On January 6, 2022, the Korea Fair Trade Commission ("KFTC") released its proposed Guidelines for Review of Abuse of Dominance and Unfair Trade Practices by Online Platform Operators ("Proposed Guidelines") for public comment.  The 20-day public comment period ends on January 26.

In its press release, the KFTC said as the economy becomes increasingly centered on online platforms, its existing review guidelines for abuse of dominance and unfair trade practices have become inadequate to address the growing concerns of restraint of competition caused by online platforms.  The KFTC said the Proposed Guidelines are intended to make its enforcement in the online platform sector more reasonable and enhance predictability, based related precedents over the years.

After gathering feedback from interested parties and related government agencies during the public comment period, the KFTC will finalize and implement the Proposed Guidelines through resolution at a plenary hearing.

1.   Key Details of the Proposed Guidelines

2.   Scope of Application 

The Proposed Guidelines apply when the KFTC review whether an online platform operator's conduct constitutes abuse of dominance (Article 5) or unfair trade practice (Article 45) under the FTL.

The Proposed Guidelines define "online platform" as an "electronic system established using information and communication facilities for interactions (e.g., transactions, information exchange) between two or more users." "Online platform services" include online platform intermediary services (i.e., services that intermediate transactions between different user groups), online search engines, online social networking services, digital content services, operation systems, and online advertising services.
 

3.   Characteristics of Online Platforms 

The Proposed Guidelines mention cross-platform network effects, economies of scale, and importance of data as some of the key characteristics of online platforms, as summarized below. 

1)  Cross-platform Network Effects: When an online platform has "positive cross-platform network effects" (i.e., when an increase in the number of one user group enhances the benefits for another user group), the relevant market can tip in favor of the platform and it may raise concerns of monopolization.

2)  Economies of Scale: The online platform sector may show significantly stronger economies of scale (i.e., the greater the number of users, the lower the company's average costs) compared to traditional industries, and this could reinforce the competitive advantage of incumbent dominant market players and make it difficult for new players to enter the market.

3)  Importance of Data: In the online platform sector, data is an important production factor.  Less data portability or interoperability could raise barriers to market entry and restrict competition.

4)  Nominally Free Services: Even if an online platform provides nominally free services to users, such services can be deemed to have been provided in exchange for users' interest/attention, personal information, etc.
 

4.   Factors for Assessing Illegality 

1)  Relevant Market: The Proposed Guidelines notes that online platforms have the characteristics of multi-sided markets where different user groups exist.  Accordingly, in defining the relevant market, the KFTC (i) first should consider defining several relevant markets for each side involved (e.g., for SNS platforms), but (ii) may define a single relevant market that comprehensively covers multiple sides if that is deemed reasonable in light of the platform's characteristics – e.g., whether the platform directly intermediates transactions between user groups, whether there are different competition threats in each side of the platform.

The Proposed Guidelines also state that even if a platform provides a certain service nominally free of charge, the KFTC may define the market for the service as a relevant market if the service is being provided in return for users' interest/attention, personal information, etc.  In such case, the Proposed Guidelines says the KFTC may consider the quality or costs for users (e.g., exposure to ads, scope of collected user data) as the key variables for defining the relevant market.

Further, the Proposed Guidelines note that because boundaries between online platform markets are often unclear due to their dynamic characteristics, the KFTC may focus on the practical harmful effects of restraint on competition over pursuing precision in market definition.

2)  Assessment of Market Dominance: Under the Proposed Guidelines, the KFTC, in determining whether an online platform operator has market dominance, may consider barriers to market entry due to cross-platform network effects, the platform's influence as a gatekeeper and ability to collect, retain, and use data, and the potential emergence of new products or services.

Furthermore, when it is difficult to calculate market share based on sales amounts, the KFTC may use other variables, such as the number of users, frequency of use, number of visitors, and length of stay on the platform.

3)  Assessment of Anti-Competitiveness: The Proposed Guidelines state that the KFTC may consider the characteristics of the online platform when assessing the anti-competitive effect of its conduct.

First, due to the nature of online platforms (e.g., free services), anticompetitive effects in the sector may manifest in forms other than price increases or output decreases. Therefore, when assessing anti-competitive effects, the KFTC may consider not only changes in prices and output but also any decrease in the variety of products/services, deterioration of quality, higher costs for users, and inhibition of innovation.

An online platform operator can employ the strategy of using the platform's core services to expand its influence over adjacent products and services.  Accordingly, the KFTC may consider whether the platform can leverage its dominance over an existing market (e.g., for core platform services) to another market of related products and services, and whether the platform can achieve dominance in the related product/services market and then further solidify its dominance in the existing market.

Meanwhile, the Proposed Guidelines state that even when the KFTC defines several relevant markets for each side of the platform separately, the KFTC may take into account the mutual relationship among the different sides to assess anti-competitiveness.   However, this would not apply when it would be unreasonable to justify the harm posed to a user group with any benefits created for another user group.
 

5.   Criteria for Assessing Illegality by Type of Conduct 

The Proposed Guidelines mention restricting multi-homing, demanding MFN clauses, self-preferencing, and tying as representative types of conduct in the online platform sector, and provide standards for reviewing each for illegality.

1)  Restricting Multi-Homing: According to the Proposed Guidelines, multi-homing is restricted when an online platform operator directly or indirectly restricts its users from using competing platforms.  Such restrictions could hinder the competing platforms from creating a virtuous cycle that is based on positive cross-platform network effects and lead to a vicious cycle and exclusionary effects. 

2)  Demanding MFN Treatment: An online platform operator may demand MFN treatment from its business users (i.e., companies that conduct their business activities on the online platform) by requiring them to sell their products/services on its own platform under terms (e.g., price) that are equally or more favorable to the terms offered through other distribution channels.  The Proposed Guidelines note that MFN clauses could restrict competition in distribution channels, and in particular, "wide" MFN clauses could be more anti-competitive as they could restrict competition not only with the direct distribution channels of business users but also with other competing platforms.

3)  Self-Preferencing: Self-preferencing is when an online platform operator gives favorable treatment to its own products/services over those of its competitors on its own platform.

The Proposed Guidelines note that an online platform operator could play the dual role of a "rule-maker" within its own platform as well as a "rule-taking" vendor that sells its own products/services on that platform, and in such cases, the platform operator may engage in self-preferencing to expand its power over adjacent markets and use its growing influence in adjacent markets to further solidify its dominance as an online platform.

4)  Tying: Tying is when an online platform operator forces its users, as a condition for using the platform's services (tying product), to enter into transactions for other products/services (tied products/services).  The Proposed Guidelines note that even nominally free products/services could be seen as a type of tied products/services.

Similar to self-prefencing, through such tying arrangements, an online platform operator can leverage its influence in the online platform market to expand its control over related markets, and inversely use its growing control over related markets to further solidify its present dominance in the online platform market.
 

6.   Implications

Online platform operators should become familiar with the details of the Proposed Guidelines and closely monitor how the KFTC applies them in its future enforcement efforts.  The KFTC's focus on the online platform sector is in keeping with other government initiatives to promote a fair digital economy, including the recently proposed Fairness in Online Platform Intermediary Transactions Act and proposed amendments to the Consumer Protection in E-Commerce Transactions Act.  Online platform operators also should follow the progress of these legislations and consider and take measures to maintain compliance.  

[Korean version]