[Platforms Crushed by Regulation] Fair Trade Commission Meeting Canceled... Platform Companies Say "No Guidelines"

Fair Trade Commission Guidelines 'Unclear'... Lawmakers' Proposals Vary Greatly
Regulatory Anxiety Extends from Naver-Kakao to E-commerce and Startups

Since the Fair Trade Commission announced plans to strengthen regulations on domestic platform operators, companies have been struggling to respond due to the lack of concrete guidelines. As being subject to regulation could immediately constrain business activities and result in fines of up to 10% of sales revenue, clear selection criteria are necessary. However, with the delay in submitting detailed legislation, valuable time is being wasted.

According to the IT industry on the 10th, the Digital Economy Alliance, a coalition of major domestic ICT cooperative organizations, had scheduled a meeting with the Fair Trade Commission on the 9th regarding the so-called 'Platform Competition Promotion Act (tentative name: Platform Act)' but postponed it indefinitely. This was because they had inquired about specific guidelines for the Platform Act last week but had not received a response by that day. The Digital Economy Alliance includes the Internet Enterprise Association, which comprises companies like Naver and Kakao, as well as the Online Shopping Association, Digital Advertising Association, Venture Business Association, and Korea Startup Forum. The Fair Trade Commission stated regarding the cancellation of the meeting by the alliance, "Since the final draft has not been confirmed, it is difficult to share it with the industry at this stage."

Earlier last month, when announcing the promotion of the Platform Act, the Fair Trade Commission stated it would pre-designate certain platforms as 'dominant operators' and fundamentally prohibit frequently occurring unfair practices in the market. The core measures include banning 'self-preferencing' services that favor their own products or content over others, and 'tying sales' where products are sold together, with penalties of up to 10% of related sales revenue for violations. However, the designation criteria were not specified. Instead, the government plans to include detailed provisions in the bill to be submitted to the National Assembly.

Currently, 18 bills are pending in the National Assembly. Among them, the industry is focusing on the bill proposed by Park Ju-min, a member of the Democratic Party of Korea, which is similar to the European Union's Digital Markets Act (DMA), the model promoted by the Fair Trade Commission. According to Park's bill, operators meeting all of the following criteria are subject to regulation: ▲ market capitalization of 30 trillion KRW or more ▲ annual sales of 3 trillion KRW or more ▲ monthly average users of 10 million or more, or 50,000 or more service providers. Even if quantitative criteria are not met, operators can be designated as regulated based on qualitative factors such as market influence. Naver, Kakao, and Coupang are likely to meet the quantitative criteria. Another bill, proposed by Lee Dong-joo of the same party, has a broader scope. While the detailed criteria are the same, operators meeting any one of the market capitalization, sales, user count, or service provider count thresholds are subject to strong preemptive regulation. In this case, platforms like Baedal Minjok, which exceed 10 million monthly active users (MAU), could be included.

Other bills have less clear criteria. They target operators whose online brokerage service sales or sales through platforms exceed certain levels, as defined by presidential decree. Based on the sales thresholds of 10 billion KRW and 100 billion KRW proposed in most bills, e-commerce companies such as Gmarket, 11st, and Olive Young would be included. Platforms like Danggeun Market and Kurly, which have yet to turn a profit, could also fall under the regulatory net. There is much ambiguity about whether the sales or user scale includes overseas operations as well as domestic, and whether multiple platforms operated by a single operator are all included.

The delay in the Fair Trade Commission's bill submission is increasing industry anxiety. An industry insider said, "Whether sales include direct purchases of manufacturers' products rather than sellers entering the platform, and whether C2C (consumer-to-consumer) transactions without brokerage fees are included in sales will affect who is subject to regulation," adding, "In a situation where the boundary between online and offline has disappeared, it is questionable whether dominant platform operators can be clearly distinguished."

Startups dependent on platforms face similar challenges. An industry insider lamented, "If the threshold is set at 10 billion KRW in sales, most operators providing online platform services will be subject to regulation," and added, "Startups that have expanded their scale while enduring losses face survival issues."

Choi Jun-seon, emeritus professor at Sungkyunkwan University School of Law, pointed out, "If the criteria are vague and defined by enforcement ordinances, predictability for companies decreases," and criticized, "The government's approach of managing platform companies once they grow large raises doubts about whether there will be investment attraction or business growth potential."