CONTENTS
- 1. Monopoly Regulation and Fair Trade Act | Overview of the Case
- - Judgment at First Instance
- - Judgment at Second Instance
- 2. Monopoly Regulation and Fair Trade Act | The Supreme Court's Determination
- - Summary of the Key Legal Issues
- 3. Monopoly Regulation and Fair Trade Act | Assistance from Daeryun Law Firm LLP
1. Monopoly Regulation and Fair Trade Act | Overview of the Case
The following sets out the Supreme Court's perspective on a matter relating to the Monopoly Regulation and Fair Trade Act.
The plaintiff in this case, Company N, simultaneously operated a comparison-shopping service linked to general search (hereinafter "○○○ Shopping") and its own open market (hereinafter "◇◇◇ Store").
The Fair Trade Commission took the view that the plaintiff had adjusted its search algorithm so that products listed on "◇◇◇ Store" were displayed more prominently than products listed on competing open markets, thereby producing results favorable to itself.
On that basis, the Commission found (i) discrimination in trading terms through abuse of a market-dominant position (Article 3-2(1)3 of the former Act), (ii) discrimination in trading terms as an unfair trade practice (Article 23(1)1 of the former Act), and (iii) customer inducement by deceptive means (Item 4(b) of attached Table 1-2 of the former Enforcement Decree), and it imposed a corrective order and a penalty surcharge, which the plaintiff contested.
The Commission also imposed a penalty surcharge of approximately KRW 26.6 billion and a corrective order, on the ground that Company N had adjusted the search algorithm in its comparison-shopping service so as to favor its own open-market platform and had thereby distorted market competition.
Judgment at First Instance
The court of first instance upheld most of the Commission's disposition.
It found that the plaintiff had repeatedly adjusted the search algorithm to favor products listed by itself, thereby discriminating in the terms applied among trading counterparties (the listed sellers), and that it had misled consumer choices by exploiting consumer trust in the "neutral, relevance-based display" of comparison shopping, so that abuse of a market-dominant position, discrimination in trading terms, and customer inducement by deceptive means were all established.
Accordingly, it held that the penalty surcharge and the corrective order were lawful.
Judgment at Second Instance
The appellate court likewise maintained the conclusion of the first instance.
The appellate court held that, by treating the trading counterparties as the "individual listed sellers," the targets of discrimination were specifically identified, and that, in light of the plaintiff's internal materials and the surrounding circumstances, an intent to "strengthen its own business" was recognized.
It also found that, considering the influence of ○○○ Shopping as an inflow channel into open markets and the plaintiff's position in the comparison-shopping and general-search markets, there was a sufficient risk of competitive restriction, and it therefore recognized the "unfairness" of the abuse of a market-dominant position.
Going further, it determined that "customer inducement by deceptive means" was also established, on the ground that display "by ranking" could be perceived by consumers as indicating superior or favorable products, yet the plaintiff had artificially altered this based on whether the product was its own.
2. Monopoly Regulation and Fair Trade Act | The Supreme Court's Determination
The Supreme Court, however, reversed and remanded the lower judgment. The gist of its reasoning is as follows.
First, there was an insufficient examination of the unfairness of the abuse of a market-dominant position (the discriminatory conduct).
The Court held that the mere fact that a market-dominant business adopted a search algorithm favorable to its own service does not by itself lead to a finding of unfairness, and that the "intent" to restrict competition and a "concrete risk" thereof must be supported by objective circumstances.
The lower court had concluded that there was a risk of competitive restriction based solely on the increase in the plaintiff's market share and transaction volume, but it had not sufficiently examined such matters as the fact that, over the same period, the total transaction volume of competing open markets had increased, that the proportion of direct inflows was high, and that new entrants had also appeared.
The Court also noted that frequent revisions of the search algorithm could be regarded as part of a normal process of quality improvement, and it pointed out that the lower court's reasoning, which had concluded that there was an "intent to strengthen its own business" by selecting only certain results, was insufficient.
Second, the Court held that a finding of customer inducement by deceptive means must also be approached with caution.
A business may design its display criteria so as to reflect its own value judgments and strategy, and the plaintiff had explained the components of "ranking order" (such as relevance, popularity, and reliability) and had also provided other sorting criteria, including price, registration date, and the number of reviews.
Under these circumstances, the Court determined that it was difficult to conclude that a consumer of ordinary attentiveness would be at risk of mistakenly perceiving the plaintiff's listed products as "markedly superior or favorable."
Third, with respect to the unfair trade practice (discrimination in trading terms) as well, the Court held that an obligation to treat one's own and others' businesses equally does not arise as a matter of course, and that a precise factual examination of "markedness" and "unfairness" is required.
Accordingly, the Supreme Court reversed the lower judgment on the ground that, overall, the examination of the concrete risk of anticompetitive effects and of intent had been insufficient.
Summary of the Key Legal Issues
First, the "unfairness" in an abuse of a market-dominant position cannot be established by disadvantage to a particular business alone; an intent to restrict market competition and a concrete risk thereof must be recognized.
In particular, in order to assert effects in a market adjacent to the market in which the conduct occurred (the open market), the risk of competitive restriction in that market must be proved concretely.
Second, the nature of conduct that changes a search algorithm may be ordinary quality improvement or competition on the merits.
Inferring "intent" directly by extracting only certain results must be approached with caution, and the history of changes, their objectives, and quality metrics should be assessed as a whole.
Third, customer inducement by deceptive means turns on the risk that consumers may be misled into perceiving products as "markedly superior or favorable."
Advance notice of the sorting criteria, the provision of multiple sorting options, and a user-choice structure are taken into account as factors that may reduce the likelihood of such a misperception.
Fourth, an unfair trade practice (discrimination in trading terms) requires "the markedness of the discrimination" and "unfairness."
A mere disparity in display is not sufficient; competitive indicators such as market structure, alternative inflow channels, price, output, and the impediment to innovation must be examined together.
3. Monopoly Regulation and Fair Trade Act | Assistance from Daeryun Law Firm LLP
Daeryun Law Firm LLP, with attorneys handling matters under the Monopoly Regulation and Fair Trade Act at its core, has accumulated experience in responding to the Fair Trade Commission.
In disputes similar to this case, the following support is available.
· Empirical analysis: analyzing competitive indicators such as inflow channels, conversion rates, display share, price, output, seller retention rate, and new entry, in order to construct an argument that any "risk of competitive restriction" is absent or mitigated
· Responding to Fair Trade Commission investigations and reviews: developing a strategy for submitting materials, controlling the interpretation of internal documents, demonstrating a "competition on the merits" purpose, and designing counter-evidence to the selective citation of partial adjustments
· Administrative litigation and provisional injunctions: contesting the intent and effect requirements in a revocation lawsuit against the disposition, asserting the absence of unfairness and markedness, and proving the absence of any likelihood of consumer misperception
· Training and internal controls: establishing a protocol for prior legal review when an algorithm is changed, designing a record-keeping system, and conducting employee training
In platform businesses, fair-trade risk can originate from a single line of an algorithm.
By organizing your sorting policy and explanatory framework in advance, before the possibility of a dispute becomes apparent, you may substantially reduce regulatory and litigation costs.
If you need legal advice relating to the Monopoly Regulation and Fair Trade Act, you are welcome to make a 🔗legal consultation reservation at any time.
