False and Exaggerated Advertising Leads to 'Fines'... Platforms Strengthen 'Consumer Protection'

Fair Trade Commission Expands Law Enforcement and Damage Relief
Focus on Transparency Including Ban on Fake Reviews
40% of Consumers Do Not Receive Compensation
Regulatory Tightening Trends in US and China Abroad... Concerns Over "Market Contraction"

[Sejong=Asia Economy Reporters Haeyoung Kwon, Sangdon Joo] The core of the government's comprehensive revision of the "Act on Consumer Protection in Electronic Commerce, etc. (Electronic Commerce Act)" is to clearly define the concept of new types of online platforms such as Naver and Coupang and to strengthen consumer protection measures.

Platforms like Coupang have expanded their influence by engaging not only in simple mediation but also in payment and delivery; however, they have been criticized for being excessively free from consumer protection responsibilities. Similar controversies have spread overseas, leading to a trend of strengthening consumer protection obligations for platforms.

◆Naver must disclose criteria for determining shopping search rankings... fines imposed for prohibited acts such as false or exaggerated claims= According to industry sources on the 1st, the Fair Trade Commission (FTC) is finalizing amendments to the Electronic Commerce Act that specify joint liability for platforms while strengthening the responsibilities of electronic commerce operators. Electronic commerce operators encompass both sellers and intermediaries, a broader concept than online platform operators such as portals mediating between tenant companies and consumers, or delivery and accommodation applications. The FTC is considering imposing obligations on electronic commerce operators to ▲ distinguish between search results and search advertisements ▲ disclose key criteria for search ranking decisions ▲ disclose information on the collection and processing of user reviews ▲ notify users of personalized advertising and provide general information if refused. This aims to prohibit acts such as displaying advertisements as search results or manipulating user reviews and to enhance transparency of information.

Enforcement and remedies for damages will also be expanded. The FTC is pushing to extend monetary sanctions for legal violations, which previously applied only to tenant companies, to platforms as well. They are considering changing fines imposed for violations to penalties, enabling criminal punishment, and significantly increasing fines (or penalties). Additionally, the amendment reportedly includes consumer damage relief measures such as introducing consent decisions, expanding temporary suspension orders, and establishing an Electronic Commerce Consumer Dispute Mediation Committee. The FTC is also discussing directly evaluating platforms' consumer protection duties.

◆4 out of 10 consumers fail to receive compensation in online platform disputes= The FTC is pushing for amendments to the Electronic Commerce Act because consumer damages have increased alongside the rapid growth of the online transaction market. According to Statistics Korea, online shopping transaction volume doubled from 65 trillion won in 2016 to 135 trillion won in 2019, and was expected to surpass 150 trillion won in 2020. During the same period, online transaction damage relief applications compiled by the Korea Consumer Agency steadily increased from 10,331 cases in 2016 to 16,974 cases last year. Over the past five years, a total of 69,452 damage relief applications were filed, of which 15.8% (10,947 cases) involved disputes related to online platform operators.

However, the probability of receiving damage relief was only about half. The proportion of consumers compensated through refunds, compensation, or contract cancellations in disputes with platforms was 58.6% (6,420 cases). Cases where compensation was not received due to insufficient evidence or unknown seller identity accounted for 40.8% (4,464 cases). Among damage relief applications related to hazardous goods transactions (1,047 cases), those not compensated exceeded half at 52.1% (560 cases).

◆Overseas also strengthening platform regulations... concerns over "market contraction"= Countries such as the United States, the European Union (EU), and China are also strengthening regulations on platforms that have been free from consumer protection responsibilities. In the U.S., a bill holding platforms accountable for the sale of so-called "counterfeit goods" online was introduced in January last year. In August last year, a U.S. court ruled in favor of a consumer who sued Amazon after purchasing a PC from a Hong Kong manufacturer via Amazon and suffering injuries from a fire. The court rejected Amazon's claim that all responsibility lay with the tenant company and that Amazon only played an intermediary role, recognizing joint liability.

China implemented the "New Electronic Commerce Law" in 2019, requiring platforms to clearly distinguish between direct sales and intermediary sales to prevent consumer misunderstanding. If tenant companies sell products that threaten physical or property safety and the platform fails to take certain measures, joint liability is imposed on the platform. Platforms that fail to manage or supervise counterfeit goods sales face fines up to 2 million yuan (approximately 350 million won).

Some express concerns that excessively strengthening platform responsibilities could shrink the related market and raise sales barriers within platforms for tenant companies, most of which are small businesses.

Professor Heeseok Seo of the Law School at Pusan National University said, "Platforms serve a positive function as gateways connecting more tenant companies with more consumers, but imposing excessive responsibility on platform operators could shrink this business model itself. The FTC's approach treats platforms as sellers identical to tenant companies and demands responsibility, but this perception is risky. Long-term sustainability of platform business requires guaranteeing autonomy, such as establishing systems to prevent problems."

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