[why&next] Kakao vs SK C&C: Whose Fault Is Greater? Inevitable Dispute Over Responsibility and Compensation

Kakao Likely to Claim Reimbursement from SK C&C After Self-Compensation
User Compensation Demands Expected to Intensify...Dispute Over Liability Scope Inevitable

[Asia Economy Reporter Yuri Choi] As Kakao services were paralyzed due to the fire at the Pangyo data center, attention is also focused on the scope of responsibility and compensation for damages related to the incident. With 47 million subscribers, the nationwide service outage caused tangible and intangible damages to the entire population, making a dispute over responsibility between the data center operator SK C&C and the tenant company Kakao inevitable.

According to the IT industry and securities circles on the 17th, the estimated damage to Kakao services caused by the data center fire is expected to reach 22 billion KRW. This estimate excludes damages caused by the fire within the SK C&C data center itself. The figure is a simple calculation based on Kakao’s expected sales in the fourth quarter.

Industry insiders expect Kakao to first provide compensation to users and then claim subrogation rights against SK C&C. When a fire occurred at the Samsung SDS Gwacheon data center in 2014, Samsung affiliates, which were tenants, compensated customers and subsequently claimed subrogation rights against Samsung SDS, setting a precedent.

According to the fire investigation results, SK C&C cut off the power supply to the data center after the fire broke out. It was during this process that Kakao’s service disruption began. Therefore, attention is focused on the responsibility dispute between the two companies. Typically, responsibility and compensation issues arising from data center shutdowns are determined according to the Service Level Agreement (SLA) between the two parties. The SLA sets a certain operational standard and outlines responsibility and cost allocation in case of failures.

From SK C&C’s perspective, the scope of compensation may vary depending on the cause of the fire and the appropriateness of subsequent measures. Notably, the unusually long Kakao service outage was due to the power supply being cut off in the building where the fire occurred. Whether this decision was reasonable and the extent of compensation under the contract terms are also points of interest. SK C&C explained that emergency procedures were followed after the fire and that tenants were notified in advance about the power supply cutoff.

Kakao may also face disputes as it holds technical responsibility for service restoration. Although the primary cause of the service disruption was the data center fire, the extent of damage differed between Kakao and Naver, both tenants. Due to differences in data distribution systems and the presence or absence of their own data centers, the degree of errors and recovery speed varied, suggesting that Kakao cannot be exempt from responsibility. A Kakao official stated, "We will focus all efforts on service recovery first and then discuss compensation issues."

An IT industry insider said, "Fundamentally, the power shutdown was the biggest cause, but Kakao’s failure to build a backbone network and concentrating services in one data center were also problems. Although it depends on the SLA contract, it will take considerable time to determine the scope of damage compensation."