Notification of Administrative Order as Early as Next Week
Coupang Files Injunction and Cancellation Petition
Dual Status Highlighted in Court Proceedings Expected
The Fair Trade Commission (FTC) is expected to issue a corrective order to Coupang within this month for manipulating its search ranking algorithm to prominently display its private brand (PB) products. Coupang plans to take legal action, as this is the first administrative sanction related to 'product display' in the global distribution industry, so its PB and other in-house products are likely to remain prominently displayed for the time being.
According to the distribution industry on the 4th, the FTC plans to notify Coupang of the corrective order within this month. The FTC's corrective orders are usually posted on its website within one month of the notice. Earlier, on the 13th of last month, the FTC announced a provisional fine of 140 billion KRW against Coupang for violating the Fair Trade Act. An FTC official stated, "We are preparing a resolution regarding Coupang and CPLB's deceptive customer inducement practices," adding, "We plan to send the resolution, including details of the fine and corrective order, to Coupang within this month."
The FTC has determined that Coupang manipulated the algorithm to display its PB products and other in-house products at the top of search results, and is expected to issue a corrective order demanding that Coupang "stop fixing its own products at the top of search rankings through algorithm manipulation."
Previously, the FTC found that Coupang manipulated the algorithm through methods such as ▲Product Promotion (fixing direct purchase products and PB products in positions 1 to 3), ▲Strategic Good Product (SGP, weighting the basic search ranking score of direct purchase fashion products and PB products by 1.5 times), and ▲Cold Start Framework (fixing direct purchase products and PB products in search rankings from 10th to 5th place at intervals for up to 15 items per search term).
If the FTC's corrective order takes effect, Coupang will have to modify the algorithm that determines search rankings. As a result, PB products are likely to be pushed down from the top of search rankings. Currently, when searching for bottled water, toilet paper, or milk on Coupang, PB products such as Tamsa Water, Comet Toilet Paper, and Gomgom Fresh Milk appear at the top, but in the future, they may be found lower down.
However, even if the FTC issues a corrective order, it does not take effect immediately. Coupang can file a suspension of execution with the court to temporarily halt the order's effect. If the court accepts Coupang's request, the FTC's corrective order will be suspended until the main lawsuit concludes. From Coupang's perspective, it can maintain its current business model for several years. Typically, lawsuits against the FTC's cancellation orders take 2 to 3 years to conclude, and if the case goes to the Supreme Court, this period may be extended further.
Legal Battle Over 'Dual Role' Expected in Court
The FTC and Coupang are expected to engage in a legal battle over the 'dual role' issue in court. The FTC based its sanction on Coupang's 'dual role' status. It viewed that Coupang abused its dual role as both 'referee' and 'player' to manipulate exposure order and distort competition in its favor. On the other hand, Coupang counters, "This is an issue of consumer deception and does not assume a dual role."
Coupang's argument is based on the fact that virtually no domestic distributors are free from the dual role. According to the 'Distribution Transaction Survey' (2022 data) released by the FTC at the end of last year, among 35 brands including convenience stores, online malls, large supermarkets, and department stores, 27 operated consignment sales alongside selling their own products. That is, 77% of the 35 brands sold their own products and products from tenant or supplier companies on the same channel.
Coupang claims, "All distributors prioritize recommending and displaying their own PB products." Indeed, large supermarkets promote PB products at entrance displays or 'Golden Zones' (displays under 170cm), and online shopping malls display PB products for most groceries and daily necessities at the top of search results. Department stores are also opening PB brand stores such as jewelry on the first floor, where foot traffic is high.
Because of this, concerns have been raised about the FTC's sanctions on PB product placement. Professor Kim Dae-jong of Sejong University's Business Administration Department said, "If consumer deception is not clear, restricting the top placement of PB products will increase consumer dissatisfaction among those who want to quickly buy affordable, cost-effective products," adding, "It should also be noted that no competition authorities worldwide, including the US and Europe, have precedent for regulating the display order of PB products." Professor Lee Sun-hee of Sungkyunkwan University said, "In large supermarkets, PB brand products are densely placed at entrance displays, and consumers do not raise issues," adding, "This is inconsistent with offline large supermarkets and goes against global market regulatory trends."
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