform regulation. Key cases worth referencing include the following: Company N, upon signing a contract with a real estate information provider, restricted the firm from providing the real estate listing data shared with N to its competitor, Company K. As a result, Company K's revenue in the real estate service sector plummeted, eventually forcing it to outsource its real estate services after 2018.
The Korea Fair Trade Commission (KFTC) deemed Company N's actions as an exclusionary practice against a competing business prohibited by the Fair Trade Act, issuing a corrective order and a fine of approximately 1 billion won in September 2020. This sanctioned the platform's use of its dominant power to prohibit "multi-homing," where vendors list on other platforms, and to exclude competing platforms.
In another case, Company K, while operating a franchised taxi business, required four competitors to enter into alliance agreements providing their trade secrets in real time, threatening that if they refused, their drivers would be blocked from receiving calls from Company K.
At first glance, whether Company K provides calls or not seems like an autonomous business decision. However, this policy became problematic due to the fact that the company held a monopolistic position in the market.
Since Company K is a market-dominant player with a 90% share of the taxi-hailing market, competitors could not refuse. If a competitor refused, their drivers would be cut off from 90% of the market's calls.
Furthermore, providing real-time trade secrets to Company K was a difficult prospect for competitors. With that data, Company K could analyze which areas and time zones competing drivers were most active in and deploy its own drivers accordingly. Ultimately, on October 2, 2024, the KFTC issued a corrective order and a (tentative) fine of 72.4 billion won against Company K, and even referred the case to the prosecution.
Other major unfair business practices (abuse of market dominance) by platforms sanctioned by the KFTC include Company G using its market power to demand that game companies release their games only on its own app market, and Company G prohibiting device manufacturers from developing or installing modified operating systems after securing market dominance through its OS distribution.
Platforms contribute to service innovation, and because domestic platforms have a higher share of the market in Korea compared to other countries, one must be cautious when discussing platform regulation. However, it is now time to carefully examine the merits and demerits of platforms. This is all the more true from the perspective of the need to promote consumer welfare through competition between platforms.