Netflix loses first trial in 'network usage fee' dispute lawsuit against SKB (comprehensive)

Court dismisses plaintiff's claim... plaintiff also bears costs
SKB states "foreign companies argue beyond Korean law"
Netflix "will announce position after reviewing judgment"

[Asia Economy Reporter Cha Min-young] Netflix, the world's largest online video service (OTT) company, lost the first trial in a declaratory judgment lawsuit against SK Broadband, a domestic telecommunications operator, seeking confirmation of non-existence of debt. Netflix's claim that it has 'no obligation to pay' in the dispute over network usage fees was not recognized by the court. This is expected to be the 'first' judicial ruling distinguishing the roles and responsibilities between content providers (CP) and internet service providers (ISP) not only in Korea but also overseas.

Court Dismisses Declaratory Judgment Lawsuit

On the 25th at 1:50 p.m., Judge Kim Hyung-seok of the 20th Civil Division at the Seoul Central District Court dismissed Netflix's declaratory judgment lawsuit against SK Broadband. The court also rejected the plaintiffs' other claims and ordered the plaintiffs to bear the litigation costs.

The court stated, "Regarding the plaintiffs' request to confirm the obligation to negotiate and the obligation to pay compensation, it was found that the benefit of confirming the obligation to negotiate is not recognized based solely on the evidence submitted by the plaintiffs."

It added, "Regarding the obligation to pay compensation, the plaintiffs are currently directly connected in Hong Kong under an agreement and appear to be in the process of negotiating. Under the principle of freedom of contract, whether to conclude a contract and what compensation to pay should be determined by the parties' agreement, and it is not a matter for the court to intervene and order the conclusion of a contract."

Previously, Netflix and SK Broadband have been in dispute over network usage fees since 2015. In April last year, Netflix bypassed the Korea Communications Commission's administrative procedures and filed a declaratory judgment lawsuit against SK Broadband. The two parties held three rounds of hearings and technical presentations (PT) from October to April this year.

SKB Side: Foreign Companies Must Compete While Complying with Korean Law

Kang Shin-seop, a lawyer from Sejong Law Firm representing SK Broadband, told reporters during a back briefing, "The plaintiffs' claims consist of two parts: the obligation to negotiate under the Korea Communications Commission's administrative procedures, which was dismissed, and the claim that SK Broadband has no obligation to pay network usage fees, which was rejected."

Both 'dismissal' and 'rejection' mean refusal of the lawsuit in court, but dismissal refers to terminating the lawsuit without trial due to failure to meet procedural requirements or illegality, while rejection means the lawsuit meets formal requirements but the court rejects the plaintiff's claims as unfounded. This means the plaintiff loses the case.

Lawyer Kang explained, "The former was predictable, and the latter was the issue in dispute. SK Broadband argued that there is a network usage fee in the process of data transmission through overseas and domestic networks, while the opposing party (Netflix) claimed there is no obligation to pay." He added, "The rejection indirectly confirms the obligation to pay network usage fees, although the court did not elaborate."

Regarding the differing positions on the principle of network neutrality and global connectivity, the court accepted SK Broadband's argument. Kang said, "Network neutrality basically prohibits ISPs from unreasonably discriminating against data, but it does not invalidate network usage fees. It is like Article 15 of the Medical Service Act, which prohibits discrimination by medical professionals based on skin color or age, but medical services are not free."

He continued, "If foreign companies want to do business in Korea, they must comply with the culture and laws. They are trying to argue beyond the Telecommunications Business Act and Civil Act, but the court made a sober judgment on that. Amazon, Google, YouTube, and other global CPs and telecommunications operators will likely pay close attention to this ruling," he pointed out.

Netflix: 'Free Riding' Frame Distorts the Facts

After the first trial verdict, Netflix issued an official statement saying, "Labeling this as 'free riding' distorts the facts," and argued, "Rather, it is the ISP, not the CP, that is trying to unjustly profit by double charging the CP for costs that consumers have already paid to the ISP." This appears to indicate an intention to appeal. However, Netflix plans to disclose a detailed position after reviewing the judgment. The ruling containing specific reasons for dismissal has not yet been made public.

An industry insider said, "Even if negotiations resume, an appeal trial is expected to proceed naturally," adding, "From the industry's perspective, this is a highly notable ruling."