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On January 6, 2022, the KFTC released for public comments its proposed Review Guidelines for Regulations Against Abuse of Dominance and Unfair Trade Practice by Online Platform Businesses (Draft Guidelines). The KFTC will accept comments on the Draft Guidelines through January 26, 2022.

1. Summary of the Draft Guidelines

A. Applicable Scope

The Draft Guidelines will apply to “online platform businesses,” which include (1) online platform mediation services, (2) online search engines, (3) SNS, (4) digital content providers, (5) OS providers, and (6) online advertisement service providers.
The Draft Guidelines explicitly provide for extraterritorial application &\#8211\; in line with that of the Korean antitrust statute, i.e., the Monopoly Regulation and Fair Trade Act (MRFTA).

B. Key Characteristics of Online Platforms

The Draft Guidelines describe the following key characteristics of online platforms: (1) crossside network effect\; (2) economies of scale\; (3) importance of data\; and (4) tipping effect and the accompanying concern that enhanced entry barriers will reinforce any existing monopolistic/oligopolistic market structure.

- Cross-side Network Effect: An increase in the number of users in one group using an online platform service may affect the interests and benefits of users in another group &\#8211\; for instance by an increase in the quality or variety of service.
- Economies of Scale: An increase in the number of users may substantially reduce the marginal cost as the additional cost of retaining new users is substantially low compared to fixed costs (e.g., R&D costs).
- Importance of Data: As data collected by online platforms may be utilized throughout various business aspects (e.g., production, logistics, and marketing), an increase in accumulated user data could confer a competitive edge.

2. Considerations in Determining Illegality

A. Relevant Market

Under the Draft Guidelines, the KFTC will apply the Review Standards for Abuse of Dominance and the Merger Review Standards in defining the relevant market. However, the KFTC may consider other unique aspects of online platforms, such as (1) multi-sided markets, (2) “free” services, and (3) dynamic market situation.

- Multi-Sided Market: The KFTC may define the relevant market by user group because each user group could have a different understanding of the effectiveness or substitutability of the online platform service at issue
- Free-To-Play/Use Services: Even when the online platform service is free, the KFTC may consider whether there is an exchange of value between the online platform and its users because online platforms may generate profits even from their “free” services, such as by collecting user data or offering advertising service.
- Dynamic Market Situation: The KFTC may focus on the practical and substantive ramifications of anticompetitive effects arising from a dynamic market situation where the boundaries between markets are blurred due to dynamic changes in the market situation or the recent trend of combining products and services offered on an online platform\; such anticompetitive effects could take the form of reduced variety of products or services, diminution in consumer welfare, or harm to innovation

B. Dominance

Under the Draft Guidelines, in determining whether an online platform has dominance in the relevant market, the KFTC will apply the Review Standards for Abuse of Dominance and the Review Guidelines on Unfair Trade Practice. However, the KFTC may also consider the following unique characteristics of online platforms.

- Cross-side Network Effect: Whether there is any entry barrier to the relevant market due to a cross-side network effect, economy of scale, or economy of scope
- Influence as Gatekeeper: Whether the online platform in question exerts any influence or control over access to the core user group while functioning as a mediating platform connecting different user groups
- Collection, Retention, and Use of Data: The capacity (and any disparity in capacity) of online platforms to collect, retain, and use data\; the possibility of competing businesses’ accessing the same data
- Possibility of Developing New Services: The possibility of developing new services\; the relevant R&D status\; and the possibility of technological progress
- Other Methods of Market Share Calculation: The KFTC may consider other methods of market share calculation (e.g., number of users and frequency of use) if the traditional turnover-based method is deemed improper because, for instance, the service at issue is free

C. Anticompetitive Effects

Under the Draft Guidelines, in assessing the anticompetitive effects of the conduct of online platforms, the KFTC will apply the Review Standards for Abuse of Dominance and the Review Guidelines on Unfair Trade Practice. However, the KFTC may also consider the following unique aspects of online platforms.

- Anticompetitive Effects of Factors Other Than Price/Production Volume: The KFTC may consider the anticompetitive effects arising from factors other than price or production volume, such as a decrease in the variety and quality of products/services, an increase in user costs, and the risk of harm to innovation.
- Effect of Bundling/Tying Products/Services: The KFTC may consider the competitive effect on any bundled/tied products and services if an online platform attempts to expand its dominance in one market to another by bundling/tying its products and services, with a focus on its core platform services.
- Multi-faceted Aspects: The KFTC may consider relationships between different user groups even where it defines the relevant market as each separate user group for online platform services.
- Effect on Innovation: The KFTC may consider the effect on innovation, such as whether the conduct at issue increases consumer welfare by promoting innovation, interferes with the development of new products and
services, or reduces incentives to invest in R&D efforts.

3. Types of Illegal Conduct

The Draft Guidelines enumerate major categories of anticompetitive conduct by online platform businesses and, for each such category, specify the applicable provisions of the MRFTA and the unique factors considered. The Draft Guidelines also list specific examples of each such category.

- Imposing Limitations on Multi-homing: Any direct or indirect interference with the use of competing online platform services by users
- Requiring MFN Treatment: An online platform requiring equally favorable or most favorable terms and conditions for its online platform services as offered for competing online platform services or distribution channels
- Self-preferencing: An online platform providing direct or indirect preferential treatment for its proprietary products and services on its online platform
- Tying: An online platform conditioning the use of its online platform services on the use or purchase of another product or service

4. Implications

As the global economy increasingly revolves around online platform services, there is rising concern over abuse of dominance by major online platforms, such as interfering with market entry or expanding dominance into related markets. With the Draft Guidelines, the KFTC seeks to enhance regulatory enforcement against such conduct by specifying unique factors to be considered in defining the relevant market and in assessing the dominance and anticompetitive effects of online platforms. In addition, by enumerating major categories of illegal conduct by online platforms, the Draft Guidelines are expected to help prevent such conduct and to provide for some measure of regulatory foreseeability for both online platforms and users. However, because the Draft Guidelines introduce various new considerations in assessing the conduct of online platforms, it remains to be seen how they will apply in practice.

Legal Update, Yulchon LLC, Jan. 2022.

https://www.yulchon.com/en/resources/publications/legal-update-view/30965/page.do