In January 2021, the Korea Fair Trade Commission (the “KFTC”) imposed a corrective order and administrative fine of KRW 26.6 billion on Naver (the “Corrective Order”) after finding that from approximately February 2012 to August 2020, Naver altered its algorithm for ranking product search results (the “search algorithm”) in Naver Shopping, a comparison shopping service, to favor sellers who are listed on Naver Smart Store, an open market platform service. Specifically, the KFTC found that Naver’s act of altering the search algorithm constituted (i) an abuse of its market-dominant position and unfair trade practices through discriminatory treatment under the Monopoly Regulation and Fair Trade Act (the “MRFTA”), and (ii) unfair trade practices in the form of unfair customer solicitation through deceit. The KFTC issued a press release about the Corrective Order, repeatedly emphasizing the symbolic significance of the case as the first self-preferencing violation involving an online platform operator.
Naver filed an administrative appeal with the Seoul High Court seeking to revoke the Corrective Order, arguing that the Corrective Order was unlawful and unreasonable. However, on December 14, 2022, the Seoul High Court dismissed Naver’s claims in their entirety (the “High Court Decision”).
Kim & Chang represented Naver in its appeal of the High Court Decision to the Supreme Court. By presenting comprehensive arguments focusing on various aspects of the legal errors and insufficient examination of the High Court Decision, we were able to successfully obtain a decision to fully reverse the High Court Decision and remand the case to the High Court (Supreme Court Decision 2023Du32709, October 16, 2025, the “Supreme Court Decision”).
The Supreme Court Decision is the first court ruling to apply established competition law principles and precedents to the issue of self-preferencing by online platform operators, marking its symbolic significance. In particular, the Supreme Court Decision extensively addressed important competition law principles, including (i) whether online platform operators have an obligation to provide equal treatment to competing products or services, (ii) the standard of determining anti-competitive concerns in a case concerning leverage of market power, (iii) the scope and limits of business discretion in adjusting search algorithms from the perspectives of anti-competitive concerns and potential for consumer misconception, and (iv) the need for careful evaluation of anti-competitive intent. Accordingly, the Supreme Court Decision will serve as a precedential case having a profound impact on the KFTC’s future regulatory enforcement and lower court decisions concerning similar issues.
While a variety of issues were disputed and addressed in this case, the key issues and the Supreme Court’s ruling on these issues can be summarized as follows:
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Regarding the alleged act of discriminatory treatment, the Supreme Court held that neither the “unfairness” of the abuse of market dominance nor the “significance and unfairness” of unfair trade practice due to discriminatory treatment can be established. That is, in connection with the element of “unfairness,” the Supreme Court determined that there were legal errors and insufficient examination in the High Court Decision, which recognized the existence of anti-competitive concern and anti-competitive intent:
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The Supreme Court clarified that “there is no legal basis to require Naver to provide equal treatment when setting transaction conditions with other companies solely on the grounds that Naver is a market-dominant online platform operator.” In other words, the Supreme Court held that under the MRFTA, being a market-dominant platform operator does not automatically impose a duty of equal treatment toward competitors’ products or services. |
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Applying the standard established in the POSCO case (Supreme Court Decision 2002Du8626, November 22, 2007), the Supreme Court closely examined whether the conduct at issue “raises concerns of actual anti-competitive effects, such as price increases, output reduction, impediment to innovation, reduction in number of effective competitors or decrease in diversity,” rather than merely causing some disadvantage to competitors. While the High Court Decision recognized anti-competitive concerns on the grounds that “it cannot be entirely ruled out that there was no concern of anti-competitive effects,” the Supreme Court clarified that mere abstract concern is insufficient and that “there must be a recognized specific concern of anti-competitive effects caused by the discriminatory conduct” in the marketplace platform market where the concern of anti-competitive effect is at issue. |
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In light of the above-mentioned standard, the Supreme Court also held that the fact that there could be a “leverage of market power” in the relevant markets, whereby Naver altering the search algorithm in the comparison shopping market affects competition in the adjacent marketplace platform market, does not automatically make the conduct more anti-competitive. |
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The Supreme Court also pointed out that effective competition continued in this case, considering Naver’s comparison shopping service’s limited role as an entry path to marketplace platforms, the continuous growth of competing marketplace platforms, and the entrance of new promising competitors in relevant markets. On this basis, the Supreme Court held that the High Court Decision erred by failing to sufficiently examine the causal relationship (i.e., whether Naver’s relatively fast growth was a result of the alleged conduct or “competition on the merits” and overall expansion of the market). |
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The Supreme Court also held that Naver’s anti-competitive intent was not proven. On the basis that adjusting and changing search algorithms, along with studying the resulting variations in search exposures, is an ordinary business activity for search service providers and may be part of “competition on the merits,” the Supreme Court decided that Naver’s anti-competitive intent or purpose cannot be presumed simply on the ground that Naver reviewed the effect or impact of changes to the search algorithm. In particular, the Supreme Court pointed out that it is standard practice for search algorithms to be gradually improved through numerous steps or review, and that it was unlawful for the KFTC to impose sanctions by recognizing anti-competitive intent and purpose based on just five search algorithm alterations that were selectively chosen among dozens of iterative search algorithm improvements made by Naver over the relevant period. |
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Regarding unfair customer solicitation, the Supreme Court reaffirmed the principle that an obligation of equal treatment does not necessarily arise from the nature of comparison shopping services and held that the High Court Decision contained legal errors, specifically by failing to recognize that the alleged conduct was neither deceitful nor likely to cause consumer misconception:
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The Supreme Court first held that business operators “may design their search algorithm to determine whether to expose certain product information based on the operators’ own value judgments and business strategies” and that the business operators do not have a duty to disclose such specific value judgments or business strategies to consumers or the public. That said, the Supreme Court also established a clear limitation that a search algorithm might be unlawful if it is deceptive or fraudulent and “may interfere with consumers’ rational product choices or harm fair competition or market order.” |
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The Supreme Court concluded that neither deceit nor potential for consumer misconception could be recognized in the present case, considering that Naver had informed consumers about the factors that are taken into account in sorting the search results for the “Naver Shopping Ranking Order” criterion and provided a variety of other sorting criteria (such as price and number of reviews) in addition to the “Naver Shopping Ranking Order” criterion, and that the average consumer would not rely solely on the “Naver Shopping Ranking Order” to determine a product’s superiority or advantages. |
As the first ever decision by the Supreme Court on the issue of self-preferencing by an online platform business, the Supreme Court Decision is viewed as a landmark precedent that establishes competition law standards for assessing the legality of self-preferencing practices by online platform operators.
In particular, the Supreme Court made clear that there is no legal basis to require an online platform operator to treat other companies’ products or services equally to its own when setting transaction conditions with other companies, solely on the ground that the online platform operator is a market dominant business. The Supreme Court also provided certain legal standards where self-preferencing can become an issue, such as existence of anti-competitive concerns and potential infringement on consumer choice. The Supreme Court Decision provides legal predictability regarding the legitimacy of self-preferencing practices under competition law and establishes crucial guidelines on (i) the scope of platform operators’ discretion in adjusting search algorithms, and (ii) standards for assessing the legality of such practices. Accordingly, the Supreme Court Decision is expected to (i) enhance the predictability of law enforcement, and (ii) ensure that innovation and competition, which are characteristics of online platform businesses, are not overly restricted, thereby promoting innovation and competitive opportunities, especially for companies that newly enter the market.
In addition, the Supreme Court Decision will serve as an important reference point for the KFTC’s future enforcement and lower court decisions concerning similar issues. Considering the ongoing discussions regarding regulatory approaches and legislative considerations for online platform operators, companies are advised to closely follow the impact of the Supreme Court Decision on competition law regulation of online platform operators in the future.
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#Self-Preferencing #Search Algorithm #Litigation #2025 Issue 4 #Newsletter
