Fact-Finding Investigation Launched by KCC... Will Google’s Korean App Market Revenue Be Disclosed?

Focus on Fixed or Ad Valorem Penalties When Imposing Fines
Need to Assess Domestic App Market Revenue for Ad Valorem Penalties
Fixed Penalty Imposed During Facebook Sanctions
Final Decision Expected After National Assembly Audit

[Image source=Yonhap News]

[Asia Economy Reporter Cha Min-young] As the Korea Communications Commission (KCC) has launched a fact-finding investigation to uncover unfair practices by application (app) market operators such as Google and Apple, the IT industry is paying close attention to whether the previously secret scale of domestic app market sales by Google will be revealed for the first time.

On the 4th, the KCC announced that it had started a fact-finding investigation into the three app market operators (Google, Apple, and One Store) for alleged violations of the so-called "Google Gapjil Prevention Act (Amendment to the Telecommunications Business Act)" and is currently conducting the investigation. Since prior notification is mandatory before the investigation, the actual investigation began after the 16th, following the announcement on the 9th regarding the start of the fact-finding investigation. The KCC judged that all three companies had the potential to violate prohibited acts.

The KCC typically conducts fact-finding investigations after reports and recognition through on-site inspections. The investigation results are reported and sent to the respondents, and corrective action plans are reviewed and resolved at a plenary meeting. At this time, respondents can raise objections. When the resolution is notified to the respondents, a reconsideration is conducted if an objection is filed.

What the industry is focusing on is whether the KCC will choose a fixed penalty or a proportional penalty if it imposes fines after the investigation. In 2018, the KCC imposed a fixed penalty of 396 million KRW on Facebook for arbitrarily changing access routes of SK Broadband and LG Uplus, causing damage to users. At that time, the KCC explained, "Since Facebook did not charge domestic operators for usage fees and did not disclose domestic sales, it was difficult to calculate fines based on sales, so a fixed penalty was imposed."

If a proportional penalty is imposed, the app market sales Google earns in Korea are expected to be disclosed for the first time. Google Korea has been disclosing its sales since April last year under the revised External Audit Act. The sales disclosed for 2021 amounted to 292.4 billion KRW, a 32.8% increase from the previous year. However, this does not include sales from Google Play app commission fees. Google maintains secrecy, citing that the app market business is handled by its Singapore entity. Because of this, Google Korea's domestic sales account for only 4% compared to Naver and Kakao's sales as of last year. This is why the IT industry criticizes it as a 'loophole.' Google Play Store's domestic app market share reaches the 70% range.

For the KCC to impose proportional fines, it must calculate the exact scale of app market sales to estimate the damage amount suffered by app companies due to unfair practices by app market operators. A lawyer in the IT industry said, "To calculate the damage amount caused by unfair practices, it is essential to accurately grasp the scale of app market sales," adding, "Cooperation from the headquarters is necessary in this process, so it will not be easy."

Some speculate that it will be difficult for the KCC to complete the fact-finding investigation before the October National Assembly audit. This year's audit is scheduled from October 4 to 24. Not only is there insufficient physical time after transitioning to the fact-finding investigation, but the KCC is also expected to face burdens related to the disclosure of meeting minutes containing the plenary meeting's resolution content. Since there is a possibility of administrative lawsuits by overseas operators such as Google and Apple when fines are imposed, a cautious approach is necessary.

Meanwhile, the KCC responded to written inquiries from the office of Kim Young-sik of the People Power Party regarding the "Status of fact-finding investigation related to forced in-app payments" and "Materials obtained related to Google and Apple’s domestic app market sales and the domestic market" by stating, "Since the investigation is ongoing, it is difficult to submit specific details."