[S Report] ③Coupang’s 5 trillion won is also ‘a cotton bat’… “Criminal punishment is also a solution”

[Anhamuin Coupang, effective competition is the answer] Lina Khan’s warning… Structure where illegal profits are greater than fines

[Editor's note] There is an analysis that Coupang's continued controversies and absence from the National Assembly resulted from the absence of a check force in the market. Structural problems in which the profits from a monopoly position are judged to be greater than regulatory costs such as fines are also considered to be the cause. It is pointed out that the government's artificial intervention or moral appeal alone has its limits. Normalizing the distribution ecosystem by restoring ‘effective competition’ and establishing prior regulations in line with global standards are presented as fundamental solutions.

There is criticism that Coupang's repeated controversies stem from capitalist profit and loss calculations in which 'the profits gained from illegal activities are greater than fines.' Experts advise that it is urgent to introduce a system that imposes punitive compensation and direct criminal liability on management, which affects the survival of companies.

According to the industry on the 18th, Coupang has been sanctioned several times for violating the Fair Trade Act, but was imposed a low fine compared to its sales volume. Following 8 million won in false and exaggerated advertising in 2017, 3.297 billion won in abuse of power against suppliers in 2021, and 400 million won in violation of the Subcontracting Act in 2022, the company was fined 162.8 billion won last year for algorithm manipulation. Coupang expects annual sales of 50 trillion won this year.

Assuming that 15 million WoW membership subscribers pay their monthly membership fee every month, Coupang's annual subscription fee alone is more than 1.4 trillion won. It is calculated that even if the Fair Trade Commission imposes fines amounting to trillions of won, it will be difficult to damage the company's financial structure.

Lina Khan, former chairman of the U.S. Federal Trade Commission (FTC), an expert in big tech antitrust regulation, said, “If the benefits gained from violating the law are greater than the fines, it is a failure of law enforcement,” and emphasized, “We should not allow a situation where fines are simply viewed as a cost of doing business.”

Mr. A, an industry insider, criticized, "Coupang has consistently refused to respond to all-round criticism, including labor issues, abuse of power by suppliers, and government regulations, citing 'customer convenience' as the justification," adding, "This is a method rarely seen in Korean companies."

Legal world: “Criminal prosecution is more effective than fines… Punishment of those responsible must be strengthened”

Gye-jun Son, an attorney at Daeryun Law Firm, said, “Companies with large sales do not care much about the amount of fines imposed by the Fair Trade Commission,” and suggested strengthening criminal punishment for top managers as a solution. He is an expert in the field of fair trade who has held key positions at the Fair Trade Commission, including the Subcontracting Division, Cartel Division, and Litigation Affairs Office.

Attorney Son explained, “What companies are most afraid of is the CEO being reported to the prosecution,” adding, “Companies will only be nervous when the CEO becomes the subject of a direct investigation as separate investigations are conducted in addition to the Fair Trade Act.” He went on to suggest, “We need to strengthen the criminal punishment provisions specified in individual laws such as the Personal Information Protection Act and make the CEO, the top person in charge, take legal responsibility when a serious illegal act occurs to create deterrence.” This is an analysis that could put direct pressure on executives such as Coupang Chairman Kim Beom-seok, who has recently been controversial for not attending the National Assembly.

Experts emphasize a regulatory shift from ‘ex post detection’ to ‘proactive discipline’. A representative example is the ‘Platform Fair Competition Promotion Act’ (Platform Act) being promoted by the Fair Trade Commission. The goal is to designate market-dominant business operators in advance and block the four major illegal practices, such as preferential treatment and tie-in sales. There is also a need to introduce a 'temporary suspension order' that immediately suspends services if irreparable damage is expected even before a final judgment is made. It is a device to prevent market disruption caused by continued illegal activities.

Urgent need to expand EU-style ‘transfer of burden of proof’ and Korean-style punitive compensation

Shifting the burden of proof and expanding the punitive damages system to increase regulatory effectiveness are also tasks. For matters that are difficult to prove, such as algorithm manipulation, platform companies should be held responsible for proving their own integrity when suspicions are raised, as in the European Union's Digital Market Act (DMA).

There are also arguments that the 'punitive damages system' introduced in the domestic subcontracting law should be expanded to cover all platform monopoly activities. Currently, the Subcontracting Act stipulates compensation of three times the actual loss for five major acts, such as unfair price reduction and cancellation of consignment. Since last August, liability for compensation for technology theft has been strengthened up to five times.

Attorney Son argued, "The United States' triple punitive damages system was introduced after its effectiveness in deterring actual illegal acts was proven," and added, "As there is discussion in Korea that the compensation limit should be raised up to 10 times to resolve the recent controversy over punitive punishment, we must consider introducing an effective penalty."

On the 17th, the National Assembly's Political Affairs Committee passed an amendment to the Personal Information Protection Act that raises the upper limit of fines for serious violations such as personal information leakage from 3% of total sales to a maximum of 10%. If this law is applied, Coupang's fine will increase to a maximum of 5 trillion won. However, Coupang's information leak occurred before the amendment was passed, so it is excluded from retroactive application.

Accordingly, Song Kyung-hee, chairman of the Personal Information Protection Committee, said, "There is a need to consider imposing a punitive fine, either through the enactment of a special law on Coupang or through separate legislation."

Reporter Hwang Jeong-won (jwhwang@mt.co.kr)

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[S Report] ③Coupang's 5 trillion won is also a 'cotton bat'... “Criminal punishment is also a solution” (Shortcut)