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Proposed Fair Online Platform Intermediary Transactions Act

2021.03.15

The Presidential Cabinet endorsed the Fair Online Platform Intermediary Transactions Act proposed by the Korea Fair Trade Commission (the “Proposed Bill”). The Proposed Bill is now before the National Assembly for legislation. The KFTC has been pushing for the Proposed Bill since June 2020. 
 
The Proposed Bill is similar in structure to the laws that regulate business transactions such as the Act on Fair Transactions in Large Retail Business and the Fair Agency Transactions Act, and largely consistent with corresponding foreign regulations such as the EU Regulation on Promoting Fairness and Transparency for Business Users of Online Intermediation Services. 
 
 
1. Scope of Application 
 
If passed, the Proposed Bill will be applicable to every business (a) acting as a product or service transaction intermediary between consumers and online platform business users (b) through the online platform (c) having annual turnover of more than KRW 10 billion or annual sales of more than KRW 100 billion and exceeding a threshold to be prescribed in the enforcement decree. However, the provision which prohibits unfair business practices (Paragraph 1 of Article 9) will apply only where the online platform intermediary has “superior bargaining position” over online platform business users. 
 
The main issues with the Proposed Bill are expected to be (a) how the sales for transactions occurring outside the platform such as price comparison services will be calculated, and (b) how to determine superior bargaining position where the platform intermediary and the platform users are of similar sizes. 
 
 
2. Key Issues 
 
A. Obligation to draft a contract and exchange copies (Article 6) 
 
When executing an online platform intermediary service contract with online platform business users, the intermediary must exchange copies of the contract containing provisions relating to the services to be provided such as commencement, limitation, suspension, and amendment of the services, standards to determine the exposure of online sellers’ services and goods, and allocation of liabilities for damages. Some view such mandate to be overly burdensome and not suited to the online platform business. It is uncertain at this time to what extent such detailed contractual and procedural requirements would be reflected in future administrative regulations. 
 
B. Obligation to give prior notice to terminate intermediary transactions (Article 7) 
 
An online platform intermediary must give prior notice to the online platform business users before changing any contract terms or limiting, suspending, or terminating its services. The notice must be provided 30 days before terminating a contract, and 7 days before limiting or suspending any services. 
 
C. Prohibition of Unfair Competition (Article 9) 
 
The Proposed Bill prohibits online platform intermediaries from engaging in unfair business practices by abusing their superior bargaining position over others or causing other businesses to engage in such practices. Specifically, forced sales, demanding economic benefits, transferring losses, imposing disadvantages, or interfering with business management is prohibited, in resemblance to the types of unfair trade practices regulated under Paragraph 1 of Article 23 of the Monopoly Regulation and Fair Trade Act. 
 
The Proposed Bill contrasts with the Act on Fair Transactions in Large Retail Business which prohibits suppliers from exploiting employees (Article 12) and prohibits undue restrictions on business hours (Article 15-2). There is a critical view that any unfair trade practices relating to the transactions under the Proposed Bill should be regulated by the Monopoly Regulation and Fair Trade Act unless these types of practices are unique to online platform transactions. It is also worthy to note that other foreign regulations including the EU Regulation on Promoting Fairness and Transparency for Business Users of Online Intermediation Services do not prescribe separate provisions prohibiting unfair trade practices. 
 
D. Prohibition of Retaliatory Measure (Article 10) 
 
Imposing disadvantages by changing the terms of the contract, suspending, or restricting online platform intermediary services on the grounds that the online platform business user requested for dispute resolution or assisted in dispute related investigation are prohibited (Article 10). 
 
 
3. Sanctions and other Enforcement Mechanisms 
 
Any violation is subject to a penalty equivalent to up to twice the value pertaining to the violation (Paragraph 1 of Article 26). In addition, any retaliatory measures are subject to criminal penalty (Article 34). 
 
According to the KFTC, in order to enhance deterrence against violations and at the same time avoid discouraging innovation in the online platform business, the Proposed Bill reinforces fine standards while minimizing penalty provisions. As heavy fines can hinder innovation, industry experts are calling for predictable and reasonable standards for sanctions in enforcement decrees and public notices relating to the Proposed Bill.

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