[Why&Next] Regulatory Blind Spots for Small Platforms... What If the Onple Law Had Passed Then?

Abuse of Power Regulations for Tenant Businesses
Regulatory Blind Spots in Small and Medium-Sized Platforms

In the wake of the Tmon and Wemakeprice (Timep) incident, the need for regulatory measures similar to the 'Online Platform Fairness Act' (Onple Act), which was prepared during the Moon Jae-in administration, is being raised. Although various platforms have normalized the order of mediating the sale of diverse products through tenant merchants, there is no appropriate sanction method to regulate their transaction order. So far, the Yoon Suk-yeol administration has maintained a policy stance of entrusting measures to protect tenant companies trading with platforms to 'self-regulation.'

On the 7th, the government announced institutional improvement measures to prevent the recurrence of the Timep incident. The government's policy focus was set on 'settlement.' It decided to shorten the settlement period of e-commerce companies and mandate that sales proceeds be entrusted to reliable institutions such as banks. To this end, amendments to the Large-Scale Distribution Business Act and the Electronic Financial Transactions Act were planned.

However, there are concerns that a law defining the transactional relationship between platform companies and tenant businesses is necessary to fundamentally prevent recurrence. Although large and small platform companies mediate various transactions to consumers, they fail to cover issues such as delayed settlements passed on to tenant businesses, who are the key transaction parties, or unilateral fee increases. While amending the Electronic Commerce Act and the Large-Scale Distribution Business Act can prevent e-commerce companies, whose core business is not finance, from misappropriating tenant funds, other platform abuses remain difficult to regulate.

The government's self-regulation plan is not fully effective. In April, the Fair Trade Commission and related ministries reviewed self-regulation measures with platform companies, but Baedal Minjok (Baemin) significantly raised its fees instead. Baemin reversed its policy of waiving commission fees for takeout order services and decided to charge fees to newly joined small business tenants. In early last month, it raised the 'Baemin1 Plus' brokerage fee from 6.8% to 9.8%, a 3 percentage point increase, representing a high increase rate of around 40%. The government has no direct intervention measures.

[Image source=Yonhap News]

Small and Medium-Sized Platforms Entrusted to 'Self-Regulation' but Failed to Prevent 40% Fee Increase

This is the background for the renewed discussion of the Onple Act, which the Fair Trade Commission had previously prepared. The Onple Act, which failed to pass the 21st National Assembly, included measures to regulate various abuses against tenant businesses by platforms. Abuse refers to acts where the 'gap' party, holding a superior position in transactions, shifts costs or risks to the 'eul' party to gain more profit. It includes forcing tenant businesses to sell products at the lowest price only on their platform using their transactional position, or delaying the settlement of payments made by consumers for long periods. It also covers demands for most-favored-nation treatment (where platform companies require tenant businesses to set prices or transaction conditions more favorably than other sales channels) and tying sales (forcing tenant businesses to trade other services together).

The problem is that it is difficult to regulate platform abuses with current laws alone. Especially for small and medium-sized platform companies that are not big tech, regulation is challenging. They often do not meet criteria such as business type or sales volume to be subject to the Large-Scale Distribution Business Act, so the Fair Trade Act has generally been applied. To do so, it is first necessary to prove that these small and medium-sized platform companies hold a superior transactional position, i.e., are the 'gap' party compared to tenant businesses, but due to the peculiarities of the platform economy, this process is complex and time-consuming.

To prove transactional superiority, it must be recognized that tenant businesses have been trading exclusively (exclusivity) and continuously (continuity) with the platform for a long period. However, proving exclusivity and continuity is difficult in the platform economy. This is because a new pattern called 'multi-homing' has become commonplace in the platform economy. Multi-homing refers to users simultaneously using multiple platforms for transactions. Since tenant businesses typically use various open markets such as Coupang, Timep, Naver, and 11st, it takes time to select regulatory targets.

Reexamination of the Onple Act Specialized in Platform Company Abuses

For this reason, experts in the Fair Trade Act have long suggested the need for a specialized separate law to regulate such unfair practices by platform companies. The Onple Act, promoted during the tenure of former Fair Trade Commission Chairman Cho Sung-wook, was such a law. The bill specifically defined types of unfair trade practices by online platform intermediaries using their transactional position and stipulated that criteria for determining superior transactional status would be set by public notice.

At that time, the Fair Trade Commission considered relaxing the exclusivity and continuity requirements, which were previously used to judge abuses, to 'auxiliary conditions.' Instead, it judged that a new standard should be established where if the scale of data held and transaction frequency resulting from transactions between platforms and user businesses exceed a certain level, the platform is considered to have transactional superiority. This was intended to more effectively sanction platform company abuses. The bill also specified abuses such as delaying payment and imposing economic disadvantages, allowing the Fair Trade Commission to immediately issue corrective orders and impose fines if violated.

In contrast, the current Platform Fair Competition Promotion Act (Platform Act) promoted by the Fair Trade Commission targets a very small number of big tech companies. It is a bill aimed at regulating the abuse of dominant monopolistic platforms (big tech) to maintain their overwhelming competitive position by driving competitors out of the market, making it difficult to prevent abuses by small and medium-sized platform companies like Timep. The bill focuses on pre-selecting a few big tech companies as regulatory targets and prohibiting preferential treatment of their own businesses, but even this has been delayed due to strong opposition from related industries.