Regulating Online Platforms: A Balanced Approach for South Korea – Transcript

Below, we have provided the full English transcript of our panel discussion Regulating Online Platforms: A Balanced Approach for South Korea. Read below to see the timely discussion where a panel of experts discussed the this topic and its future in South Korea.

Leni PAPA:

Good day everyone.

I am Leni Papa from the OECD competition division, and it is my great pleasure to be your moderator for today’s conference on “Regulating online platforms: A Balanced Approach to  South Korea”, organized by Competition Policy International and Sogang University, the ICT Law and Economy Research Institute in cooperation with Asia Competition Association and Seoul National University’s Competition Law Center.

So as the title suggests, we are going to talk about digital platforms today, and we know that digital platforms connect users and enable easier business transactions. It has enabled the creation of new markets and reshaped existing ones.

But we also know that these platforms benefit from strong network effects that they generate and the significant economies of scale and scope that they have. These characteristics of digital platforms have led to market dynamics that have attracted the attention of competition, enforcement entities, and policymakers around the world, including South Korea.

So we have today a discussion including a number of jurisdictions, proposing various solutions in an attempt to find a balanced approach towards the regulation of online platforms. With us today in pushing forward this conversation, we have a distinguished panel of competition and technology experts to discuss different approaches and regulatory alternatives, and to discuss how this issue is being approached from the South Korean perspective.

So, first off, we have Mr. Dae-sik Hong, Professor of Law from Sogang University.

Mr. Yong Lim, co-director of Seoul National University’s AI Policy Initiative.

Mr. Renato Nazzini, Professor of Law of the King’s College London.

And we also have Mr. Daniel Sokol, Professor of Law of the University of Southern California Gould School of Law and affiliate professor of the USC Marshall School of Business.

Last but not the least we have Mr. Tatsuya Tsunoda, an associate of the Nishimura & Asahi Law firm in Japan.

Welcome, gentlemen.I’m going to jump right into it, and before we go into the focus on South Korea, to give a bit of context to our discussions, I would like to first invite our panelists to provide background on the international trends that we are witnessing with respect to proposals for the regulation of online platforms.

I understand that there’s a wide range of approaches. We also have experts from the UK who will provide us the framework for the EU and Germany, as well as the USA. And we have someone from Japan.

So Mr. Renato Nazzini, may I invite you to take the first crack at this issue? So what are the trends that we are witnessing in the EU and the UK?

 

Renato NAZZINI:

Thank you very much. Thank you very much, Leni. I’m delighted to be here with so many colleagues from South Korea, Japan, United States, Paris, and elsewhere.

So yes, you are absolutely right. We are seeing a number of initiatives in Europe at the European Union level, at member state level, and outside the EU—in the UK. Starting with European Union initiatives, there have been a number of these, and there are ongoing cases or decided cases that are now pending before the courts, like the Google shopping case, the Google Android case.

And now the European Commission has proposed a regulation, which goes under the name of the Digital Markets Act. So a couple of things about this initiative. First of all, ostensibly, this is not a piece of competition legislation. It’s regulation, other than competition. And the regulation makes the point clearly and explicitly.

How does this regulation work, or how will it work?

It will harmonize regulation of platforms, or at least certain platforms, throughout the European Union, preventing member states from taking action in relation to the very same issues for the very same purposes. So it will be harmonization, and it will work broadly, as follows. The European Commission will have the power to identify companies and digital platforms who are gatekeepers. Now, the definition of gatekeepers is quite complex, but we can be certain that Facebook, Google, Amazon, and a couple of others will be gatekeepers. But not just those platforms: there will be others, or there may be others as well. It has to do with the services they provide: search engine services, marketplace services, and so on. And it has to do with size and market power and the ability to act as a gatekeeper to customers and consumers. And then, once you are designated as gatekeeper, then there will be a number of obligations that will kick in. And we will look at some of them later.

I mean, this is just an introduction, but it’s interesting that some of these obligations, although the regulation is not competitional law, it really mirrors quite closely competition cases. For example, there is a prohibition on self-preferencing on platforms who are gatekeepers that is really very close to the Google shopping case. There is an obligation for marketplaces not to use data that can put the platform in competition and give the platform an advantage over its own customers.

So there are other firms that actually sell through the marketplace. So the Amazon case is essentially where Amazon is a marketplace, but also a competitor to firms that sell to Amazon.

When it comes then to member states, Leni mentioned Germany. We have now the amendment, the 10th amendment to the German Competition Act. And that is a piece of competition legislation. Interestingly, it’s an amendment to the Competition Act indeed. And it’s based, however, on the very similar principles of the DMA. So there will be firms designated as having paramount influence and then a number of obligations will apply. So it has a very similar structure to the EU, except that this is competition law. It’s not regulation.

If we then take a step outside European Union, what is the UK doing? Well, something similar, but I would suggest also, very different.

In the UK, also there have been reports, like the firm report, the government has accepted some recommendations. And now the competition markets authorities are taking forward the establishment of a digital market unit, which is within the competition market’s authority.

So we are within the competition framework here as in Germany, and the United States. And the problems that are going to be tackled are broadly the same. So there will be firms designated as having significant strategic market status. And then, there will be some actions and some obligations that will be imposed in some pro-competitive actions that the CMA and the digital market unit can take.

But I would highlight one of the main differences, which is that the UK system will be based on codes of conduct. So this is not self-regulation, this will be mandatory codes of conduct, but they will be based on principles and objectives. And based on these principles and objectives, the digital market unit’s aim is to engage with firms to ensure that they comply and to take pro-competitive actions when it is necessary.

For example, to ensure data portability, to ensure that self-preferencing doesn’t exclude competitors so no harm to consumers occurs.

So, Leni, I will stop here, and I look forward to the rest of the discussion.

Thank you very much.

 

PAPA:

Thank you, Renato.

And it’s a very interesting comparison between the three jurisdictions.

Just as a matter of another point of comparison, in terms of scope, are these three approaches targeting the same group, the same companies, or (do they) cover the companies different from (those in the) EU and the UK?

 

NAZZINI:

The definition of gatekeepers in terms with significant strategic market status is different, so the legislation is different. I would say that probably the UK approach is closer to competition laws. So it’s really a substantially durable market power.

The EU approach is more structuralist, so they identify certain services, search engines, social networking apps, et cetera, and then they look at size.

You can see them as proxies for substantial durable market power, but it’s more of a structuralist approach, I would say, but I believe that in practice, this will cover broadly the same firms. And I would be surprised if they didn’t, at least to a large extent, and also the types of harms are by and large the same. But with the more flexible, again, with more economics approach in the UK and I think it is a more rigid and regulatory approach, and one size fits all at EU-level.

 

PAPA:

Okay, Renato, thank you for that.

Now we proceed to the other side, to the US.

Danny, I understand that in the US there is now a package of five bipartisan bills intending to regulate online platforms; could you share that with us?

 

Daniel SOKOL:

Of course.

So let me first note that those are House Bills that come out of the House Report.

I think the way you described it, Leni, is right.

It’s really about regulation and it’s supposedly competition bills, but in fact, with potentially very far-reaching impact. How bipartisan is not clear. The House Minority Leader, the head of the Republicans, has come out against the bills. So in the United States, shall we say, political life is always complicated. So it may be, particularly for non-US audiences, it will be helpful to just understand. There is an antitrust middle that historically has worked effectively across administrations for a generation where there has been pushback from nuances to the doctrine. But the overall framework has really been consistent-One, based on economic analysis, focuses on price, non-price issues, and issues of innovation. This is now under attack. It’s under attack by populists. Populists of the right who are Josh Hawley, for example, who introduced his own Senate bill with no sponsors and there are populists of the left. Some are in the House, some are in the Senate and the populists, you’d say left and right, are very dissimilar. In fact, the populists in some ways are the same. They have a very different vision for what they want the United States to look like in terms of economic organization where the concern is not about the exercise of market power but primarily one of size. But even with size, certain industries are seen more disfavorably than others, of which technology seems to be the most disfavored.

Although not the only one, particularly the populists of the left are also concerned, for example, with big agriculture. The populists of the right, even within technology focus within certain technology companies, for which they think that their speech is somehow being stymied.

Within that world, what has happened is we’ve moved away potentially. And again, none of this is legislation that is necessarily going to pass. None of this is legislation at the moment that has support from both House and Senate, but it would do all kinds of things, like real structural separation in terms of, you can’t get into related lines of business.

There would be real limitations with regard to mergers -larger companies could not acquire smaller companies. The issue is the way that innovation works. Smaller companies simply innovate differently and in some ways better because they can take more risks. This would be lost.

For example, our entire venture capital system, I think, would be significantly altered from that perspective.

I also do some legal consulting, both for industry associations and for companies both for and against certain big tech companies, but not just big tech, other kinds of companies that would call themselves platform companies. And so, while I note that, I also say, generally, this is a more neutral view of what’s at play. We either have a fundamental transformation of antitrust, or we don’t. And right now, we don’t know.

So why is it that we have legislation all of a sudden? It is because the theories of harm that we have in cases. We now actually have cases that have not been decided, but a number of cases also brought, so it’s not just five recent pieces of legislation and some others before that with outcomes in mind regardless of whether the cases are won on the merits.

We also have cases the agencies have brought. They’ve been bringing in cases involving, say, innovation for years. They’ve been bringing cases involving mergers, involving platforms as well.

Again, this is not new, but what is different now is really a push against a number of very large companies. And so what we have, again, our theories apart, we don’t have the decided cases specific to these larger tech companies.

On the merger side, we have had cases involving platforms in recent years. In terms of litigation, for example, the Sabre case. But also, we’ve had cases involving, in the last 10 years or so platforms merging with other platforms. And it’s primarily been mergers and not even cases as such but consents that really shaped how we view things in the United States, specific to tech platforms.

On broader platforms, we have the American Express Supreme Court case. And it is a combination of cases brought and settled. There are cases ultimately reviewed and not brought, and cases that have come out in court, a much smaller number that get people thinking we need to do more than just cases because based on the existing theories of harm, it’s difficult to win such cases.

Now we can argue why it would be difficult to win such cases. Maybe some of it has to do with the quality of the case. Some of it has to do with some of the presumptions that we have behind these cases. But we have a recent case, a 9-0 decision by the Supreme Court involving student-athletes, involving the rule of reason that suggests plaintiffs can win and plaintiffs can win big, 9-0. So we get a lot of rhetoric that everything is somehow only one-sided. In fact, the reality, as you might expect, is a bit more complex in the United States.

But we are in a position of great tumult, and if that wasn’t already the case, recently we had Lina Khan named Chair of the Federal Trade Commission. So here we don’t know what she would do because literally she was just named chair, so the seat is not even warm. But what we can extrapolate from her prior writing is that she would take a more, shall we say, regulatory approach to the Federal Trade Commission using much more aggressive FTC Section 5 powers that the FTC has.

How far do these powers go? It’s been more than a generation since we’ve tested that out, so we’re in uncharted waters in the United States. Literally, in every single dimension: cases, legislation, and potentially regulation, which is really disguised regulation. Because what has traditionally been an enforcement agency that will take a much stronger regulatory overlay.

 

PAPA:

So among these bills, as you’ve predicted, they’re not all going to see the light of day, but can you share with us which one you think is most likely to come to fruition?

 

SOKOL:

That’s the easiest question. (It will be) the one that would increase the funding of the agencies. I think with great certainty that’s going forward.

But to your point, as to the overall set of bills, that would be a more fundamental transformation. My sense is that something will go through, but there is not strong, at least at the moment, there is not strong bipartisan support. And so it will probably be the least harmful, the least distortive of all of them, for which you can get some kind of consensus, but it’s not clear to me what that would be at the moment.

 

PAPA:

Thanks, Danny.

So now we switched to Japan, Tatsuya.  I understand that Japan has already implemented some of these changes as early as 2019; could you share that with us?

 

Tatsuya TSUNODA:

Thank you, Leni.

Recently for Japan, we have two significant developments in the digital economic sector.

One is relating to the organizational matter, the headquarters for digital market competition called HDMC or DMCH, was established on September 27th, 2019, in the cabinet office and it is led by the chief cabinet secretary.

That’s why the HDMC is capable of coordinating the relevant authorities such as the Japan FTC; Ministry of Economy, Trade, and Industry; Ministry of Internal Affairs and the Communications; Japan Personal Information Protection Commission; and Consumer Affairs Agency. And in addition to that, (there is) the act on improving transparency and fairness of specified digital platforms.

This is called the Transparency Act, something like that. (It) became effective on February 1st, 2021. And the Transparency Act is governed by the METI, not by Japan FTC. The feature of the Transparency Act is to minimize the regulatory burden on the digital platforms and to respect the set of regulatory frameworks in order to promote competition and innovation. This can be observed from the application scope, requirements and enforcements of the Transparency Act.

Let me summarize it, then.

With regard to the application scope, the Transparency Act does not cover all types of digital platforms and only applies to the specified undertakings that fall within a designated business area and fulfill a certain turnover.

For now, the METI has specified only two business areas: e-commerce and app stores, and (it has) designated only five companies as specified digital platform operators; namely Amazon, Yahoo Japan, Rakuten, Google, and Apple.

Now the HDMC and the METI is considering adding the digital ads industry to the application scope of the transparency act, but it still only applies to the two business areas for now. And with regard to the requirement, the Transparency Act only requires disclosing some information and to provide some advance notices and submit an annual report to the METI.

These are almost all requirements under the Transparency Act.  And with respect to the enforcement of the Transparency Act, the Transparency Act does not have any direct sanctions, including either criminal or administrative fine, against non-compliance with the information disclosure or the notice requirements.

And apart from this, the METI can require the specified digital platform operators to submit an annual report and evaluate whether the performance of these platforms is sufficient to ensure the transparency and fairness in accordance with the guidelines prepared by the METI.

And if there is a serious violation of the Transparency Act, the METI is able to request the Japan FTC to take action to resolve such concerns as necessary. That is an outline of the Transparency Act in Japan.

 

PAPA:

Thank you, Tatsuya.

I understand that the transparency act seeks to minimize regulatory burden on digital platforms and at the same time foster self-regulation for these platforms, but I know that you have previously described the Japan framework as similar to the EU, so can you please expound on this?

 

TSUNODA:

Okay.

Japan is seeking to take a harmonized approach with the EU’s B2B regulations.

That’s why we have enacted the reservations, which specifically address the concerns of the digital economy. But we have preferred to take the step-by-step approach and we specified the target or application scope based on the market survey conducted by the METI and the Japan FTC, and as a result, the Japan FTC and the METI found the specific competitive concerns or the concern from the perspective of the transparency or fairness, which is not necessarily covered by the competition rule.

So yeah, we are aiming to take a harmonized approach, but in order to promote innovation and avoid intervening excessively, we will take a step-by-step approach for now.

That is my understanding.

 

PAPA:

Thank you, Tatsuya.

So now before we go into the regulatory initiatives from South Korea, we would like to first have an overview or review of what is the current situation in the country.

Dae and Yong, could you intervene on this point?

 

Yong LIM:

Sure.

Why don’t I begin with a summary of enforcement actions in Korea? I think my colleague, Professor Hong, can follow up on the legislative initiatives.

The perception has been that enforcement has been relatively lax compared to the numerous legislative bills that are being discussed in the National Assembly. But in fact, enforcement has picked up a bit starting from last year. One thing I think that is important when you talk about Korean enforcement and regulation of online platforms is that both are “multifaceted.”

So you have the Monopoly Regulation and Fair Trade Act, which is our competition statute, but you also have standard form contract law, consumer protection laws, telecommunication and network laws, and specialized unfair trade laws that all have an impact on competition law and policy.

To give you an overview of what’s happening, starting off with competition cases proper, there were abuse of dominance decisions by the KFTC in September and October 2020 against Korea’s leading search engine NAVER.

These are the NAVER real estate service case and the NAVER shopping and NAVER TV cases.

In those cases the KFTC found that NAVER had undertaken certain conduct that restricted multi-homing and monopolized the market.

It also found that NAVER had manipulated its search algorithms to favor its own vertical search engines and services, so you could say this is a self-preferencing case. These decisions were our main abuse of dominance cases. The decisions are currently being challenged by NAVER, and the cases are pending before the court.

For merger analysis, in December last year, we had a case concerning a merger between the two leading food delivery app services; Delivery Hero Korea and Woowa Brothers. The KFTC came out with a structural remedy that required Delivery Hero Korea, which was the acquiring party, to sell-off its existing business. The KFTC essentially ordered a swap between the new business and the acquirer’s existing businesses. Issues that came up were the leveraging of information assets into adjacent markets; such as the shared kitchen market, and unilateral effects such as exclusionary conduct that might favor restaurants which used the party’s delivery service in addition to its food ordering service.

Regarding what is popularly called abusive superior bargaining position in Korea, part of our unfair trade practice regime, we had an action against Delivery Hero Korea in June last year, which targeted the company’s MFN clauses restricting restaurants from selling at a lower price through other delivery routes, such as competing apps. There was also an Apple iPhone case that came out in February this year, taking issue with Apple’s ASBP vis-a-vis telecom companies, specifically forcing telecom firms to unfairly subsidize certain advertisements and AS-related costs, and unfairly forcing them to license their patents among other things. This resulted in a consent decree that runs for three years.

There was also an MFN clause case against online travel agencies in March this year, targeting MFN clauses by global and local OTAs (i.e., online travel agencies), such as Expedia and Interpark.com, which restricted hotels and residence providers from selling at a lower price through their own lodging websites or competing OTAs. The involved OTAs remedied these clauses during the investigation which was a favorable outcome for the KFTC.

With regard to standard form contract law, in February last year, certain OTAs were targeted for their no-reimbursement cancellation clauses. Those were deemed to be unfair. A few OTAs settled with the KFTC, but Agoda and Booking.com from the Priceline group appealed the decision. The Seoul High Court rescinded the KFTC orders against both companies. Google, Facebook, Naver, Kakao, Netflix, all major platforms operating in Korea, have also been subject to corrective orders related to their standard form contract clauses in 2019 and 2020.

Current pending cases include investigations surrounding Google’s Android platform, investigations into online advertising, which could implicate both Google and Facebook, and app store policies against Apple and Google, which have parallels to the Epic case currently pending in the US. There are also allegations against Kakao, Korea’s popular chat platform, that it favored its own Kakao T taxis through its mobility app, again another allegation of self-preferencing through its algorithm.

So we have numerous pending cases. We expect the KFTC to come out with its decisions later this year, or sometime next year.

 

PAPA:

Yong, that seems like a considerable list of enforcement activities.

And I’m now going to connect it to the current status of Korea’s regulatory framework.

So if you have all of these cases soon to be decided, except maybe for the one rescinded by the court, do you need, do we really need a change in the framework of Korea? Maybe I can shift now to Mr. Dae-sik.

 

Dae-sik HONG:

Yes.

Thank you, Professor Lim, for the comprehensive coverage of the Korean situation and the many, many cases.

Now I’d like to explain about the current status of online platform-related legal proposals and initiatives in Korea.

But for me, speaking in Korean is more comfortable.

So now I’m speaking in Korean.

Yes.

As Professor Yong Lim said, Korea already has comprehensive regulations including competition law and consumer law. Therefore, as far as I am concerned, the system is sufficiently well-woven so as to not require additional legislation.

Particularly, in addition to the competition law concerning damages from unfair competition, Korea has laws concerning unfair trade actions, which are called upon whenever fair trading is somewhat disrupted regardless of competition. Also the provisions on abuse of superior bargaining power or position can be utilized as well.

In spite of all these existing laws, Korea FTC proposed the Online Platform Transaction Fairness Act in September of last year. The proposition appears to be encouraged by the launch of the EU’s P2B Regulation and Japan’s online platform transparency act. When you look at its details, however, Korea’s proposition calls for far more stringent regulation than the other two.

In addition to the law regulating unfair trading, Korea has fair trade specialty laws in four other areas. They are the subcontract act, franchise business transactions act, large distribution business act, and the agency act. Now KFTC seems to view online platform as a fifth specialty area.

That’s why adding another specialty act to online platform area…

Yes, so, the online platform transaction fairness act currently promoted in Korea would regulate the areas that are not covered under the existing fair trade act. The proposed regulation would impose additional, prior transparency and fairness responsibilites upon online platform businesses.

Specifically, the mandate would require that when an online platform makes a agreement with its business user, it must put the main parts of the contract, including how a product would be promoted and under what conditions the platform would prefer its own product over the user’s, in writing and deliver such a notification to the user.

KFTC is obliged to post a detailed list in public regarding these regulations including the contents an online platform business must contain in its contract form.

As has been witnessed in the past in relation to subcontract or large distribution business regulations, this list also could be widely expanded as Korea’s competition authority deems necessary.

This means that every contract signed by an online platform business will be nitpicked by the competition authority.

And the difference from our neighbor Japan’s similar regulation is that violations would incur not only a correction order but also penalties.

KFTC believes that a new regulation is needed due to some unique traits of the online platform and that therefore existing competition laws and fair trade acts are insufficient. In my opinion, there is little empirical evidence that online platforms with their intrinsic traits would be likely to engage in unfair trading against business users from a position of dominant or superior bargaining power.

On the other hand, online platforms tend to look for network effects or two-sidedness. However, those traits are not reflected in these regulatory propositions.

Another issue is that in Korea online platform business is categorized as value added telecommunication service, which is governed by the Telecommunications Business Act.

This is equivalent to the EU’s information society service or the USA’s information service. Korea’s current telecommunication business act has a provision regarding prohibited practices, which are also regulated by Korea Communications Commission.

This is why KFTC’s regulation proposition was later met by a similar proposition from the KCC. And these two propositions are competing against each other in the Korea Assembly.

In the worst case scenario, both could be promulgated into law, leading to double regulation.

For the moment, their contest for leadership is actually impeding the progress of either proposition.

In this regard, Korea must resolve these issues of competing laws as well as competing regulation authorities.

Okay.

Thank you.

This is the end of my presentation.

 

PAPA:

I’ve been asked to speak slowly for the interpreters, and I’m just touching on a few points that you mentioned over there.

You mentioned the overlap with the jurisdiction of the KCC, and now moving on to the point of scope. I understand that this act targets more companies than what are targeted in other jurisdictions.  Is this correct? How would you react to this criticism that it targets even startups? So not only the Big Four that other jurisdictions don’t talk about.

 

HONG:

Yes. According to the proposal, the law would apply to companies whose revenues and transactions exceed specific limits.

So according to the law, it will be applicable to platform operators with sales turnover of 10 billion Korean Won or transactional amounts of 100 billion Korean Won. So there is some argument about how many companies will be affected by this law. At least more than 50 companies in Korea will be subject to this law. It means most of large companies and important companies will be covered by this law. And even startups, which grow very fast, very rapidly, will be captured by this law in a very short period it has raised some concerns from startup businesses.

 

PAPA:

Are there also concerns about how operationally feasible this proposed act is?  I understand that there is a notification requirement.

If you change the agreement with smaller businesses, you have to send a notification, but with the nature of online trade, do you think this is actually feasible? Wouldn’t you have hundreds of notifications in a day?

 

HONG:

Yeah.

Yes.

In this question, I’d like to speak in Korean.

According to the law, if contractual terms are modified, prior notification must be sent within a short period of time, which could be a week or 30 days, within 30 days.

However, even KFTC somewhat agrees that in practice, delivering such notification [in a timely fashion] is extremely difficult, and can damage an online platform’s business. Thus, when the time comes to enforce the law, KFTC says that it will allow such contract terms changes to be simply included in the bylaws instead of being communicated individually.

However, as these flexibilities are not expressly written into the law, there remain too many uncertainties.

LIM:

If I can also add one point-

 

PAPA:

Yong.

 

LIM:

-to what Professor Hong just mentioned, and correctly pointed out.

If you think about algorithms, they are constantly updated by platforms. And so, whenever a major, or even a minor upgrade that shifts or changes certain important parameters, this would have to be communicated in advance to the platform’s customers and business partners.

Certain updates could involve security issues, where you might not want to give too much advance notice, or it may be difficult to give advance notice due to gaming issues, for example. And so this does create a lot of problems.

I believe there will be similar issues with the EU P2B Regulation going forward. I think, again, as Professor Hong pointed out, the KFTC is mindful of such potential concerns. I think our experience with APIs under the Microsoft Consent Decree showed how cumbersome these efforts or requirements can be and how costly they can turn out to be. There is a potential for increased business costs, especially for smaller firms or upcoming platform competitors having to follow these requirements. And so there definitely is a competitive concern in that aspect.

 

PAPA:

Okay, thank you, Yong.

I would now switch to Tatsuya, because you mentioned earlier that Japan is adopting a step-by-step, reduced regulatory burden approach. But I heard Mr. Dae mention earlier that the transparency act for Korea was actually inspired by Japan’s own law. So, how would you react to this? I mean, what’s your comment on the way that South Korea is adopting this law?

 

TSUNODA:

Yeah.

Thank you for asking me.

That’s a very, very difficult question, but in my view, actually, we also have been considering adding the digital ads to the application scope of the Transparency Act. So we cannot exclude or deny the possibility that the application scope of the Transparency Act will be expanded as with the EU or other jurisdictions regulations.

Yeah, but it should have been noted that such expansion should be based on the specific factual background or the specific concerns based on the market survey.

So, that is my opinion on that point.

 

PAPA:

Okay.

So Mr. Yong and Dae, they mentioned that the Transparency Act of Korea will actually be of a wider scope. I understand that in Japan, the scope is much narrower at this point. Is it related to Japan’s success in enforcement against online platforms?

 

TSUNODA:

Yeah.

Thank you, for that pointing out that point. Yes, that is also an important point. And in Japan, in my understanding, the Japan FTC could have been successfully enforcing the Anti-Monopoly Act to the digital platform operators in a timely manner.

For example, even before the launch of the new services, which was a loyalty program. Even before the launch of the new services, the Japan FTC contacted Amazon Japan. And Amazon has given up the introduction of new services.

Generally, Japan FTC’s formal investigations would conclude within one or two years and there is less court cases to dispute cases in the digital sector. In addition, when it comes to the comparison with the EU’s competition law, we have the regulation against the ASBP like Korean competition law. That could be triggered even if the data platforms do not have the dominant position in the relevant market.

So, for Japan, Japan FTC could enforce the Anti-Monopoly Act to address the concerns in the digital economy sector. That’s why there is less necessity to add new legislations in Japan.

That is my view.

 

PAPA:

Thank you, Tatsuya.

So, now I turn my eye to back to Europe and would like to request Renato to comment on this, particularly with respect to the organizational framework for the implementation of these initiatives.

I understand that within the EU it’s also a debate as to which government agency would be best to enforce these activities. So for Japan, my understanding is that it is still JFTC solely. In the EU, are we looking at the national competition authorities, or are we focusing on the DG?

 

NAZZINI:

Thank you.

Thank you, Leni.

And the point here is that the current proposal in the DMA at EU level would be to have the European Commission and therefore DigiComp enforcing it. But it’s an open question, as you say, it’s an open debate.

So for example, EU competition law is today, well, since the 1st of May in 2004 actually, enforced and applied by the European Commission and all the national competition authorities of the member states. So, you could have a similar approach also to the enforcement of this digital regulation now, for instance. But you have to bear in mind as well that obviously we are not talking about when we are looking at the regulatory landscape as a whole, we are not talking about only the Digital Markets Act, for example, the digital regulation on the transparency act in Japan, et cetera. There is an array of regulation that applies to these companies potentially.

Well, first of all, let’s not forget the old good competition law, which is where it all started.

Okay, now we are saying that it’s not good enough anymore, although it was good enough to take the Uber shopping case, Google Android case and so on. To liberalize the telecoms, to tackle issues in the airline industry, but okay, fine.

Those people, whom Danny Sokol, I think, would call the populists, I’m not doing that myself, would say, “Well, the competition law is not good enough. Now we have to go further than that or change competition law completely.”

Fine. But we’d still have competition law that applies, then we have digital regulation, things like the DMA. Then of course we have data protection regulations in Europe that are quite detailed and quite important with very high fines, potentially up to 7% or more, along with their stronger enforcement powers. And in much of this regulation, if you read, the DMA is also about data, data portability, and not combining data. So, you have an overlap there.

You have, of course, consumer protection.

Again, all good consumer protection, which has been applied for example, by the Italian authority to Facebook on exactly the same grounds as the German Facebook case, which was a competition case, which could have been also a data protection case obviously, and now we fall out of the Digital Markets Act.

And then if you think that you look at European Union member states, data protection authorities, competition authorities, consumer protection authorities, courts, and if you look internationally, there are platforms that operate globally, as these platforms do.

Then you have to look at Korea, South Korea, Japan, Brazil, Singapore, Hong Kong, Australia, European Union, with all its member states, UK, et cetera.

So, really you’re asking a question about the regulatory institutional framework. It’s fascinating for lawyers, but I think it’s quite a war in pictures for digital platforms. They will cope with it surely, especially the larger ones, but it will come at a very high cost in terms of effort, in terms of compliance and regulatory costs. And potentially it would reduce innovation and the need for competition.

 

PAPA:

Thank you, Renato.

You pointed out the different directions that we are seeing here across the jurisdictions. So, you are now actually dealing with new acts and regulation. You’re also dealing with existing regulation, which would also cover other aspects such as data privacy and consumer protection. And then you have competition enforcement. And just to confuse everyone and add to the mix I would like to now talk about self-regulation.

There is an argument that it would be better to stick to self-regulation and coming up with standards of transparency and accountability for online platforms, rather than resorting to acts and regulation with a competition emphasis. How do you feel about that? So, given the experience in the EU or the US, I would open the floor to Danny and Renato.

 

NAZZINI:

In relation to the EU, clearly this is not the route we are going down.

The EU has a tradition of regulation and state regulation. And if I may say so, it’s a form of skepticism towards the things like self-regulation based on the idea that the reason why you regulate is because businesses are bad and will not do the right thing if left to themselves.

So, self-regulation in the eyes of some, I guess it’s a sort of contradiction in terms. I think the UK is taking a step in the right direction. We are not talking about self-regulation in the UK either, but of course the approach of the code, which will be a mandatory code, but it will be consulted upon, drafted in consultation with stakeholders based on principles, and then supported by guidance.

And then also dialogue between the digital market units and companies about enforcement in detailed action. So it’s kind of a step closer to self-regulation. I think also I would like to say that regarding self-regulation, we don’t necessarily have to completely leave this in the hands of the digital platforms. I mean, it could be some self-regulation based on some, as I said, high level principles and objectives that you can have legislation even in an international convention, I mean, if you think very boldly.

So, you can have some principles and objectives, some kind of overall framework of control and enforcement, but then leave most of the details to self-regulation.

Again, self-regulation doesn’t mean just the platforms, but it could be done in consultation with other stakeholders, advertisers, competitors, publishers and so on.

And then finally, I think self-regulation has one huge advantage actually, that could work across jurisdictions. So, you wouldn’t have one piece of regulation in Germany, one piece of regulation in EU, one in the UK, one in Japan, one in South Korea, but you could have a more seamless system that works across the world.

And, being a bit optimistic perhaps, but I think that would be a much better way to go.

 

PAPA:

Thank you, Renato.

Now swinging to the other side: Danny.

 

SOKOL:

So, what you call self-regulation, I will reframe, but it is the same principle. I call that “principles of enforcement.”

That self-regulation is really, as Renato said, not just a platform creating contractual terms, but a number of stakeholders that maybe are involved in various ways in the process. And I think this is a changing governance structure and flexible, but it works, self-regulation works when there’s effective enforcement, not when we have a competition problem.

Now, I think the world of no regulation, really everywhere in the world, that’s over. Now, different countries with different traditions have had more or less. In the United States a lot of this regulation has been really about non-competition issues. That’s not to say that they’re not in some ways complimentary, sometimes though they are potentially opposed.

So, sometimes the concern is one of privacy and the privacy regulation in itself creates competition concerns. So, an obvious one there would be GDPR, where the empirical work thus far. We’ve seen it by Ginger Gin and Liad Wagman, for example, papers showing that legitimate, let me be clear, legitimate privacy concerns, have led to a new regime in Europe but ratcheting up those concerns into the regulatory structure has certain negative impacts that perhaps were not understood.

Gary Johnson also has some empirical work on this, where it raised the costs of doing business. And so it hurt AI-based companies and it has hurt smaller companies. And this is perhaps not surprising.

We see this in other areas of regulation in the United States, Sarbanes-Oxley definitely made it more expensive for companies to comply. And many smaller companies simply left the US Stock Exchanges and were no longer public.

So, that said, do we see regulation beyond, let’s say, privacy?

Yes, if you’re a FinTech platform, you very much care about financial regulation. If you’re a healthcare platform, you have healthcare regulation, where sometimes the health privacy issues are distinct from traditional privacy. But then there’s, let’s say, overlap or gaps like in the United States healthcare of sort of traditional regulated health data would be for example, what the doctor had. That’s very different than say data that you might get from your cell phone, that’s commercial health data. And so it’s different regimes.

So the reason I mention this is because we already in a world of regulation, the question is how much regulation comes specifically into the competition side, as opposed to being in these other related areas. And I think that this is a concern that we’ve seen across countries, for example, listening to what we heard about Japan. So, there’s a digital headquarters, it’s very interesting that the digital headquarters does not include the financial side because financial data and financial platforms also matter.

And yet they’re not part of the digital headquarters. And I can literally go jurisdiction by jurisdiction and show that either there are gaps or there’s overlap of regulation with competition. And it’s not really thought out as Renato put it in a very nice well-structured way that you talked about in the global context, I can even say in any one country, it’s not globally thought out across the different areas of regulation.

So I think this is the other area where it is simply a work-in-progress everywhere. And I would implore competition authorities to think very hard about how other parts of government regulation, and what the competitive impacts are. And also think about how to create pro-competitive regulation based on, as Renato said, certain guiding principles, I think that’s right.

There are certain principles we want to see with regulation. I’d start with one, I have probably five or six, but one would be proportionality, make sure that the regulation is actually tailored for what it is you’re trying to solve and not more.

 

PAPA:

Thank you, Danny.

Okay, so, hearing those views from EU and the US experience, I now go back to our South Korean colleagues and ask he same question, would self-regulation work in South Korea?

 

HONG:

Yeah, yeah.

I will speak first and then Professor Lim will have to cover what I may miss.

Surely in Korea, I think online platforms engage in business model-based competition. So, every online platform competes against each other with their own creative business model. So, for that business model, they need some room for creating a new contract relationship. But if the government imposes some essential contract condition on online platform, then they have to obey such contract obligations. And then their contract terms become very standardized.

So, I think that means the end of competition, and end of diversity, and end of innovation of business models. And in that regard, I think this kind of strict regulation is only beneficial for established online platforms. And that could be harder for new online platforms or start-ups. So, I think, against the government’s intention, this kind of introduction of new regulation would actually harm competition in the market for various kinds of online platforms.

 

PAPA:

You share the same thoughts, Yong?

 

LIM:

To build on all the good points that my colleague has pointed out, I think when it comes to South Korea, there are aspects that may be debilitating to self-regulation and also aspects that make self-regulation perhaps more promising than other jurisdictions.

The big issue is trust.

For self-regulation to really work well, there has to be a certain level of trust, and that trust has to be earned. And I think at this time, many around the world will point out that there isn’t sufficient trust in these platforms right now. So I think that will also be a debilitating factor in Korea because you have constant news coming out about certain problems, data breaches, et cetera.

At the same time, there’s a long tradition of quasi-regulation or quasi-government intervention in the market that doesn’t rise to the level of regulation, but in fact, enforces certain government policy objectives through so-called cooperation with the industry. It’s called, sahng-sang (상생, 相生) and literally it means “living together” in Korea.

I think a very extreme version can be observed in the Chinese tech market, where you have regulators promulgating certain things, and then Chinese platform seemingly self-censoring or retreating to comply with the government’s wishes.

Korea is not that extreme, but there is a long tradition of such actions complimenting regulation. I would like to point out that there is a tendency to view self-regulation as a substitute of regulation. As in a trade-off, where one draws a line saying we will have self-regulation up to this point, and then begin regulation from this point on.

I agree with Danny that a more complementary approach would probably be preferable – having layers of self-regulation or regulation over each other and experimenting with that approach because there’s a lack of trust. Having that regulatory overlay can provide or garner trust in the market. At the same time, you have self-regulation where you allow companies to come up with better ideas so that you avoid the outcome that Professor Hong pointed out where you have regulation or government initiatives making the market stale and debilitating competition. Approaching it in such a manner may be more promising.

I think an example that requires more study is what happened in Australia – the News Media Bargaining Code. The implicated platforms tried to make deals with news outlets to avoid being designated by the regulator. Now is that an ideal model? We’ll have to see, and more experimentation is needed as Renato and Danny pointed out, but I think it’s better at this time, at least to approach it in a more complementary way where you have both self-regulation and regulation coming together to achieve an optimal outcome.

 

PAPA:

Thank you, Yong.

And lastly, on this point, so Tatsuya, as Yong sort of described, I think that the Japanese approach has something to contribute to this issue.

Tatsuya, would you like to expound on that?

 

TSUNODA:

Yes.

Thank you.

As I pointed out, the Japanese Transparency Act respects the self-regulation of the digital platform as much as possible. But on the other hand, the Transparency Act, tries to provide incentives so that digital platforms comply with the Transparency Act.

For example, if there is a serious violation of the Transparency Act, it may mean that the Japan FTC may intervene in such a violation and may initiate an investigation followed by the enforcement of the Anti-monopoly Act.

And also, the Transparency Act requires these digital platforms to submit an annual report, and the Ministry of the Economic Trade and Industry will evaluate the annual report. And providing that the performance of the digital platforms is sufficient to comply with the Transparency Act, they will publish the results of the assessment. And that could affect the trust that people have in the digital platform. If the digital platform does not fully comply with the Transparency Act, we can see the results of the assessment provided by governmental authorities. And the public may quit using such digital platforms. On one hand, the Transparency Act respects self-regulation. But on the other hand, we have tried to establish measures to provide incentives for digital platforms to comply with the Transparency Act.

 

PAPA:

Thank you, Tatsuya.

From all of the points that you’ve raised, what I can probably summarize is that we can see that it is unlikely that any jurisdictions that we have discussed today would resort to pure self-regulation, and that much of the discussion is still a work in progress.

But what we can see already is that there might be a way forward through finding a middle ground. This means a mixture of self-regulation and regulation, which sets standards for these online platforms.

With that, I would like to invite everyone to share their closing arguments. What, in one minute, would  be your final proposal for South Korea’s regulatory changes moving forward? Perhaps I can start with Renato?

 

NAZZINI:

Thank you very much.

I mean, it’s a bit presumptuous for me to say what the solution for South Korea should be, but I really liked very much what professor Lim said about living together as a form of regulation. I think we have to live together with large digital platforms, all stakeholders, consumers, of course, but also businesses that use the platforms.

In advertising, publishers and advertisers are sellers, suppliers of services in goods and the general public and the regulators and competition authorities must be comfortable that nothing that is happening in these very complex ecosystems is harming the economy or harming any constituents in a way that offends the public interest.

So perhaps again, as my colleagues in Korea, professor Hong, and professor Lim said, some optimal combination of light touch principles. I shouldn’t say light touch because the populists have done so, but of course them, not me. They wouldn’t like that light touch, but principles-based, objectives-based regulation and then the self-regulation, but enforced and understood in a regulatory dialogue, I think that would be the best way forward.

And I think South Korea if it went that way, it would have actually a competitive edge against, frankly, systems of jurisdictions, like the EU, that are going down a route, which is much more towards heavy-handed regulation, which could harm innovation and competition in the long run.

 

PAPA:

Danny?

 

SOKOL:

So I agree with Renato that these are very complex issues, and looking from the outside, it’s a bit daunting, but I’ll give first an institutionalist answer and then some final thoughts.

So as best I can tell, in Korea, the order seems to be reversed. The government and the KFTC first are introducing draft legislation, then conducting investigations. And only after all of that, only then are they commissioning third-party expert reports.

I think that’s the reverse of how it should be.

First, you do the expert reports. Figure out, is there a problem?  Then conduct investigation to see; is there something to the reports. Only after you think that there may be some limit to traditional investigations only then, if you believe in, say, market-based principles, only then do you introduce some kind of regulation.

So as best as I understand the situation, then I would reverse the current order. What I see at present is an attempt to regulate before establishing (that) concerns cannot be resolved through investigations, through specific corrective conduct, and without obtaining a deeper understanding around the issues including from academics, industry participants, and other stakeholders. I think maybe the way to do it is really figure out what’s the problem? And until you figure out what the problem is, legislation is premature, and indeed investigation is premature.

I’m not saying that there are no problems, what I’m saying is that the order probably, in my mind, would be the reverse of exactly what’s happening at the moment because that way you don’t create all kinds of additional problems that may have very unanticipated consequences that may hurt Korean innovation.

And frankly, Korea’s ability to compete globally is at exactly a time where, frankly, Korea needs as many friends around the world as possible.

 

PAPA:

Thank you, Danny.

Tatsuya?

 

TSUNODA:

Yes.

I believe that transparency and fairness in the process of enactment and enforcement of the new regulatory framework in the digital platform is also important to effectively work such new regulations. Even for the Transparency Act, there’s no mean to ask for judgment from a court, if the government authority publishes its results of the assessment of the annual report, so it is very important to ensure that transparency and fairness, as well as predictability of the regulatory framework in rapidly changing sectors.

That is a problem for Japan also.

 

PAPA:

Thank you, Tatsuya.

And now, to react to these thoughts, Yong and Dae-sik, I’ll leave you two to close. So first, your reactions to these points raised by Renato and Danny and Tatsuya and then your own suggestion as to how South Korea is moving forward with this.

 

HONG:

Yes, actually, I think Korean local online platform companies have been doing well, and I think the Korean government has too much control over their business. So actually the Korean Fair Trade Commission, the Korean Commission Authority, is very aggressive and very proactive introducing new legislation and new policy development in the EU, Japan, and the US. But I think they need to understand how different the Korean market is and Korean businesses are. If they just introduce legislation and institution from around the world, such new instruments would end up just targeting Korean businesses, while ignoring foreign businesses. So it could bring about some counter measures. So I hope the Korean government has some patience waiting for businesses to self-correct their current failures.

That’s my opinion.

 

LIM:

Because my colleagues have all made excellent points, I have to say that I agree with Renato when he talked about the inevitable requirement for regulators to consider all stakeholder interests.

There has to be a holistic approach. There can’t be certain interests overriding others now. It’s just too complicated a picture, too many interests. And I think that’s a very important point.

Again, like Danny said, there has to be a more nuanced approach. You have to have a more studied approach. I agree with Danny that this doesn’t mean that inaction is the answer, but we want smart and good action. To add a cautionary point, we’ve heard regulators or sponsors of various bills stressing the point that a particular bill or regulation only targets certain companies. “The scope is limited.” Even in Korea, the KFTC stated that its proposed online platform law “only targets 50 or so companies.”

What I want to point out is that targeted regulation against big tech companies will inevitably have ripple effects – these will be market-wide, and can and will increase rival costs and entry barriers, particularly for startups. Regulations that require interoperability, data portability, privacy, data security, secondary liability for e-commerce platforms, et cetera, will inevitably shift and adjust consumer expectations. Despite the belief that because the scope of this law is limited or we are only targeting this or that company, that may not actually be true. So, I think you have to be cautious. This doesn’t mean that even narrower laws are necessary or that inaction is the answer. But I believe that we must consider such ripple effects, and consider the cumulative effects of overlapping regulation by overlapping agencies, because in digital markets traditional barriers are being brought down and firms in adjacent markets are now competing with one another.

So all of this points to the need to study markets, to be vigilant, and to actually have dialogues like this between different jurisdictions because one can’t experiment with everything. Perhaps the EU, UK, and Germany can experiment with one approach, and we’ll have the Facebooks of the world experiment with self-regulation, and perhaps we can all learn from each other. I think that will be a very important going forward.

 

PAPA:

Thanks, Yong, I think that’s a very good point. So this is actually an opportunity to learn through each other’s experiences.

And if I’m going to summarize your final arguments, I would say that, number one, we all agree that there should be a holistic approach. So we are not only talking about competition authorities, that we are not only talking about the sector regulators that we have. We should also study their overlaps, the different ways that these laws and regulations can conflict with each other and the costs to businesses that these entail.

I also note the emphasis on a nuanced approach. So as Danny and Dae pointed out that the legislation to be adopted eventually should be based on studies and reports before we finally agree on the text that we will adopt.

And lastly, on the point of Tatsuya, that eventually, this all boils down to trust and transparency and how these different approaches can develop this, and also predictability of the regulations for the online platforms.

So I think this is the perfect way to close this discussion. And at this point, I would like to thank our panel members.

Yong, Dae, Danny, Tatsuya, and Renato, thank you for your time today. We would also like to thank the organizers of the event and, of course, our viewers.

So clearly, the discussion is not yet over. It’s still very much in the process of being debated in all jurisdictions that we have today, but we are happy that you are a part of this conversation. And maybe my wish as a moderator is that we continue these discussions and learn from each other, as Yong pointed out.

So that’s it.

Thank you, and have a good day, everyone.

 

NAZZINI:

Thank you.

Goodbye.

 

LIM:

Thank you.

 

SOKOL:

Thank you.

Bye.