[Comprehensive] Excessive 'Mango Free Riding'... "Return Unjust Profits for 3 Years" SKB Countersues Netflix

[Asia Economy reporters Seulgina Jo and Minyoung Cha] SK Broadband has filed a counterclaim demanding network usage fees from Netflix, the ‘global online video service (OTT) giant’ that generates massive traffic but does not pay a single cent in usage fees in South Korea, covering the past three years.

Criticism is pouring in that Netflix’s ‘free-riding on network usage’ has gone too far, even refusing to accept the first-instance court ruling. Netflix, which has remained silent on the controversies over free-riding on network usage and tax avoidance, seems instead busy boasting about the economic ripple effect of 5.6 trillion won generated through investment in Korean content ahead of the National Assembly’s audit.

◇ "Pay network usage fees" SKB files counterclaim

On the morning of the 30th, SK Broadband filed a counterclaim against Netflix to claim network usage fees based on the civil law principle of unjust enrichment. This is a follow-up measure after the Seoul Central District Court ruled against Netflix Service Korea, the plaintiff in the lawsuit seeking confirmation of non-existence of debt (no debt) against SK Broadband in June.

SK Broadband explained, "Despite the first-instance ruling, Netflix has not responded to negotiations at all and has not fulfilled the payment of network usage fees, so we are claiming the actual network usage fees for the past three years based on the principle of unjust enrichment."

In particular, SK Broadband emphasized that although Netflix benefits from transmitting data to users using domestic and international data transmission networks built and leased by SK Broadband, it pays no compensation, causing losses corresponding to the network usage fees.

The traffic generated by Netflix, which dominates the domestic OTT market, on SK Broadband’s network has been increasing exponentially every year. From about 50Gbps in May 2018, it surged approximately 24 times to about 1200Gbps as of September this year. As traffic has surged, SK Broadband’s losses to manage and maintain it inevitably increase.

The controversy over free-riding on network usage by global content providers (CPs) including Netflix is not new. Overseas CPs accounted for as much as 78.5% of the top 10 businesses by average daily traffic in the second quarter.

Kim Sang-hee, Deputy Speaker of the National Assembly, pointed out, "Domestic CPs such as Naver and Kakao pay hundreds of billions of won annually in network usage fees to Internet Service Providers (ISPs), cooperating in stable network management and expansion. However, Google YouTube, Netflix, and others, which account for the majority of the surging traffic, ignore network usage fees." However, it has been confirmed that Netflix pays network usage fees to overseas ISPs such as Comcast, Verizon, and AT&T.

Moreover, Netflix has filed an appeal, refusing to accept the domestic judiciary’s ruling that it must pay network usage fees. Earlier, the court ruled in the first instance that "Netflix should be regarded as receiving a paid service of internet network connection through SK Broadband," and "it is reasonable and equitable for Netflix to bear the obligation to pay for this."

SK Broadband stated, "Denying the paid nature of network usage recognized in the first-instance ruling by Netflix denies the basic business model of telecommunications operators," and pointed out, "It is natural that Netflix should pay network usage fees just like all domestic and foreign CPs pay normally." The amount claimed for unjust enrichment will be determined through an appraisal procedure supervised by the court, as in ordinary trial procedures.

The legal dispute between the two companies escalated when Netflix filed a lawsuit before the mediation result came out, while SK Broadband had applied to the Korea Communications Commission in November 2019 for mediation over the conflict regarding network usage fees with Netflix. At that time, controversy arose as a broadcasting and telecommunications operator with domestic sales in the hundreds of billions bypassed the regulatory authority’s mediation.

◇ ‘Self-praise of coexistence’ ahead of the audit

Netflix’s behavior, rushing to self-praise and publicity to avoid blame ahead of next month’s audit, has also come under scrutiny.

Netflix held a ‘Partner Day’ media event the day before and revealed survey results showing an economic ripple effect of 5.6 trillion won over five years through investment in Korean content. As movements targeting platform operators continued across various National Assembly standing committees, this is interpreted as Netflix hastily emphasizing coexistence and mutual growth. Currently, Netflix Service Korea has been selected as a general witness for the National Assembly’s Science, Technology, Information and Broadcasting and Communications Committee audit.

However, criticism is pouring in that Netflix’s behavior of calling for mutual growth while ignoring the obligation to pay network usage fees and tax avoidance controversies is inappropriate. A National Assembly Science and ICT Committee official said, "It is true that Netflix has contributed to the content ecosystem, but isn’t it ignoring the network ecosystem and tax obligations? Boasting about coexistence and mutual growth while ignoring responsibilities pointed out by the National Assembly for years lacks sincerity." Some express concerns that Netflix’s acquisition of domestic content rights and intellectual property (IP) could reduce Korea to a content subcontractor.

The tax avoidance controversy surrounding Netflix has also been an issue pointed out annually by the National Assembly. Netflix reportedly recorded sales exceeding 400 billion won domestically last year. However, the corporate tax paid by Netflix last year was only 2.18 billion won. Domestic IT companies with similar sales recorded corporate taxes of 15.8 billion won.

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