The Korea Fair Trade Commission (the “KFTC”) enacted the Guidelines for the Review of Abuse of Market Dominance by Online Platform Operators (hereby referred to as the “Online Platform Review Guidelines” or the “Guidelines”), which took effect on January 12, 2023.
The KFTC announced that it enacted these new industry-specific guidelines as the current general Guidelines for Review of Abuse of Market Dominant Position do not fully address online platforms’ multi-sided nature, network effects, tipping effects from data concentration, as well as innovation and dynamic effects in the market. The KFTC enacted the Online Platform Review Guidelines to supplement the existing guidelines and enhance the predictability of the Monopoly Regulation and Fair Trade Act (the “MRFTA”).
Below we summarize the key contents of the Online Platform Review Guidelines.
1. Scope of Application
The Guidelines are applied when assessing whether an online platform operator’s business activities constitute an abuse of market-dominant position under Article 5 of the MRFTA. However, the Guidelines expressly state that the regulations on unfair trade practices under the MRFTA can still apply to the types of conduct described in the Review Guidelines.
“Online platform services” that are subject to the 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 mentioned above that facilitate interactions (e.g., transactions, exchange of information) between different groups of users. In addition, the Guidelines also apply to cases where an act performed overseas by a foreign business operator affects the Korean market.
2. Review Criteria by Types of Act
A. Restrictions on Multi-Homing
In the Guidelines, a restriction on multi-homing is defined as a case where an online platform operator directly or indirectly restricts its users from using competing platforms. This includes not only overt acts of entering into exclusivity agreements that prohibit the use of a competing platform, but also acts that practically restrict the use of a competing platform by providing economic incentives for single-homing.
At the same time, the Guidelines recognize that restrictions on multi-homing can generate efficiencies by promoting relationship-specific investments or by reducing costs, and that if the restriction is implemented within a reasonable scope for further public interest (such as maintaining security or protecting privacy), it may also enhance consumer welfare.
B. Demand for Most-Favored Nation (“MFN”) Treatment
A demand for MFN treatment refers to a case where an online platform requires that its business users (i.e., vendors that conduct their business activities on the online platform) trade their products/services on the platform under terms (e.g., price) that are equally or more favorable compared to the terms offered through other distribution channels.
Nevertheless, it is stipulated in the Guidelines that the KFTC must also consider that a demand for MFN treatment can result in increased efficiency if it encourages relationship-specific investments and prevents vendors on the online platform from free-riding on the online platform operator’s promotional efforts.
C. Self-Preferencing
“Self-preferencing” refers to when an online platform operator provides preferential treatment to its own products/services over those of its competitors on the platform. This includes not only direct preferential treatment, such as enabling its own products/services to obtain greater exposure compared to competing products/services on the platform, but also indirect preferential treatment, such as favoring vendors that have a certain transactional relationship with the platform operator over those who do not.
At the same time, the Guidelines acknowledge that self-preferencing 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/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 Guidelines note that even nominally free products/services can serve as a 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 that tying does not have to lead to monetary damage to give rise to anti-competitive harm.
Similarly with self-preferencing, the Guidelines recognize 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/services.
The KFTC made it clear that the Online Platform 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-dominant position under the MRFTA, which we expect will serve as important criteria in determining illegality under the MRFTA.
Online platform operators are advised to become familiar with the Guidelines in the context of their business practices and closely follow how the KFTC applies the Guidelines in its future enforcement actions.
