Creating the 'Platform Fairness Act' Targeting Abuse of Power by Giant Platforms like 'Naver' and 'Baemin'

Fair Trade Commission Announces Policies to Eradicate Unfair Practices on Online Platforms and Promote Digital Fair Economy

Promotion of Legislation on the 'Act on the Fairness of Online Platform Intermediated Transactions'

Inclusion of Dispute Resolution Procedures in the Electronic Commerce Consumer Protection Act

Establishment of 'Platform Review Guidelines' to Address Unfair Platform Practices

[Sejong=Asia Economy Reporter Joo Sang-don] The Korea Fair Trade Commission (KFTC) is preparing a legal framework to sanction unfair practices by platform companies such as Naver and Baedal Minjok.

The KFTC announced on the 25th that it aims to enact the 'Act on the Fairness of Online Platform Intermediated Transactions' by the first half of next year to resolve the dominant-subordinate relationships between platform tenants. Lee Dong-won, Director of the Competition Policy Division at the KFTC, explained, "With the rise of platforms, various unfair issues involving tenants, consumers, and competing platforms have emerged. However, because platforms involve stakeholders in complex horizontal and vertical relationships, there are limitations in law enforcement under existing legal standards, which is why we are pushing for the enactment of this platform fairness law."

Recently, due to the COVID-19 pandemic, non-face-to-face transactions have increased, and platforms have expanded into all industrial sectors such as food delivery and e-commerce because of the convenience of online intermediation. In fact, the number of payers using food delivery apps surged from 5.33 million in January 2018 to 9.46 million, and the payment amount increased from 296 billion KRW to 632 billion KRW during the same period. Due to network effects, platforms that have secured market dominance are accelerating concentration, and the multi-sided market characteristics linking tenants, platforms, and consumers result in a complex and multi-layered stakeholder structure.

The KFTC views that due to the high dependency on platforms for transactions, there is a significant risk that platforms may use their superior position to shift burdens onto tenants. According to a 2018 survey conducted by the Korea Federation of Micro Enterprise, nearly 40% of small business owners experienced burden shifting such as commission fees and advertising costs on delivery apps. Director Lee stated, "Consumer harm in the platform market is increasing proportionally with the growth of online transaction volume. Dominant monopolistic platforms may hinder the entry of new platforms and eliminate potential competitors through mergers and acquisitions (M&A), thereby impeding competition."

Accordingly, the KFTC is promoting the enactment of the platform fairness law to establish a cooperative dominant-subordinate relationship. Before the enactment of the law, the KFTC plans to analyze transaction practices and simultaneously promote the establishment and revision of model transaction standards and standard contracts to minimize legal gaps. A separate task force (TF) within the KFTC will be formed to carry out the legislative work.

Additionally, the KFTC will create a separate review guideline within this year to regulate cost-shifting practices targeting suppliers of large online shopping malls subject to the Large-scale Distribution Business Act. Considering the difficulty of applying current offline-focused regulations that govern promotional staff provision, the new guideline will reflect the characteristics of online transactions.

To strengthen the legal responsibility of platform operators, amendments to the Electronic Commerce Consumer Protection Act will be pursued to include joint liability with tenants for consumer damages, implementation of measures requested by the KFTC in case of consumer harm, and establishment of dispute resolution procedures. Unfair terms and conditions such as contract termination without prior notice, unjust business exemptions, refund policies, and penalty clauses will also be closely examined.

The KFTC plans to supplement the limitations of the current review guidelines based on traditional transaction patterns by establishing the 'Platform Sector Unilateral Conduct Review Guidelines,' which will serve as a kind of guideline indicating what platform behaviors constitute unfair trade practices, reflecting the multi-sided characteristics.

In cases of M&A between platforms, the KFTC will focus on reviewing concerns such as commission fee increases, information monopolization, competition-restricting effects, and efficiency gains. Director Lee said, "We are closely reviewing the merger of Delivery Hero, which owns Baemin, the number one delivery app in Korea, and Yogiyo and Baedaltong, ranked second and third respectively. Considering the multi-sided market characteristics and complex stakeholder relationships of platforms, we will conduct economic analysis and gather stakeholder opinions, while examining the potential for new market entry and dynamic efficiencies reflecting the characteristics of new industry markets."

Song Sang-min, Director of the Market Surveillance Bureau at the KFTC, stated, "The platform industry is a new growth sector, and it is important to correct transaction practices early through contract drafting, but existing fair trade laws are insufficient to regulate this. We plan to fully collect stakeholders' opinions to ensure that the innovation growth of the platform industry is not hindered or innovation incentives damaged."

This content was produced with the assistance of AI translation services.