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Amendment of Korea’s Telecommunications Business Act – a Digital Shot Heard Around the World?

2021.11.15

South Korea made headlines in August 2021 when it became the first country to pass a law prohibiting online platforms from requiring developers to use only the platforms’ own payment systems.  Nicknamed “Preventing Google’s Abuses Act” by the media, the relevant amendment (the “Amendment”) to Korea’s Telecommunications Business Act (the “Act”) came into effect on September 14, 2021.  Amidst global regulatory efforts to curb monopoly power of major online platforms, the Amendment just may be the catalyst for reforms that impact platforms, developers, legislators, and lobbyists all over the world. 
 
 
Details of the Amendment 
 
The stated legislative purpose of the Amendment is to “promote fair competition among the app market industry participants” and to enable the government to “actively identify disputes relevant to app markets and prevent acts that harm fair competition in the app market or harm the interest of users”.1  The general consensus is that the Amendment was born as a direct response to public outcry arising from Google’s announcement in September 2020 that it would require all developers distributing their apps on the Google Play Store to use Google’s own in-app payment system which charges a 30% fee.2 
 
The Amendment adds subparagraphs 9, 10, and 11 to Article 50, Paragraph 1 of the Act, prohibiting app market business operators3 from engaging in the following three types of acts: 
 
(9)　  forcing a specific payment method upon business operators providing mobile contents, etc.,

by unlawfully using the app market business operator’s bargaining position when acting as

an intermediary in transaction of mobile contents, etc.;

(10)　unlawfully delaying review of mobile contents, etc.; and

(11)　unlawfully deleting mobile contents, etc. from the app market.

Notably, the newly added subparagraphs 9 to 11 only apply to app market business operators while the preexisting subparagraphs apply to the broader category of “telecommunications business operators”.  Violation of Article 50, Paragraph 1 of the act may result in a fine of up to 3% of the business’ annual turnover.4 
 
The Amendment also requires app market business operators to specify “matters relating to payment and refund of mobile contents, etc.” in their terms and conditions and to “prevent harm to users and protect their rights and interests”.5  The Minister of Science and ICT or the Korea Communications Commission (the “KCC”) may conduct investigations on the operation of app markets as necessary to ensure protection of mobile content providers.6  It should be noted that the scope of such authority to conduct investigations is very broad and not limited to monitoring compliance with Article 50, Paragraph 1 of the Act.  As such, an app market business operator may be investigated even if it never engaged in the above prohibited acts if there is a reason to believe that the operator’s conduct is harmful to competition or users. 
 
 
Responses to the Amendment 
 
Although the Amendment has been in effect for less than 2 months, there have already been developments that provide insight to how the law may be interpreted and enforced. Immediately after the Amendment became effective, the KCC requested Google and Apple to each submit a document that details a plan to comply with the new law, including specific methods of compliance and the projected timeframe.  Apple reportedly responded to the request by stating that it did not plan to make any changes to its existing policies which it considered to be already in line with the Amendment.7  Google, on the other hand, announced that it was now allowing users to choose between Google Play’s billing system and alternative third-party systems; however, developers using such alternative billing systems would nevertheless be subject to Google’s service fees at 4% less than the original rate.8 
 
The KCC rejected both Google and Apple’s responses and requested them to make additional submissions.9  With respect to Apple, the KCC explicitly stated that it did not consider Apple’s current policies to be in compliance with the requirements of the Amendment.  As for Google, the KCC noted that Google’s submitted plan lacked specificity.  There have also been commentators criticizing Google and Apple’s reticence towards (or, with respect to Apple, outright disregard for) the new compliance mandate.  Seounglae Jo, a member of Korea’s National Assembly, issued a statement condemning Apple’s lack of action and expressed disappointment that Google’s new policy, which essentially forces developers to choose between 30% fee and 26% fee, fell far short of solving the fundamental problem within the mobile ecosystem.10  It is likely that the KCC will open a formal investigation if Google and Apple’s subsequent submissions are inadequate in the eyes of the Amendment. 
 
While the Amendment is a meaningful first effort in legislations governing online platforms, critics say that the language of the law could and should be more precise from compliance standpoint.  Nonetheless, as the first shot has been fired, it remains to be seen whether other countries would follow suit and how the online platform business will change as a result. 
 
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