[Asia Economy Reporter Koo Eun-mo] The legal battle between Netflix and SK Broadband over network usage fees appears to be heading into a second round. Netflix, which lost in the first trial, has officially expressed its intention to recontest by filing an appeal, and SK Broadband is also preparing to counter by indicating its intention to file a counterclaim. Since Netflix's appeal aims to overturn the first trial's ruling, the core issue is expected to remain the same dispute over the legal basis for network usage fees.
On the 15th, Netflix announced that it would file an appeal regarding the Seoul Central District Court's ruling on the confirmation of non-existence of debt lawsuit. In response, SK Broadband criticized Netflix for unilaterally denying the network usage fees that both general users and domestic content providers (CPs) are paying.
The dispute between the two companies began in November 2019 when SK Broadband filed a petition with the Korea Communications Commission requesting mediation for negotiations on network usage fees with Netflix. However, before the mediation results were announced, Netflix filed a lawsuit in April last year claiming it had no obligation to pay network usage fees, escalating the matter to a legal battle.
In the first trial, the court ruled in favor of SK Broadband. On the 25th of last month, the 20th Civil Division of the Seoul Central District Court ruled against Netflix in the first trial of the confirmation of non-existence of debt lawsuit filed by Netflix against SK Broadband. The court dismissed Netflix's claim that it had no obligation to pay network usage fees. The claim seeking confirmation that there was no obligation to negotiate was dismissed.
Netflix Appeals Loss on Network Usage Fees... "Legal Basis Not Specified"
Netflix cited two main reasons for appealing the first trial ruling. First, it argued that there is no legal basis for the obligation to pay fees for network usage. Netflix stated, "In the first trial ruling, the court judged that Netflix has an obligation to pay SK Broadband, but while recognizing the obligation to pay, it failed to specify the legal basis." Debts such as the obligation to pay fees arise only when there is a legal basis such as laws or contracts, but this ruling omitted such basis.
In other words, Netflix's position is that the obligation assigned to them is not to pay network usage fees but to develop high-quality content and provide it to consumers. Since consumers pay content usage fees to CPs and internet service usage fees to internet service providers (ISPs), it is reasonable to bear obligations corresponding to the fees.
Previously, Netflix filed a 'confirmation of non-existence of debt' lawsuit against SK Broadband, claiming it could not pay network usage fees. The court ruled against Netflix, stating that Netflix receives a 'paid service' of internet network access and connection from SK Broadband and must pay for it. The confirmation of non-existence of debt means that Netflix has no obligation (debt) to pay telecom companies for network operation, expansion, and usage fees related to OTT services.
Second, Netflix argues that the first trial ruling is biased toward protecting the interests of domestic ISP companies and will ultimately threaten the internet ecosystem and net neutrality as a whole. Focusing on the interests of domestic ISP companies could infringe on the interests of foreign CPs like Netflix, as well as Korean CPs and users.
Netflix emphasized, "Globally, courts or governments have never forced CPs to pay network usage fees," and "If the first trial ruling stands, the internet ecosystem order formed by CPs and ISPs worldwide could collapse." If a specific CP cannot pay network usage fees to an ISP, consumers' access to content will also be blocked.
SK Broadband: "Must Pay Network Usage Fees Like Domestic CPs... Will File Counterclaim if Refused"
SK Broadband immediately responded that if Netflix continues to refuse to fulfill its obligation to pay network usage fees despite the first trial ruling, it plans to file a counterclaim to claim network usage fees at an appropriate time.
SK Broadband first rebutted Netflix's claim that there is no basis for paying network usage fees, stating that it is natural for anyone using the network to pay fees, and the court's decision confirmed this basic principle. SK Broadband said, "The first trial court clearly recognized the paid nature of internet services and Netflix's obligation to pay network usage fees," criticizing Netflix's repeated claim that transmission should be free under net neutrality.
It added, "Netflix's complete denial of the paid nature of network usage recognized in the first trial ruling denies the basic business model of telecom operators," and "This is akin to denying the paid nature of content, which is Netflix's basic business model." It is only natural to pay network usage fees when using the network.
Regarding the criticism that the ruling threatens the internet ecosystem by focusing on protecting the interests of domestic ISP companies, SK Broadband rebutted, "We deeply regret Netflix's attitude of concluding the ruling by the Korean judiciary as 'protection of specific interests'." Netflix claims that the first trial ruling means CPs worldwide must pay SK Broadband network usage fees, but this ruling recognizes the principle that CPs like Netflix, which directly use a specific telecom company's dedicated line, must pay network usage fees to that ISP.
Responsibility Dispute Over Negotiation Breakdown Remains
The dispute over responsibility for the negotiation breakdown remains a key issue. Netflix's position is that dispute resolution is possible by dividing roles between the parties, but SK Broadband is unreasonably refusing this, so the responsibility lies with SK Broadband.
Netflix claims that by providing its own content delivery network (CDN), Open Connect (OCA), to SK Broadband, it can reduce Netflix's own traffic by at least 95%, thereby reducing costs related to network expansion. Netflix stated, "We proposed free installation and technical support of Open Connect to SK Broadband, but SK Broadband demanded monetary compensation and shifted ISP responsibility to Netflix," adding, "It is regrettable that consideration for joint users is missing."
In response, SK Broadband said, "We applied for mediation with the Korea Communications Commission to continue negotiations, but Netflix rejected it and filed a lawsuit," demanding clarity on responsibility. It also rebutted, "Even if Netflix installs OCA, it must pay domestic network usage fees like domestic CPs." Netflix's claim that it should install OCA domestically and use domestic networks for free denies the basic business model of telecom operators and is not a proposal for problem resolution.
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