Time of Change

South Korean antitrust chief balances self-regulation, legal interventions to police Big Tech

Han Ki-jeong knew he was taking on a challenging role when he was appointed South Korea's antitrust chief in September last year. But he certainly couldn’t have expected just how much of his time would be spent fielding questions about Big Tech.

From the halls of government to the streets of Seoul, everyone wants to know his thoughts on the tech behemoths that have come to dominate people’s everyday lives.

With accusations increasing that they are abusing their dominant position to disadvantage rivals and even hurt small businesses, these platforms are under great pressure in and out of South Korea to be reined in through new laws and tougher rules. But as this pressure builds, so do calls for the Korea Fair Trade Commission, or KFTC, to take the lead in the effort to ensure a level playing field.

Amid a flurry of activity, Han, head of the KFTC, remains a calm and steady hand as he navigates the delicate dance of balancing platform self-regulation and a government crackdown using the tools available to him.

His belief is that, before enacting new rules, it is best to let platforms and their business users work out their own solutions to disputes and other complex issues, while deploying South Korea's competition law to enforce serious sanctions on platform operators’ self-preferencing practices, multi-homing restraints and other types of power abuse.

But his nuanced approach to addressing tech giants has not convinced everyone, and there are many who doubt its effectiveness and have questioned its wisdom. Will it be enough to ensure the tech giants don't abuse their power and smaller businesses have a fair chance to compete? Or will it lead to regulatory uncertainty and overreach, stifling the creativity of platform businesses?

That skepticism may explain why Han recently sat down for an interview with MLex to set the record straight. He emphasized that there is a valid reason behind his approach and suggested he would persevere before exploring other options.

The stakes are high, and the road ahead is fraught with challenges, but the chairman is committed to the fight, to ensure that fairness and equality prevail in the digital era.

Walking a tightrope

Right from the start, Han, formerly a law professor at Seoul National University, has been devoted to this approach, setting the KFTC apart from other antitrust regulators across the globe, from the EU to the US that have either passed or are working to pass legislation to prohibit various anticompetitive acts by platform giants or imposing new obligations on them.

But his two-pronged strategy begs the question, why?

According to Han, two of the biggest problems in the platform industry — platform monopolies and the abuse of superior negotiating power over small businesses — are distinct enough to warrant individual approaches to fix them.

Platform monopolies, the commissioner said, reduce market efficiency and vitality by, for example, lowering service quality or stifling the development of novel services, and thus the appropriate response is for governments to crack down hard on these companies.

“Because platform markets are so driven by network effects and economies of scale, they are especially susceptible to the winner-take-all phenomena,” he said. “Once monopolized, reintroducing competition and restoring a level playing field can be extremely difficult.”

On the other hand, law enforcement may not effectively address the conflicts that arise between platforms and small businesses, such as disputes over commissions and contract practices. In these cases, a more adaptable approach through dialogue and consultation between the parties can prove to be a successful solution, Han said.

“The beauty of self-regulation in platform sectors lies in the ability to tailor solutions to the specific challenges that each sector faces, while also ensuring that the dynamic and innovative nature of the sectors is not hindered in the process,” he said. "It paves the way for ideal transaction practices."

Han said the KFTC is working steadily on both fronts, to strike a good middle ground between platform self-regulation and government intervention, with due attention given to the unique situation in South Korea.

Self-regulation

The self-regulation initiative, pursued as an alternative to platform legislation, has already achieved its first significant milestone since being put into high gear last year.

In March, operators of major food-delivery apps in South Korea, along with associations of small vendors that use them, came up with a set of measures to handle disputes among themselves.

“They were the result of more than ten negotiations spanning six months,” Han said, “these are the steps they've discussed and vowed to take.”

Included in the self-regulation plan are changes to the way delivery platforms and their vendor partners negotiate contracts. In particular, contracts have to detail the reasons and procedures for any contract changes, renewals, or terminations, the reasons and procedures for any limitations or suspensions of delivery brokerage services, the methods for applying commissions or advertising fees, the timing and procedures of any payments and the standards for exposure in search results.

The parties have also committed to establish a mechanism that requires them to collaborate in the event of disputes related to cancellations or refunds, and to create a neutral and objective conflict mediation council to facilitate prompt and equitable conflict resolution.

Han stressed that these measures reflect many of the proposals contained in the platform bill drafted by the KFTC during the previous administration, which were virtually abandoned with the launch of President Yoon Suk-yeol's administration.

“The self-regulation and the platform bill have the same overarching goal: to better transaction practices and achieve coprosperity between platform operators and small businesses,” he said. “To assess the effectiveness of this initiative, it would be appropriate to consider how well self-regulation can serve as a substitute for platform legislation.”

At this early stage, the success of self-regulatory efforts is up in the air, but there are already challenges in sight. Because the measures are not legally binding, some experts have expressed doubts about their effectiveness and the extent to which they will be implemented in practice, even with procedures in place, such as issuing warnings or publicly disclosing non-compliance under the plan.

Others have also pointed out the difficulties in deriving a common set of rules for other platform sectors, given the varying interests of the involved parties, a concern that Han himself has acknowledged.

“Nonetheless, what matters most is that both sides are engaging in the discussions with a willingness [to resolve their differences],” Han said.

Platform monopolies

When it comes to tackling platform monopolies, Han's position changes dramatically and he advocates a much harsher crackdown.

For a while now, the KFTC has been dedicated to taking stern action against those who abuse their market dominance, including platform operators, but after last year's extensive service outage that impacted Kakao's messaging, ridesharing, e-commerce, and other services, this commitment has taken on a heightened sense of urgency.

Many cases of power abuses by platforms have taken the shape of self-preferencing via algorithm manipulation, which enables them to transfer their dominance in one market to gain an edge in another market, according to Han. Notable examples include the self-preferencing practices of Naver in online shopping and video-streaming markets, and those of Kakao’s mobility arm in the ride-hailing sector.

Instead of introducing fresh rules to combat the adverse effects of platform monopolies, the antitrust chief says the way to achieve this for the time being is by reinforcing law enforcement standards within the boundaries of existing legislation.

That’s why in January, Han said, new screening guidelines were put into place to be used when investigating allegations of power abuses by platform operators. Merger-control rules are also set to be revised by the end of the first half of this year to curb their indiscreet business expansion through mergers and acquisitions.

As for what will come next, Han didn't give much away, but said, “with no predetermined course of action in mind, we are assessing the adequacy of existing competition law in dealing with the issue of platform monopolies.”

“A decision will be made as to whether the law needs to be supplemented or revised, or whether new legislation needs to be introduced after gathering enough feedback from experts and other stakeholders,” he added.

To this end, the KFTC has launched a taskforce consisting of internal and external experts to perform an extensive analysis of law enforcement precedents, domestic market conditions, and relevant legislative cases in the EU and from around the world. According to the chairman, the taskforce has convened three times so far.

Ongoing cases to watch in 2023

While juggling these two enormous responsibilities, Han and his team continue to closely monitor various cases involving tech companies and conduct investigations.

A busy year is anticipated for the antitrust watchdog in 2023, because there are many cases in the pipeline that are being investigated and will require deliberation by the KFTC commissioners, he said. Google was already hit with hefty sanctions earlier this month for preventing game developers from releasing their products on a competing app store.

According to Han, the KFTC investigation into Kakao Entertainment has been completed and is awaiting review by the standing committee. The company is accused of pressuring the winners of its web-novel writing contest to sign unfavorable contracts involving the rights to make an adaptation of their work.

Without mentioning names, Han also revealed that investigations are underway into claims that South Korean e-commerce giant Coupang manipulated search engines and that Kakao Mobility obstructed competitors. He promised that "we will try to complete them as soon as possible."

The KFTC isn't stopping with these cases. It's also looking into digital advertising and app markets, which are potentially fertile ground for illegal practices by platforms. The agency has also studied the local cloud services sector, which is led by Amazon and Microsoft, and is keeping a watchful eye out for practices that might limit competition or disadvantage business users.

By Jenny Lee and Wooyoung Lee

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