Netflix·SKB Enter 'Lawsuit of the Century' Battle... Likely to Become a Long-Term War

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[Asia Economy Reporter Koo Chae-eun] Is this a one-sided victory? Or the beginning of a tedious battle?

Netflix has filed a lawsuit against SK Broadband seeking a declaration of non-existence of debt, drawing intense attention to the outcome. This case is likely to become a "trial of the century," comparable to the lawsuits involving Facebook and the Korea Communications Commission.

The court's decision will establish a new precedent regarding disputes over network usage fees between content providers (CP) and internet service providers (ISP). Given the sharp differences between the two camps, not only global companies like Netflix and YouTube but also telecom operators are expected to closely watch the judgment of the Korean courts.

▲Netflix. (AP=Yonhap News)

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According to industry sources on the 15th, Netflix filed a civil lawsuit at the Seoul Central District Court requesting confirmation that it has no obligation to pay network usage fees to SK Broadband. Netflix submitted the complaint to confirm its existing position that, as a content production company, it is not obligated to pay fees related to network operation, expansion, or usage concerning data traffic.

Previously, SK Broadband applied for mediation (arbitration) with the Korea Communications Commission, but Netflix submitted several statements of opinion before abandoning mediation and opting for litigation. The mediation process, which involved several exchanges of opinions, became futile as the court lawsuit commenced. According to the Telecommunications Business Act, if one party files a lawsuit during the mediation process, the commission must suspend the mediation and notify the other party.

An industry official said, "It appears that Netflix filed the lawsuit anticipating an unfavorable mediation result," adding, "Although litigation was a possibility, Netflix responded faster than expected."

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Netflix emphasized that it has made efforts to reduce data traffic burdens, such as proposing the free installation of Open Connect Appliances (OCA) capable of traffic management to SK Broadband. On the other hand, SK Broadband insists that Netflix must pay a fair network usage fee amid the surge in data traffic.

Netflix explained, "Netflix proposed the Open Connect program, which prepositions content from overseas to the country to resolve traffic issues, but SK Broadband has not accepted this." It added, "We proceeded with mediation through the Korea Communications Commission, but as the gap between the two companies did not narrow, we moved forward with litigation. Regardless of the lawsuit, since we share common consumers, cooperation will continue."

SK Broadband stated, "It is necessary to devise joint measures to address Netflix's rapidly increasing traffic," and added, "Once the complaint is delivered by the court, we will review it and decide on follow-up responses."

Industry insiders predict that this lawsuit will not end in a single round but will lead to prolonged disputes including appeals and Supreme Court rulings. The key issues will be the confirmation of 'debt' and 'credit' related to network fees, with many points of contention involving data traffic, the internet ecosystem, the content market, and contractual disputes. An ICT industry official said, "In the context of the explosive growth of OTT traffic due to COVID-19, the outcome of this lawsuit will set a precedent regarding the targets and sources of network investment."

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