[NEWS IN FOCUS] In Korea vs. tech giants, Goliath is winning

Tech

Published: 01 May. 2022, 07:00 Updated: 10 May. 2022, 19:29

[NEWS IN FOCUS] In Korea vs. tech giants, Goliath is winning

[SHUTTERSTOCK]

A job half done is as good as none, the saying goes. Korea passed novel new legislation to try to regulate global tech companies and their operations in the country. But the laws have only done half the job.

Netflix is refusing to pay so-called network usage fees despite the “Netflix law,” while Google is threatening to remove apps from its Play Store if they don’t follow its new payment policy — regardless of Korea's much ballyhooed “Google law.”

The global behemoths continue to find loopholes and maintain their controversial practices, prompting the communications authority to take tougher measures to properly curb what it considers malpractices in the changing tech market.

Both the Netflix law and Google law were revisions to the Telecommunications Business Act and were meant to even the playing field for local tech companies competing against the big guys.

The Netflix law, which went into effect in December 2020, mandated content providers (CPs) share the network maintenance costs shouldered by internet service providers (ISPs), which they had not been held legally responsible for before. It targeted online streaming apps like Netflix, which were seeing a surge in users, resulting in heavy internet traffic for the ISPs.

The Google law was enacted in September 2021. It was meant to stop app market operators from forcing their in-app payment systems on app developers and collecting commissions as a result of that usage. Though it affects both Google and Apple, the law was nicknamed for Google after the company announced in September 2020 that it would enforce a new payment system.

With both pieces of legislation, the National Assembly was applauded by experts in and outside of Korea for quickly moving to discipline the tech giants, protect local companies and its general eagerness to wing some stones at Goliaths of globalization.

But with the laws failing to bring the giants to heel, the plaudits are turning to derision.

The baton has now been passed to the Korea Communications Commission (KCC), which must gather all its might to stop Google from finding loopholes as Netflix did.

The logo for Google is seen at the Google Store Chelsea in Manhattan, New York City, Nov. 17, 2021. [REUTERS/YONHAP]

Google vs. the Google law

Seven months after the enactment of the Google law, Google and Apple have announced in-app payment policies that they argue are in line with the law but are deemed illegal by the authorities.

Starting April 1, Google threatened that all apps must either use its own in-app purchase system and pay up to 30 percent commissions or a third-party system and pay 4 percent points less. Apps cannot include a link that directs users to pay outside the app to avoid commissions.

The company announced that apps that refuse to do so will not be able to make updates and will be removed from its app store starting June 1.

The Korea Communications Commission (KCC) warned on April 5 in an authoritative interpretation of the law that if Google pushes through with the policy, which it deems illegal, it will take action. The KCC said it will would wait for Google to actually start taking apps off the market or impose other penalties to take measures.

“If a case where an app is stopped from making an update or is deleted due to using a different payment method, then we will take measures according to the law,” said KCC chairman Han Sang-hyuk in a meeting with Wilson White, Senior Director of Government Affairs and Public Policy at Google, on April 12.

White replied that Google is “looking into” the KCC’s decision and will communicate more actively with the authorities, according to a press release by the KCC. No change has been made yet.

Apple also reportedly submitted a proposal to the KCC that it will similarly allow third-party in-app purchase systems and charge 4 percent points less than the 30 percent fee in its own payment system. The company did not disclose whether it will allow apps to include out-links for payments.

Netflix, on the other hand, is in a lawsuit with SK Broadband over network usage fees.

SK Broadband brought the network usage fee issue to the KCC in November 2019, asking the commission to mediate between the two companies.

Basically, SK Broadband is saying that Netflix's success in Korea is thanks partly to its delivery of its content, and it should pay something for the upkeep of its networks, the network usage fees. In Korea, network usage fees are paid to the ISPs by content providers, unlike in the United States and other countries.

Netflix is saying it has no reason to pay SK Broadband for because it’s the internet operator’s job to manage its networks.

Instead of waiting for a decision, Netflix filed a suit against the broadband company, asking the court to confirm that it has no obligation to pay network usage fees to SK Broadband.

Last June, the Seoul Central District Court ruled against Netflix, saying it needs to pay the broadband operator for maintenance. Netflix appealed in July and SK Broadband filed a counter-suit in September.

The first hearing took place in March 16. A second will take place May 18.

A Netflix logo is put up in Coex, southern Seoul, on Dec. 7. Netflix is currently in a lawsuit against SK Broadband over network usage fees. [YONHAP]

Gigantic loopholes for giants

The problem with the Google law and the Netflix law is that the loopholes are too great for the companies to ignore.

The Netflix law, or revision to the Telecommunications Business Act, says that technology firms of a certain size that operate online services must "provide users with convenient and stable telecommunications services."

It was intended to pressure online streaming companies to pay ISPs for network maintenance, but became a vague set of requirements for stable services and promptly dealing with user requests.

The same goes for the Google law.

New clauses added to Article 50 of the Telecommunications Business Act state that app market operators cannot “force” a certain in-app payment system or follow with unjust treatment to apps that refuse to do so. A maximum of 2 percent revenue generated from the illegal action can be imposed as fine.

Since Google and Apple are technically allowing a third-party purchase system and the law doesn’t spell out anything about how much commission it can charge from apps, it’s easy for them to argue they are following the law.

Laws are inevitably a little loose because lawmakers don't want to overly intervene with the free market. That’s why the KCC should have taken the initiative with clearer guidelines and strict implementation, according to attorney Jung Jong-chae of Jung & Park Law Firm.

“It’s understandable that the law doesn’t include specific clauses like allowing out-links or commission rates when it comes to in-app payments, but it should have been the KCC’s job to fill in the holes left by the legislation,” Jung said.

Jung reported Google to the Fair Trade Commission (FTC) in 2020, asking that the commission stop Google from forcing certain payment methods on local apps.

According to Jung, the KCC should have set specific guidelines for what’s illegal or not, because determining coercive behavior is much more difficult in court without detailed support from the law.

“But now that the KCC has only responded with an authoritative interpretation of the law, Google can challenge the KCC and file an administrative litigation to the court,” Jung said.

“A massive case like this will might take more than two years for a ruling to come. The law will be powerless during that long battle, after which we cannot even guarantee the KCC’s victory.”

Han Sang-hyuk, chairman of the Korea Communications Commission (KCC) explain the aim of the ″Google law″ at the National Assembly in western Seoul on July 20, 2021. [NEWS1]

A preventable fight

The KCC can still prevent a bigger battle with the tech giants if it changes the guidelines and takes tougher measures.

Unlike a law, which has to go through the National Assembly, the government can set detailed guidelines for a law without having to go through parliament.

So if the KCC clearly states that it is illegal to stop apps from including links to direct users to other payment methods or to force a commission rate over a certain level, app market operators could have a hard time bringing the case to court.

In fact, it’s imperative that the KCC changes not only its guidelines but its overall attitude toward the contemporary tech market, according to Lee Hwang, a professor at the Korea University School of Law.

“The KCC is used to making loose guidelines and then coming to agreements with companies, because local companies had no choice but to listen to the government,” Lee said.

“But companies like Netflix and Google are too powerful for the KCC to control with soft regulations. The tech world is increasingly becoming global and it’s time that the KCC realizes that its old ways won’t work anymore.”

The KCC lost against Facebook in 2019 when a court canceled a fine imposed by the communications authority on the social media giant for slowing down service to some users without notifying them.

The commission appealed but lost again in 2020. Like the case with Google, the KCC did not have clear guidelines on service quality control and was criticized for not properly gearing itself up for battle against one of the biggest companies in the world.

“These global companies have to apply the same rules for all countries, which means it’s going to take a tremendous amount of force to bring any significant change,” Lee said. “The global market is changing and it’s high time that the KCC does too.”

BY YOON SO-YEON [yoon.soyeon@joongang.co.kr]