Record fine on Coupang raises questions about online retail practices

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The Fair Trade Commission's decision to impose a record fine of 140 billion won ($102 million) on Coupang has sparked debates about the true role of online retailers in Korea.

While Coupang is regarded as a giant online retailer that acts as a middleman between sellers and buyers, it also functions as a seller on its own platform, offering products under its own label.

Coupang was slapped with the highest fine ever imposed by the antitrust watchdog on Wednesday for manipulating search rankings and employing its staff to write reviews to promote its private label products.

"The FTC saw Coupang's 'dual role' as a core element to be considered in this case, while Coupang argued that this dual role is not an issue of concern," said a lawyer from a major law firm in Seoul.

"Coupang has been insisting that their private label products expand consumers' choices for more affordable options. However, the FTC contends that fundamentally manipulating algorithms through product reviews is an issue warranting sanctions, irrespective of whether the products are Coupang's own."

In contrast, Coupang argued that product display decisions are at the distributor's discretion and announced plans to appeal the FTC's sanctions.

According to the FTC, Coupang artificially promoted approximately 64,250 types of its products to the top of search rankings over four and a half years, from February 2019 to July last year. During this period, Coupang mobilized 2,297 employees from its headquarters and affiliates to write 72,614 purchase reviews for at least 7,342 private label products, significantly boosting their rankings, according to the report.

Another issue is whether Coupang's private label products benefit small and medium-sized companies manufacturing the items, contributing to the creation of a virtuous cycle in the market.

An industry official, speaking on condition of anonymity, pointed out that although Coupang claims its private label products create opportunities for small and medium-sized manufacturers to thrive, it is widely understood that these manufacturers do not significantly profit due to the low profit margins of private label products.

"A private label product should be viewed like any other branded product and should not receive special incentives, since it is difficult to say that SMEs benefit more from such products," the official said.

Meanwhile, in 2020, the FTC fined search engine portal Naver 26.7 billion won for altering its search algorithm to favor its own services like "Smart Store" and "Naver TV." Naver appealed, but the Seoul High Court ruled in favor of the FTC in December 2022. Naver has since taken the matter to the Supreme Court.

In the meantime, Coupang stated that if they are not allowed to freely recommend and sell their Rocket Delivery products, the company might have to reduce or cease its signature Rocket Delivery service. Coupang claimed that if the FTC's decision is upheld, all direct purchase services, including Rocket Delivery, will become unfeasible in Korea.

This statement has backfired as some consumers feel it to be a threat to suspend Rocket Delivery, which has been Coupang's main competitive advantage.

By Kim Hae-yeon(hykim@heraldcorp.com)