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Jipyong News|KOREA LEGAL INSIGHT

Changes to Google’s In-App Payment Policy and Fair Trade Act Issues

2021.01.04

1. Introduction 
 
Google recently announced changes to its payments policy for in-app purchases, under which the requirement of using Google’s own in-app payment system that charges a 30% commission would be expanded to all digital content – a requirement that previously applied only to game content. 1 
 
These changes were to originally to take effect as of January 20, 2021, for new applications, but Google is now delaying implementation of the 30% commission for all digital content in Korea until September 2021, amid strong reaction or protest coming from various circles, including application developers, government, politicians, and users, etc. 
 
After the announcement by Google regarding its payment policy changes, Korea Internet Corporations Association, a nonprofit group representing Korean IT companies such as Naver and Kakao, filed a complaint against Google with the Korea Communications Commission arguing that Google’s decision not only harms competition and consumers but also violates Korea’s Telecommunications Business Act.2 The mandatory use of Google’s in-app payment system is also the subject of an on-going investigation by Korea’s Fair Trade Commission (“KFTC”), which has been triggered by a complaint filed by a group of start-up companies in late November 2020. Chairwoman of KFTC, Joh Sung-wook, stated that the KFTC was investigating whether Google’s new policy impairs fair competition, saying that “competition is not properly working” in the platform industry.3 So, despite Google offering a grace period until September 30, 2021 for developers to comply with the new requirement, there is still much discussion as to whether Google’s decision violates Korea’s Monopoly Regulation and Fair Trade Act (the “Fair Trade Act”).4 Some of the key legal issues surrounding this debate are examined below. 
 
 
2. Issue 1: Whether the 30% commission is “unfair” per se 
 
Much of the media’s coverage and discussion on Google’s new policy seem to be focused on whether the 30% commission that Google imposes on apps and in-app products is, by itself, an unfair byproduct of Google’s dominant market position. If the 30% commission is unfair per se, Article 3-2, Paragraph 1, Subparagraph 1 of the Fair Trade Act which prohibits “unfairly determining… or changing the price of goods or services” would be directly applicable. 
 
That said, “unfair” pricing under the Fair Trade Act is limited to “sharply raising or moderately dropping the prices of goods or services without just cause in contrast to changes in their supply and demand, and costs… necessary to supply the goods or services” (emphasis added).5 The commission for Google’s mobile app market has stayed the same at 30% ever since the Android Market (the previous iteration of Google Play) was launched in October 2008. Therefore, for Google’s 30% commission to be deemed unfair per se, it should be established, for example, that it is unfair for Google to not lower the commission fee in spite of experiencing an explosive growth of its app market and achieving economies of scale. 
 
 
3. Issue 2: Whether the policy “substantially undermines consumer interests” 
 
If usage of Google Play’s billing system becomes mandatory for all digital contents in apps on Google Play Store, there is a possibility that the cost to consumers to enjoy such digital contents would be increased. The most telling example of this is none other than Google’s own pricing scheme: Google charges Android users KRW 7,900/month for YouTube Premium, while Apple users (who are subject to Apple’s own 30% commission for in-app purchases) are required to pay KRW 11,500/month for the same. 
 
The Fair Trade Act prohibits market-dominant businesses from acting in a manner that may “substantially undermine consumer interests”.6 Whether the risk of undermining consumer interests is “substantial” is determined on a specific and individual basis, by comprehensively considering a variety of factors such as the nature of the goods or services, the scope of consumers whose interests are being undermined, the terms and conditions of transactions of other businesses in similar markets, the degree of change in costs for the market-dominant business before and after changing the terms and conditions of transactions, and the difference between the prices of the goods and services in question and their economic value.7 
 
As such, for Google’s policy change to be regulated as a conduct undermining consumer interest, some of the issues that could be considered by the competition authority are (1) whether it is likely for digital content providers to significantly raise the price of their contents being offered on Google Play, despite there being other competing app markets such as the One Store and the Galaxy Store; (2) whether the 30% commission is excessive compared to the economic value that Google offers to the digital content providers, and (3) whether Google’s conduct is particularly unfair when compared against that of its competitors such as Apple (which operates App Store) and Samsung (which operates Galaxy Store) which also impose such commissions. 
 
 
4. Issue 3: Whether the policy forces the other party to be unfairly disadvantaged 
 
As consumers are required to use Google’s in-app payment system in order to access digital contents via apps from Google Play, Google’s conduct may constitute unfairly forcing other parties to engage in a disadvantageous transaction or conduct – which is prohibited under the Fair Trade Act as “unfairly interfering with the business activities of any other business entity”.8 Moreover, requiring customers to use its in-app payment system may by itself constitute tying – an unfair trade practice prohibited under the laws.9 
 
In a case where Microsoft’s conduct of selling the Windows operating system together with the Windows Media Player was examined, KFTC held that such conduct amounted to the abuse of market-dominant position that unfairly forced the other party to be disadvantaged as well as the unfair trade practice of tying, reasoning that (1) the Windows Media Player is a separate product that may be the subject of a transaction independent from the Windows operating system, (2) forcing the other party in a transaction who does not want the Windows Media Player to purchase it infringes upon that other party’s right to choose products, and (3) at the same time, such a conduct also disadvantages the consumers by precluding them from using other products that may be of superior or different qualities.10 
 
In light of such holding, the key issues to be considered when determining whether Google’s new policy unfairly forces others to be disadvantaged would likely be (1) whether requiring the use of Google’s own in-app payment system is absolutely necessary for Google to receive just compensation for providing its app market services (i.e. Google Play), and (2) whether Google’s policy excessively restricts the developers’ right to choose in spite of the existence of other app markets that are also available on the Android operating system, such as One Store, Galaxy Store, and LG SmartWorld. 
 
 
5. Issue 4: Whether services directly offered by Google would enjoy unfair competitive advantage 
 
It is unlikely that Google’s new policy would have much effect on other services that are directly offered by Google, such as YouTube, YouTube Music, and Google Drive, given that these services not only already use Google’s in-app payment system but also are not subject to the 30% commission unlike other third-party developers. If so, another competition law issue that may arise is whether Google’s own services would enjoy unfair competitive advantage over its competitors. 
 
Currently, there are no provisions in the Fair Trade Act that directly regulate or prohibit self-preferencing of vertically integrated businesses. Whether and how to regulate self-preferencing is being actively debated in Korea, and the KFTC’s taskforce established to prepare enforcement standards for online platform laws has also identified this subject as a topic for discussion. 11

<img alt="" height="10" src="http://www.jipyong.com/uploads/editor/image/2020/12/20201201191134_제목_없음-1.png" width="800" /> 
1.  Developer Program Policy Preview: Payments (<a href="https://support.google.com/googleplay/android-developer/answer/9992660">Link</a>). 
2.  Hankyoreh article, S. Korean IT firms file complain to KCC regarding Google’s plan to expand commission for in-app purchases, published on August 25, 2020 (<a href="http://english.hani.co.kr/arti/english_edition/e_business/959302.html">Link</a>). 
3.  The Korea Times article, KFTC tightens reins on Google in-app purchase policy, published on October 8, 2020 (<a href="https://www.koreatimes.co.kr/www/tech/2020/11/133_297265.html">Link</a>). 
4.  Updates to Google Play Policies (<a href="https://support.google.com/googleplay/android-developer/answer/9934569?hl=en&ref_topic=9877065">Link</a>) 
5.  Article 5(1) of the Enforcement Decree of the Fair Trade Act. 
6.  Article 3-2, Paragraph 1, Subparagraph 5 of the Fair Trade Act. 
7.  Supreme Court Decision 2008Du16407, February 11, 2010. 
8.  Article 3-2, Paragraph 1, Subparagraph 3 of the Fair Trade Act; Article 5, Paragraph 3, Subparagraph 4 of the Enforcement Decree of the Fair Trade Act; Section IV. 3. Ra. (3) of the Examination Standards for Abuse of Market-Dominant Position. 
9.  Article 23, Paragraph 1, Subparagraph 3 of the Fair Trade Act; Article 36, Paragraph 1 of the Enforcement Decree of the Fair Trade Act, Table 1-2, Section 5.Ga. 
10.  KFTC Resolution No. 2006-042, February 24, 2006. 
11.  KFTC Press Release, Standards Necessary to Evaluate Unfair Trade Practices of Online Platform Businesses Are Being Prepared, Anti-Monopoly Bureau, Anti-Monopoly Division, May 25, 2020.

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