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The Korea Fair Trade Commission (Chairperson Sungwook Joh, hereinafter referred to as "KFTC") has proposed the “Act on Fair Intermediate transactions on Online Platforms” (hereinafter referred to as the "Fair Transactions on Online Platforms Act") and plans to make a pre-announcement of legislation from September 28, to November 9, 2020 (for 40 days).

Responding to structural changes in the market, the bill is expected to lay grounds for fair trade and cooperation for mutual growth in the online platform environment, and thereby promote an ecosystem for innovation and sustainable growth.

During the pre-announcement period, the KFTC will collect opinions from relevant government ministries and concerned parties, and then submit the bill to the National Assembly.

1. Background and progress of legislation

A. Background of legislation
The volume of transactions on online platforms is increasing at a fast pace due to the transition into online trade, and the rapid growth of contactless transactions amid the COVID-19 pandemic.

* Online shopping transaction value (Statistics Korea): KRW 25.2 trillion in 2010 → KRW 54.1 trillion in 2015 → KRW 135.3 trillion in 2019 → KRW 74.3 trillion in the first half, 2020.

In addition, the increasing reliance of businesses on online platforms has enhanced a superior bargaining position* of the platforms, and raised anti-competitive concerns. However, the existing legal framework is not sufficient** to adequately address potential harm.

Against this backdrop, there has been growing demand for establishing an institutional framework to enhance transparency and fairness in transactions between online platforms and online stores, and thereby facilitate fair and sustainable development of the platform ecosystem.

B. Progress of legislation
At Anti-Corruption Policy Consultative Council Meeting which was held on June 22, 2020, the KFTC presented its plan to enact the “Fair Transactions on Online Platforms Act”, and organized a task force led by the Secretary General.

Since then, the KFTC has collected various opinions from platforms and online stores by each type of platform through a total of 12 consultations with concerned parties.

▲ Consultations with online stores: Open markets (July 31), Delivery Apps (August 4), App markets (August 6), Accommodation booking Apps (August 11), Other business (August 14), General consultation (August, 20)
▲ Consultations with platforms: Portal sites (August 21), Delivery Apps (August 26), Open markets (August 28), Accommodation booking Apps (September 2), App markets (September 4)
▲ Consultations with platforms and online stores (September 18)

The KFTC also held a consultation (September 17) and meetings with experts to seek advice from academic and legal circles.

2. Main contents of the law
◆ The core principle is to improve transparency and fairness in transactions between platforms and online stores.
◆ The Act aims to lay an institutional framework for voluntary cooperation for mutual benefit and swift dispute resolution so that platforms and online stores can grow together.
◆ Considering the rapidly changing nature of platform business, it aims to set out new criteria for assessing unfair conducts and introduced soft-law instruments, while ensuring a balanced regulatory framework to prevent the stifling of innovation.

A. The scope of application of the law
A platform operator providing online intermediation services (hereinafter referred to as a "platform operator") is subject to this Act if all three of the following requirements are met:

① A platform operator in a contractual relationship for Intermediation services
It should provide intermediation services that facilitate transactions of goods and services between online stores and consumers in a contractual relationship by providing information or receiving a consumer's order* via its online platform.

* Specific methods of intermediating transactions are prescribed by Presidential Decree.

The examples include open markets, delivery apps, app markets, accommodation booking apps, ride-hailing apps, price comparison websites, real estate and used car information services and search advertising services.

< Cases excluded from the application of the Act>
① Where intermediation services are provided not via online platforms (Intermediation
services via face-to-face channel, mail, phone, leaflets, etc.)
② Where an operator is a non-transaction platform (e.g. a pure social network platform, etc.)
③ Where a platform operator itself is a transacting party that sells goods and services
④ Where a platform operator provides only payment services, etc. which are additionally required for a transaction
⑤ Where an operator is a pure B2B or C2C platform
⑥ Where a platform operator provides intermediation services for a consumer who is not in a contractual relationship with it (e.g. a search engine, etc.)



② Threshold requirements
The Act is applicable only to a platform operator whose sales* or the amount of intermediate transactions** reach a sufficient threshold.

* A platform operator whose fees (sales commission fees) from intermediation and additional services during the immediately preceding business year are less than the amount prescribed by Presidential Decree, not exceeding KRW 10 billion.

** A platform operator whose sales of goods and services via its online platform intermediate services during the immediately preceding business year are less than the amount prescribed by Presidential Decree, not exceeding KRW 100 billion.

③ Extraterritorial application
Considering that transactions on online platforms are conducted across all borders, the act applies to a platform operator that mediates transactions between online stores and consumers in Korea, regardless of the location of the platform operator and the governing law of its establishment.

* Article 53-3 (Service of Documents) of Monopoly Regulation and Fair Trade Act shall apply mutatis mutandis to an online store that has its domicile or place of business overseas.


B. Enhancement of transparency and fairness in transactions between online platforms and online stores

Obligation to draw up and deliver a written contract

To prevent disputes in advance by disclosing the terms and conditions of a contract in a transparent manner, a platform operator must draw up and deliver a written contract to an online store, specifying important items (essential items) in the contract. In addition to the general terms and conditions, a contract should contain essential items. The essential items include necessary information for protecting an online store and preventing disputes, which are directly related to the interests of an online store using platform intermediation services.

< Essential items in a written contract>

1. Details of online platform intermediation services, etc. provided to an online store using the platform, and standards and procedures for charging service fees.
2. Procedures for changing contract terms, contract renewal and contents, and reasons and procedures for termination of the contract
3. Procedures for initiation, restriction, and suspension of online platform intermediation services, etc.
4. Procedures and standards for return, refund, exchange, etc. of products
5. Methods of calculating payment for sales, and procedures, methods and timing of payment
6. Whether an online store is restricted to use other online platforms and details related to such restrictions
7. Whether there are restrictions on sales price, sales volume, methods of sales, delivery, and payment, etc. and details related to such restrictions
8. Matters concerning standards, procedures, and cost sharing policy for sales promotions, such as discount coupons, etc.
9. Standards for sharing losses incurred in the sales process
10. Standards for determining the way information, such as goods, etc., is exposed, and in which order on the online platform 1」 (including the effect of fees on the methods and order of presenting information)
11. Whether products, etc. of an online store and those of affiliates of the online platform or firms whose business activities are controlled by it 2」」are treated differently, and details of and standards for such different treatment
12. Whether an online store can access information generated by consumers in the process of using the online platform, the scope of accessible information, and means and conditions of accessing information 3」」
13. Details of conditions, if an online store can use intermediation services only on condition that it uses other services, or purchases specific products or services
14. Other matters prescribed by Presidential Decree concerning the rights and duties of the party to the contract

Prior Notification Obligation
The Act requires platform operators to give prior notification to online stores operating on the platforms if they are to change the contract terms or to limit, suspend or cancel their services. Platform operators are obliged to provide prior notification at least 15 days before changing the terms of a contract. Any changes made without complying with the procedure will be deemed invalid. However, those who fail to carry out the obligations due to unavoidable reasons prescribed by the Presidential Decree will be given an exemption.

The Act also requires platform operators to notify online stores of the reasons and detailed information on the change at least 7 days before limiting or suspending certain services and at least 30 days before terminating a contract. However, exemption will be given to those who fail to deliver the obligations due to unavoidable reasons prescribed by the Presidential Decree.

Any termination of contract made without complying with the procedure will be deemed invalid, which will help facilitate the enforcement of prior notification obligations. In addition, any attempts to limit or suspend the services without prior notification will be charged with fines.

Prohibition of Unfair Trade Practices
Article 23 (1) (4) of the MRFTA, a provision that prohibits abuse of superior bargaining position, will be specified and applied in a manner consistent with the specific characteristics of the platform industry.

The Act is expected to lay the foundation for establishing criteria for determining superior bargaining position of platform operators based on the distinguishing features of the platform industry, including its structure, consumers and online stores’ usage of platforms and the concentration of usage as well as the gap in business capability between platform operators and online stores.

The provision that prohibits abuse of superior bargaining position under the current MRFTA will be adopted, tailored to the specific characteristics of online platforms. Furthermore, the types of such practice will be specified in the Enforcement Decree of the Act.

① Coercion to purchase
The Act prohibits online platforms from unfairly coercing online stores into purchasing products or services they have no intention to buy.

② Coercion to provide economic benefits
The Act prohibits online platforms from forcing online stores to provide money, goods, services or other economic benefits in pursuit of their benefits.

③ Unfair transfer of losses
The Act prohibits online platforms from unfairly transferring the losses incurred during transactions to online stores.

④ Imposing disadvantages
The Act prohibits online platforms from setting or modifying trading conditions in a way they will be disadvantageous to online stores or impose disadvantages on them while implementing such conditions.

⑤ Interference with business activities
In addition, the Act prohibits unfair interference with the business activities of online stores.

Abuse of market dominant positions by online platforms, unfair trade practices restricting competition (e.g. refusal to deal, exclusive dealings, discriminatory treatment of trading partners, etc.) and abuse of market dominant positions by platforms operators below a certain size will continue to be regulated under the current MRFTA.

Prohibition of Retaliatory Practices
The act prohibits platform operators from imposing disadvantages on online stores for applying for dispute resolution, filing reports, submitting documents for fact-finding surveys or cooperating with the KFTC's investigation.

C. Laying an institutional foundation for voluntary cooperation for mutual growth and swift dispute resolution

Standard Contracts
The Act includes a provision that provides legal grounds for the adoption of standard contracts, which would encourage voluntary improvements of trade practices and prevention of disputes. The Act will introduce standard contracts tailored to specific platforms and their diverse and rapidly changing nature to ensure a flexible response by enforcing soft law.

Agreements for Mutual Growth

The Act also contains a provision that provides legal grounds for encouraging and supporting the adoption of agreements for mutual growth, which is expected to promote shared growth between platform operators and online stores. It would also drive cooperation for mutual growth, which is important given the two-sided feature of the platform industry and the interconnection of interests between platforms and online stores.

Establishment of the Dispute Mediation Council
In addition, the Act will constitute the grounds for creating the “Dispute Mediation Council” specialized in online platforms in order to promote swift and specialized resolution of disputes. The operation and procedures of the Council, which will be established within the Korea Fair Trade Mediation Agency, will be applied in compliance with the MRFTA.

D. Securing the means to prevent violations without hindering the drive for innovation

Regulations

The Act will provide means to effectively prevent abuse of superior bargaining position by platform operators, while keeping criminal punishment to the minimum so that regulations would not hinder innovation in the new industry.

To be specific the Act will provide increased the standards for imposing fines on abuse of superior bargaining position by platform operators. For instance, offenders will be subject to a maximum fine of two times the amount of violations or a maximum fixed fine of 1 billion won.

Meanwhile, the criminal punishment will be limited to the practices with a high degree of punishability, such as retaliatory acts or non-compliance of corrective orders. Abuse of superior bargaining position, on the other hand, will be exempted from the punishment.

Consent Resolution
The Act also provides for consent resolution, which will help ensure swift and effective damage relief for online stores-many of which are micro businesses who have difficulty seeking judicial remedies for damages. Consent resolution also provides advantages for platform operators by allowing them to avoid uncertainty concerning the legal outcomes resulting from the dynamic nature of the platform industry.

Fact-finding surveys

Under the Act, the KFTC can conduct written fact-finding surveys to swiftly identify and respond to the rapidly changing business practices and unfair trade practices within the platform industry as well as challenges faced by online stores. The Act requires the KFTC to formulate a plan setting out the specific subjects, content and term of surveys and release the findings after completing the investigation. Furthermore, provisions regarding investigation procedures, corrective orders, fines for negligence and compensation for damage specified in the Act are applied mutatis mutandis pursuant to the MRFTA (including the wholly amended Act submitted to the National Assembly on August 31, 2020).

3. Expected effects and Future Plans

If the proposed bill is enacted into law, it is expected to facilitate transparent and fair trade practices between platform operators and online stores. With a strong institutional foundation, the Act will not only encourage voluntary efforts to achieve mutual growth and improve trade practices but also enable swift resolution of disputes and damage relief. It will also contribute to fostering a sound business ecosystem where platform operators can sustain their innovative spirit and, at the same time, pursue mutual growth with online stores.

The KFTC will collect various opinions from various parties including platform operators, online stores and relevant government agencies during the public comment period, which will be open from September 28 to November 9, 2020. Upon completion of such process, the KFTC will submit the bill to the National Assembly after undergoing the examination of regulations and the Ministry of Government Legislation and deliberation in vice-ministerial and cabinet meetings.