The Korea Fair Trade Commission (the “KFTC”) announced that it has adopted the Guidelines for Review of Abuse of Market Dominance by Online Platform Operators (the “Online Platform Review Guidelines” or “Review Guidelines”), which takes effect as of January 12, 2023.

According to the announcement, the KFTC prepared these industry-specific review guidelines to supplement the existing review guidelines on abuse of dominance under the Monopoly Regulation and Fair Trade Act (the “Act”), to reflect the distinct characteristics of online platforms, including the multi-sided nature of such platforms, network effects, tipping effects from data concentration, and innovation and dynamic effects in the market.  

The Review Guidelines come over a year after the KFTC issued an advance notice on the guidelines on January 6, 2022.  In that time, the KFTC gathered opinions from various stakeholders and relevant ministries, culminating in the adoption of the Review Guidelines after a resolution at the KFTC’s full committee hearing held on January 11, 2023.  We provide further details on the key contents of the Review Guidelines below.  

1.   Key Contents of Online Platform Review Guidelines
 

(1)   Scope of Application (Review Guidelines Section I. 2.)
 

The Review Guidelines apply when assessing whether an online platform operator’s business activity constitutes an abuse of market dominance under Article 5 of the Act.  However, as expressly stated in Section I of the Review Guidelines, the regulations for unfair trade practice under Article 45 of the Act can still apply to the types of conduct described in the Review Guidelines.

“Online platform services” that are subject to the Review Guidelines are defined to include (i) online platform brokerage services, (ii) online search engines, (iii) online social networking services, (iv) digital content services (e.g., videos), (v) operating systems (“OS”), (vi) online advertising services, and (vii) services similar to the above that facilitate interaction (e.g., transactions, exchange of information) between different groups of users.

The Review Guidelines also expressly apply to acts performed overseas by a foreign business entity to the extent that such act affects the Korean market, regardless of whether such foreign business entity is based in Korea or whether the business’s counterparty in Korea is a business entity or consumers.
 

(2)   Key Characteristics of Online Platforms (Review Guidelines Section II. 2.)
 

A.   Multi-Sided Markets and Cross-Network Effects
 

According to the Review Guidelines, as online platforms are multi-sided markets that connect different groups of users, cross-network effects where the number of one group of users may affect the utility of another group using the same platform could occur in such markets.

In particular, the Review Guidelines explain that cross-network effects can lead to a tipping effect, which can act as an entry barrier to new online platform operators and further solidify the dominant position of existing online platform operators. 
 

B.   Economies of Scale
 

According to the Review Guidelines, online platforms tend to see significantly lower average costs as the number of users increases; i.e., experience economies of scale.  While economies of scale may have a positive effect by increasing efficiencies, such as cost reduction, economies of scale may also act as an entry barrier for new online platform operators and further solidify the dominant position of existing online platform operators.
 

C.   Importance of Data
 

The Review Guidelines note that while online platform operators that accumulate user data can utilize such data to improve service quality or provide beneficial services to users, a lack of data portability and interoperability can also reinforce entry barriers and restrict competition.  Such anti-competitiveness, however, may be alleviated if data portability and interoperability between platforms makes it easier for new entrants to access existing user data.
 

D.   Nominally Free Services
 

The Review Guidelines state that online platform operators are able to maximize their overall revenues by setting prices asymmetrically for different user groups (such as providing nominally free services to users on one side of the platform to attract and charge users on another side of the platform).  The Review Guidelines also note that nominally free services can be provided to users in exchange for their interest/attention or personal information and therefore an exchange of value can take place even when services are offered (nominally) for free.
 

(3)   Factors for Assessing Illegality (Review Guidelines Section II.3.)
 

A.   Relevant Market
 

As online platforms are multi-sided markets where different user groups exist, the Review Guidelines sets forth the criteria for determining whether to define separate relevant markets for each side of the platform, or to define a single market that encompasses multiple sides of the platform.

In particular, the Review Guidelines make clear that the KFTC can define a relevant market irrespective of whether (nominally) free services are provided.  In such case, the KFTC may consider the quality or cost of the services as variables to determine substitutability, and metrics such as the volume of ads or collection of personal information can be proxies for such variables.  So, for example, a relevant market could be defined by examining the substitution that occurs if there is an increase in the volume of ads or amount of personal information collected.

Furthermore, according to the Review Guidelines, the KFTC may take into account the dynamic characteristics of online platforms, such as the speed of technological development, R&D status of new products and services, and the possibility of market launch.  For example, in areas where there is “competition for a market” rather than “competition in a market,” the market for development of a product or service can be defined as a relevant market.
 

B.   Assessment of Market Dominant Position
 

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

The Review Guidelines also provide that the KFTC may consider variables other than sales, such as the number of users or frequency of use, to calculate market share.  For example, to calculate the market shares for online search services that are provided (nominally) free of charge, the KFTC may consider the number of users, number of visitors, number of searches, duration of stay, and page views, etc.
 

C.    Assessment of Anti-Competitiveness
 

The Review Guidelines clearly stipulate that if an online platform operator’s conduct generates both anticompetitive effects and efficiency-enhancing effects, the anti-competitiveness of the conduct will be determined based on a balancing of the two effects.

According to the Review Guidelines, due to the nature of online platforms (e.g., free services), anticompetitive effects in a sector may manifest in forms other than price increases or output decreases.  Therefore, when assessing anticompetitive 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. 

Further, as an online platform operator can employ the strategy of using the platform’s core services to expand its influence over adjacent products and services, the KFTC may consider whether the platform can leverage its dominance in 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 use that position to further solidify its dominance in the existing market.

The Review Guidelines state that even when the KFTC defines separate relevant markets for each side, the KFTC may take into account the relationship among the different sides of the platform to assess anti-competitiveness.   However, the KFTC may decide otherwise if it would be unreasonable to justify the harm posed to a user group with the benefits enjoyed by another user group.

Lastly, the KFTC may consider whether an online platform operator’s conduct promotes (or undermines) innovation and/or consumer welfare.
 

(4)   Review Criteria by Type of Act (Review Guidelines Section III)
 

A.   Restricting Multi-Homing
 

The Review Guidelines provide that multi-homing is restricted when an online platform operator directly or indirectly restricts its users from using competing platforms.  This includes not only an overt act of entering into an exclusivity agreement that prohibits the use of a competing platform, but also acts that can practically restrict the use of a competing platform, such as providing economic incentives for single-homing or increasing the cost of using competing platforms.

At the same time, the Review Guidelines recognize that restrictions on multi-homing may generate efficiencies by promoting relationship-specific investments or reducing costs, and that if the restriction is implemented within a reasonable scope in order to further a public interest (such as maintaining security or protecting privacy), it may also enhance consumer welfare.  
 

B.   Demanding most-favored nation (MFN) treatment
 

MFN treatment refers to an online platform requiring that its business users (i.e., companies that conduct their business activities on the online platform) trade their products/services on its platform under terms (e.g., price) that are equally or more favorable compared to the terms offered through other distribution channels.  The Review Guidelines note that MFN clauses can restrict competition in distribution channels, and in particular, “wide” MFN clauses (which apply to other third party online platforms) can be more anticompetitive than “narrow” MFN clauses (which apply only to the online platform and the direct distribution channels of the business user), as they can restrict competition not only with direct distribution channels of business users but also with all other distribution channels, including other competing platforms.

Nevertheless, the Review Guidelines recognize that the demand for MFN treatment may also result in increased efficiency by encouraging relationship-specific investments and preventing vendors on the online platform from free-riding on the online platform operato’'s promotional efforts.
 

C.   Self-Preferencing
 

Self-preferencing occurs when an online platform operator gives favorable treatment to its own products/services over those of its competitors on its own platform.  This includes not only direct preferential treatment, but also indirect preferential treatment, e.g., where an online platform operator provides preferential treatment to vendors in a certain transactional relationship with the platform over those who are not.

The Review Guidelines note that an online platform operator can have the dual role of a “rule-maker” within its own platform as well as that of a vendor selling its own products/services on that platform.  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.

At the same time, the Review Guidelines acknowledge that self-preferencing treatment may generate efficiency gains if user benefits are enhanced by linking or integrating the functions of the online platform service with those of other related products or services.
 

D.   Tying
 

Tying occurs when an online platform operator forces its users to enter into transactions for other products/services (tied products/services) as a condition for using the platform’s services (tying product).  The Review Guidelines note that even nominally free products/services can constitute a type of tied product/service, since an exchange of value can take place between an online platform operator and its users even when services are offered for free (or at nominal price) and tying does not have to lead to monetary damage to give rise to anti-competitive harm.

The Review Guidelines explain that through such tying arrangements, an online platform operator can leverage its influence in an 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 existing online platform market.

At the same time, the Review Guidelines recognizes that tying can lead to efficiency gains if it enhances user convenience by linking or integrating the functions of the online platform service with those of other related products or services.
 

2.   Implications
 

The KFTC makes clear that that the Review Guidelines do not establish new regulations, but only set forth the factors to be considered when determining whether an act of an online platform operator constitutes an abuse of market dominance under Article 5 of the Act.  Nevertheless, while the Review Guidelines reference the specific subparagraphs of Article 5(1) of the Act that would apply to specific types of conduct, they also state that the applicable statutory provisions may be determined on a case-by-case basis based on specific facts, leaving open the possibility that the Review Guidelines may function as de facto criteria for determining the illegality of a broader range of statutory violations.

In particular, the Review Guidelines clearly stipulate that they do not preclude the application of the provisions on unfair trade practices under Article 45 of the Act to the specific types of conduct by online platform operators set forth in the Review Guidelines.   Therefore, it will be important to monitor whether and to what extent the KFTC will directly or indirectly refer to the Review Guidelines in also enforcing the provisions on unfair trade practices against online platform operators.  

Online platform operators are advised to become familiar with the Review Guidelines in the context of their business practices and closely monitor how the KFTC applies the Review Guidelines in its future enforcement actions.  In particular, given that the Review Guidelines stipulate when efficiency gains can be recognized and require such efficiencies to be considered when assessing anti-competitiveness, we expect that economic analysis of such efficiencies and anti-competitive effects may become more important in responding to the KFTC’s investigations.  We advise online platform operators to continue to pay close attention to how the KFTC will compare and balance anticompetitive effects against efficiency gains using the Review Guidelines. 

[Korean Version]