Largest Fine Ever in Domestic Distribution Industry
Coupang and CPLB Corporations Prosecuted
Employee Mobilization for Review and Search Ranking Manipulation
Coupang, which has 14 million paid members, was fined at least 140 billion won (tentative) by the Korea Fair Trade Commission (KFTC) on the 13th for manipulating search rankings and deceiving consumers. Coupang and its subsidiary CPLB Corporation were also reported to the prosecution. The KFTC judged that Coupang deceived consumers and distorted fair competition by mobilizing employees to write purchase reviews to increase sales of its own products and manipulating the search ranking algorithm in the process.
According to the KFTC, since February 2019, Coupang has mobilized 2,297 employees to write positive purchase reviews and give high star ratings (an average of 4.8 points) for at least 7,342 private brand (PB) products, resulting in 72,614 purchase reviews.
Until the first on-site investigation by the KFTC in June 2021, Coupang did not disclose to consumers that employees wrote purchase reviews and gave high star ratings. Even after the KFTC's on-site investigation, Coupang deliberately concealed the fact that employees wrote purchase reviews by placing them several clicks deep or at the bottom of the page where they were not easily visible.
Coupang defined the act of sellers writing purchase reviews on their own intermediary products as a "serious illegal act that hinders fair competition among competing businesses within the market" and showed a double standard by preventing sellers from manipulating purchase reviews.
Furthermore, it was confirmed that Coupang used three algorithms?Product Promotion, SGP, and Cold Start Framework?to exclude sellers' products and fix at least 64,250 of its own products (58,658 directly purchased products and 5,592 PB products) at the top of search rankings.
Coupang publicly announced that the default product search setting, "Ranking Order," determines the exposure order of search results based on objective criteria such as sales performance and user preference, but in reality, it artificially adjusted the algorithm to display its own PB products at the top.
Coupang confirmed through internal experiments that such algorithm manipulation led to increased sales. According to internal documents secured by the KFTC, when applying the "Product Promotion" algorithm, which fixes directly purchased and PB products in the top 1 to 3 positions, the total sales of the targeted products increased by 76% (as of Q2 2019).
The KFTC pointed out, "Coupang, as a platform operator mediating products and also as a product seller, abused its dual status by recognizing the effect that the number of purchase reviews and average star ratings directly influence consumers' product choices and search rankings. Despite being aware that such hierarchical acts could be illegal, Coupang continued to manipulate search rankings by upgrading the algorithm."
Around 2019, Coupang set profitability improvement as a company-wide goal and actively manipulated search rankings for directly purchased products. Internal documents stated, "In line with the company's business goals, we successfully started an algorithm that raises the search ranking of products according to business strategy to improve gross profit." Coupang aggressively expanded its direct purchase and PB businesses, increasing the proportion of its own products from 60% in 2019 to 70% in 2022 based on transaction volume.
As a result, Coupang, which had been running at a loss since its founding in 2010, achieved its first annual operating profit of 617.4 billion won last year and recorded record-breaking sales of 31.8298 trillion won. Rapidly expanding its business, Coupang entered the large business group category for the first time in 2021 and soared to 27th place in the business world rankings as of the end of 2023.
The KFTC judged that Coupang's preferential treatment of its own products and algorithm manipulation hindered consumers' purchasing choices and distorted fair competition with sellers. The KFTC considered this a violation of Article 45, Paragraph 1, Subparagraph 4 of the Fair Trade Act, which prohibits "customer inducement by hierarchical means." The 140 billion won fine imposed on Coupang is the largest ever for customer inducement by hierarchical means and also the largest fine ever imposed by the KFTC on the domestic distribution industry. This amount was calculated from February 2019 to July last year, and the fine will increase further with additional penalties from August 2023 to the review date.
The KFTC stated, "This case is significant in that it detected and sanctioned an online shopping mall operator for unfairly inducing consumers by manipulating algorithms and having employees write purchase reviews and give high star ratings, excluding sellers' intermediary products and placing only its own products at the top of search rankings. It is expected to contribute to establishing a fair competition order between giant platforms that serve as both product intermediaries and sellers and competing businesses (sellers), and to raising awareness so that online shopping operators thoroughly operate transparent and fair algorithms."
Meanwhile, Coupang stated that it cannot admit the main allegations raised by the KFTC and plans to clarify its position in court through administrative litigation.
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