Seoul court dismisses Netflix attempt to avoid network fees

In April 2020, Netflix asked the Seoul Court to confirm that it has no obligation to pay network usage fees to SK Broadband. The court dismissed the request, saying the issue should be resolved between the two private companies, not in court.

[JOONGANG PHOTO]

The Seoul Central District Court ruled against Netflix Korea in its network maintenance fee dispute with SK Broadband on Friday.

SK Broadband is Korea’s second largest internet service provider. The company has complained that traffic created by Netflix users incurs additional costs for network maintenance and asked the video service to share that financial burden.

Friday’s ruling is the result of a lawsuit Netflix Korea filed in April 2020, asking the Seoul Court to confirm that it has no obligation to pay network usage fees to SK Broadband.

In November 2019, SK asked the Korea Communications Commission (KCC) — a government body that regulates the media industry — to mediate the disagreement between the two. Instead of waiting, Netflix filed a lawsuit before KCC came up with an arbitration plan.

The Seoul Central District Court dismissed the request, saying the issue should be resolved between the two private companies, not in court.

“Under the freedom of contract principle, whether one party compensates the other depends on negotiation between the two — it’s not a matter that can be forced by a court,” the judge said.

Freedom of contract refers to the freedom of an individual or group to form contracts without government restrictions as long as they don’t violate the law.

Netflix Korea has claimed that SK Broadband demanding network maintenance fees violates the principle of “network neutrality,” under which internet service providers must treat all content providers like Netflix on equal terms. Korea’s media regulators have guidelines encouraging internet service providers to follow the principle, but with no clear legal force to impose penalties.

“We will thoroughly review the court’s judgement before making any decision,” Netflix Korea said in a Friday statement, without elaborating on whether it will appeal the decision.

Instead, the company repeated its stance that network maintenance is the job of SK Broadband, for which customers already pay internet subscription fees. Netflix paying for the same issue would be double-charging.

“Our customers subscribe to our service to enjoy content and to internet service providers to use their network,” it added.

“As a content provider, Netflix's duty is to heavily invest in quality content. Internet service providers, on the other hand, have an obligation to swiftly transfer data upon customers’ request. Charging that cost to us is dodging responsibility.”

Netflix has been growing at remarkable speed since its 2016 launch in Korea.

According to WiseApp, a tracker of mobile apps, the streaming service had nearly 7.6 million users in Korea by late 2020, winning big over local services that all had less than 4 million. Korean users were estimated to have spent 517.3 billion won ($460 million) on Netflix last year, up 108 percent from 2019.

Netflix sends data from its U.S. headquarters to a big server in Japan. Korea’s three internet service providers — KT, SK and LG U+ — maintain the undersea cables that link Japan to Korea and the local networks through which that data is transmitted.

The U.S. streaming service also asks internet service providers to join their “Open Connect” program that provides them with additional equipment to ensure faster data transmissions from Japan. In Korea, LG U+ has joined the initiative.

SK Broadband, on the other hand, refused, saying Netflix should also pay for the cost of transmitting videos from Japan to Korea, and from its Busan server to individual Netflix subscribers in the country.

According to SK, the amount of its network dedicated to Netflix users had to be expanded three times last year and had to be continuously upgraded once every three months since the streaming service launched here.

“We welcome the court’s judgement,” SK Broadband said in a Friday statement.

BY SONG KYOUNG-SON [song.kyoungson@joongang.co.kr]