Big Tech, local giants brace for Korea's major antitrust clampdown

U.S. Big Tech companies in Korea and smaller local peers like Naver and Kakao are bracing for a major government clampdown on anti-competitive practices in the digital economy, a move akin to the European Union's tough-on-tech Digital Markets Act.

A Google logo is seen at the Google offices in the New York City, U.S., on Jan. 20, 2023. [REUTERS/YONHAP]

U.S. Big Tech companies in Korea and smaller local peers like Naver and Kakao are bracing for a major government clampdown on anti-competitive practices in the digital economy, a move akin to the European Union's tough-on-tech Digital Markets Act.

The Fair Trade Commission (FTC) is working toward implementing a rule — tentatively named the Platform Competition Promotion Act — aimed at placing dominant platform operators under tougher scrutiny to prevent them from engaging in unfair business practices.

The target has not been spelled out, but the antitrust regulator said that the subject will be a handful of dominant online players based in Korea and abroad, which could include the likes of Google, Meta, Netflix and local giants.

The vague standards have received backlash from internet companies, fearing redundant constraints on their businesses.

"The biggest problem of the rule is that it preemptively designates the subject of the regulation, burdening them with the task of proving that their businesses are lawful," said Kim Min-chen, a planning office director at the Korea Internet Corporations Association, which represents over 200 tech firms including Naver, Kakao, Coupang and Netflix.

"The approach could pose unfair financial and time-consuming burdens for corporations, going against the principle that penalty is imposed against an entity violating the law," Kim said.

A spokesperson at the American Chamber of Commerce also said that its member companies are alarmed by the regulatory push.

"The top concern of the U.S. tech companies is the possible implementation of the new rule, although views over its efficiency are divided," the spokesperson said.

In the case of the EU, it defines certain platforms that generate more than 7.5 billion euros in annual revenue as “gatekeepers” in the digital sector and impose regulations on their core services.

However, the FTC has yet to disclose specific clauses or guidelines, saying only that it would designate certain platforms that generate more than certain revenue as dominant platform operators.

The Fair Trade Commission Chairman Han Ki-jeong speaks to the press about the so-called "Platform Competition Promotion Act" at a briefing held at governmental complex in central Seoul on Dec. 19, 2023. [YONHAP]

The regulator would also slap a fine of up to 10 percent of a company's annual revenue in case of noncompliance in four of the following malpractices: If the operator shows favorable treatment over in-house products or services compared to other competitors; If the operator cross-sells its services along with other products as a bundle, preventing multi-homing, the practice of simultaneously connecting to multiple platforms, or favoring its own platform's users above others.

The FTC held a closed-door meeting with global tech companies on Thursday at Amcham Korea's office in western Seoul to clarify standards, but major platform operators boycotted the event as a sign of protest — including Google, Meta and Apple.

FTC Chairman Han Ki-jeong told consumer organizations during a conference on Tuesday that “there is considerable damage inflicted on the consumers due to certain malpractices from certain dominant platform operators,” emphasizing the need for stricter regulation.

Academics are also maintaining a critical approach to the bill that aligns with the EU’s Digital Markets Act, claiming that the domestic platform market functions differently in Korea than in Europe.

“U.S. companies such as Google, Meta and Amazon have overwhelming presence in the European market because there are no dominant domestic players in Europe,” Kang Hyoung-goo, a professor in the Department of Finance at Hanyang University, said. “Therefore, Europe needs to come up with regulations for foreign companies wielding dominant influence in the market to protect the consumers. In the case of Korea, we have platforms such as Naver, Kakao and Coupang that are taking up considerable market share.

"But still, they cannot be labeled as ‘Big Tech’ companies as they compete with foreign companies nor can they be said to be monopolizing the market. Imposition of the new bill amid current situation would only hinder domestic companies’ growth.”

Economics professor Kim Sung-hwan of Ajou University said the new bill would remove platform operators’ freedom to launch new services.

“Four clauses that the FTC intends to monitor to prevent monopolization are already regulated under the Fair Trade Act,” Kim said. “What the antitrust agency aims to do with the new act is to pre-monitor such regulations, which in turn would hinder platform operators’ autonomy because they would have to turn to the governing body for approval every time they launch a new service.”

Kim also said he questioned whether the same rules would be fairly applied to foreign platforms.

“If the FTC intends to slap a penalty of up to 10 percent of the annual revenue generated by the companies, foreign operators would lie in the gray zone because the Korean agency will not able to inspect such companies’ revenues," Kim said. "Whether FTC overestimates or underestimates the figure of the penalty based on presumed revenue would lead to more controversies.”

BY LEE JAE-LIM, PARK EUN-JEE [lee.jaelim@joongang.co.kr]