Supreme Court Recognizes LG Uplus' Abuse of Dominant Market Position in 'Enterprise Messaging Service'... Case Remanded Favoring Fair Trade Commission Victory

Supreme Court En Banc. / Provided by the Supreme Court

[Asia Economy Reporter Choi Seok-jin, Legal Affairs Specialist] The Supreme Court has ruled that LG Uplus providing corporate messaging services (text notification services) at prices lower than the usual transaction prices constitutes an abuse of market-dominant position under the Monopoly Regulation and Fair Trade Act (hereinafter the Fair Trade Act), and that the Fair Trade Commission's corrective order and fine payment order are lawful.

According to the Supreme Court on the 2nd, the Third Division of the Supreme Court (Presiding Justice Kim Jae-hyung) overturned the lower court ruling that had ordered the cancellation of the Fair Trade Commission's corrective order and fine payment order in the appeal filed by LG Uplus against the Fair Trade Commission, and remanded the case to the Seoul High Court.

The court stated, "The lower court ruling erred in its legal interpretation regarding the unfairness requirement for establishing abuse of market-dominant position under Article 3-2(1)5 (first clause) of the Fair Trade Act and Article 5(5)1 of the Enforcement Decree of the Fair Trade Act, and failed to conduct necessary hearings," adding, "The grounds for appeal pointing this out are justified."

Article 3-2(1) of the Fair Trade Act (Prohibition of Abuse of Market-Dominant Position) states, "A market-dominant business operator shall not engage in any of the following acts (hereinafter referred to as abuse acts)," enumerating types of abuse acts from items 1 to 5.

Among them, item 5 is defined as "acts that unfairly exclude competing businesses or acts that are likely to significantly harm consumer interests."

Also, Article 5(5)1 of the Enforcement Decree of the same law specifies concrete types of abuse acts aimed at unfairly excluding competing businesses, including "cases where goods or services are supplied at prices lower than usual transaction prices or purchased at higher prices, thereby potentially excluding competing businesses."

In February 2015, the Fair Trade Commission ordered KT and LG Uplus to pay fines of 1.9 billion KRW and 4.3 billion KRW respectively, along with corrective orders, stating that they monopolized the corporate messaging service market by using their exclusively held wireless communication networks.

Corporate messaging is a service where companies send text messages to mobile phones for credit card approvals, bank transaction details, shopping mall order and delivery notifications, and so on.

Other corporate messaging service providers must use KT and LG Uplus's wireless communication networks and pay a fee of 9.2 KRW per message, but KT and LG Uplus provided the service at prices lower than usual transaction prices, thereby harming fair competition, according to the Fair Trade Commission's judgment.

In response, the two companies filed administrative lawsuits in 2015, claiming the Fair Trade Commission's disposition was unfair.

Previously, the Seoul High Court ruled that the Fair Trade Commission's basis for the corrective order?the usual transaction price?did not properly reflect the cost structures of the two companies, and thus ordered the cancellation of both the corrective order and the fine payment order.

However, the Supreme Court ruled in favor of the Fair Trade Commission, stating, "The lower court misinterpreted the meaning of usual transaction price contrary to legal principles," and "It cannot be concluded that the sales price of the corporate messaging service supplied by the two companies being lower than the usual transaction price is unreasonable."

In particular, the Supreme Court judged that LG Uplus, unlike other corporate messaging service providers, is a vertically integrated business operator that owns the wireless communication network and operates in two different production stages along the supply chain. It supplies essential raw materials or input factors for production activities of downstream market operators while producing and selling goods or services based on those raw materials in the downstream market. This constitutes a type of abuse of market-dominant position where profit squeeze can be an issue, and the court found that this applies in the present case.

Profit squeeze refers to the act where a vertically integrated market-dominant operator in the upstream market reduces the difference between the wholesale price of raw materials in the upstream market and the retail price of finished products in the downstream market, making it difficult for competing businesses in the downstream market to compete effectively and thereby excluding them from competition.

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