On March 5, 2021, the Korea Fair Trade Commission (the “KFTC”) announced its proposed amendment to the Act on the Consumer Protection in Electronic Commerce, Etc. (the “E-Commerce Act”) (the “Proposed Amendment”).  The KFTC received public comments during the pre-announcement period, which lasted from March 5, 2021 to April 14, 2021.

The Proposed Amendment is the first comprehensive amendment since the enactment of the E-Commerce Act in 2002 and fully revamps the existing regulatory system by reflecting the latest reform of transaction structure and market conditions around the platform. 

With the COVID-19 accelerating the rise of the digital economy and contactless transactions, the online marketplace has rapidly grown in recent years and the transaction structure has been reshaped around online platforms.  However, the current law enacted in 2002 was designed based on traditional mail order methods, and is therefore limited in its ability to effectively respond to the changed market conditions and properly regulate the obligations and liabilities of business operators.  The key contents of the Proposed Amendment announced by the KFTC are as follows:

1.   Reclassification of Regulated Businesses 

The Proposed Amendment classifies online platform operators into (i) online platform operators, (ii) platform business users and (iii) independent online store operators.  Depending on the transaction methods and involvement level, online platform operators are further classified into (a) information media platforms, (b) platforms providing connectivity and (c) brokerage platforms (Article 2 of the Proposed Amendment).
 

2.   Ensuring Safety and Choice of E-Commerce Consumers

The Proposed Amendment stipulates a number of mandatory provisions to prevent deceptive consumer solicitation using search results, user reviews, and advertisements, among others, and to ensure consumers’ reasonable choices.

For example, when an online retailer provides search results to consumers, the online retailer must disclose the criteria for determining the ranking of search results shown and distinguish advertisements from the search results.  In addition, when user reviews are posted, information on how the user reviews are collected and processed need to be disclosed (Article 16 of the Proposed Amendment).  Furthermore, when a targeted advertisement is displayed according to the consumer’s preferences or other characteristics, then the contents and methods of such targeted advertisement must be notified to the consumer in advance, and the consumer should be permitted to opt out of such targeted advertisement (Article 18 of the Proposed Amendment).

3.   Strengthened Liabilities of Brokerage Platform Operators

The Proposed Amendment strengthens and expands the liability of online platform operators by requiring the brokerage platform operator (i) to provide consumers with information on the actual role that the platform operator plays, and (ii) to be jointly and severally liable with the platform business user if a consumer is misled to consider the brokerage platform operator as a party to the transaction or was harmed in connection with the role the platform operator performs.

(1) Distinguishing direct purchase and brokerage transactions (Article 24 of the Proposed Amendment): Brokerage platform operators must clearly distinguish between products sold directly versus third-party sales (i.e., products sold by third-party sellers who sell on the platform), and provide consumers with details of services such as receipt of subscription, receipt of payment, payment, refund of payment, and delivery.

(2) Strengthening of the online platform operator’s liability (Article 25 of the Proposed Amendment): Brokerage platform operators may be jointly and severally liable for any consumer injury caused by willful misconduct or negligence of a platform business user if (i) the platform operator was directly involved in the transaction (e.g., by showing, advertising or supplying the goods or services, or issuing the purchase contract under the platform operator’s own name), or (ii) the platform operator’s own willful misconduct or negligence in the course of performing important tasks (e.g., receiving orders and payments, processing refunds) contributed to the consumer injury.  

Implications

The KFTC stated that the Proposed Amendment, once passed by the National Assembly, would lay out  a comprehensive regulatory framework that encompasses P2C and B2C online transactions, which is expected to ensure more effective enforcement of the law and remediation of consumer harms.  During the aforementioned pre-announcement period, the KFTC gathered opinions from relevant stakeholders such as ministries and e-commerce business operators and plans to submit the Proposed Amendment to the National Assembly after reviews by the Regulatory Reform Committee and the Ministry of Government Legislation, the Vice Minister and the State Council. 

Considering the expanded scope of duties and liabilities of online platform operators and platform business users under the Proposed Amendment, it is necessary to monitor subsequent legislative processes.  Furthermore, it would be necessary to review and assess whether e-commerce business models in current use are in line with the purpose and direction of the Proposed Amendment.