On Aug. 31, 2021, the Korean National Assembly passed a bill amending the Telecommunications Business Act (the “Amendment”). The bill, once signed into law and promulgated by President Moon as expected imminently, will enter into effect immediately as provided for under the bill itself. The Amendment will likely prevent app markets from, among others, requiring the use of a specific payment processing system such as an app market’s own in-app payment (“IAP”) solution. The Amendment also imposes on app markets an obligation to protect users’ rights and interests. Lastly, the Amendment authorizes the Korea Communication Commission (“KCC”) and the Minister of Science and ICT to conduct a market status investigation into app market services offered by app market operators.

The bill is the product of the integration, and substantial revision, of six prior legislative proposals. In the revision process, two proposed provisions were omitted in response to concern raised by the Korea Fair Trade Commission that they would result in regulatory overlaps with the Korean antitrust statute. Under the omitted provisions, app markets were to be prohibited from imposing restrictions on the listing of apps on competing app stores and from engaging in other types of unfair discriminatory conduct.

1. Key Provisions of the Amendment

A. Conduct Prohibited of App Market Businesses (Articles 50(1)(9) through 50(1)(11))

The Amendment introduces provisions prohibiting an “app market business” from engaging in the following types of conduct.)

  • Article 50(1)(9): In mediating a transaction for, among others, mobile content, conduct whereby an app market business unfairly uses its bargaining position to require the use of a specific payment processing method for a business providing, among others, mobile content
  • Article 50(1)(10): Conduct whereby an app market business unfairly delays the review of, among others, mobile content
  • Article 50(1)(11): Conduct whereby an app market business unfairly deletes, among others, mobile content from the app market

The most significant of the three provisions, and most controversial before the bill’s passage, is subparagraph 9, which is expected to prevent app market operators from requiring the use of a specific payment processing system such as an app market operator’s own IAP processing solution. However, subparagraphs 10 and 11 are also noteworthy because they will serve to protect the interest of app developers/distributors in promoting their apps on app markets. For any violation of one or more of the new provisions, the KCC will be authorized to impose on the offending app market operator (i) a remedial order to cease and desist and/or to modify applicable agreements, and/or (ii) an administrative fine not exceeding 3% of the relevant sales.

B. New Obligations of App Market Operators Vis-à-Vis Users (Article 22-9(1))

The Amendment also imposes on app market operators a new obligation, namely to protect users’ rights and interests. As part of this obligation, app market operators will be required to specify in their user agreements the terms and conditions governing payments and refunds for mobile content (Article 22-9(1)). A failure to carry out this obligation will be subject to a remedial order issued by the KCC or the Minister of Science and ICT (Article 92(1)(1)).

C. Market Status Investigation by the KCC or the Minister of Science and ICT (Article 22-9(2))

The Amendment authorizes the KCC and the Minister of Science and ICT to conduct a market status investigation into app market services offered by app market operators, if deemed necessary to protect content providers and others (Article 22-9(2)). This provision will enter into effect six months after the promulgation date of the Amendment (as also provided for under the bill), and more specific provisions governing market status investigations are expected to be prescribed by an amendment to the Enforcement Decree of the Act. Thus, in case of a market status investigation conducted pursuant to the amended Act, app market operators will likely face a greater regulatory burden.

2. Implications

The Amendment will become the very first statute, worldwide, to regulate IAP and other related practices of global app market operators including Google and Apple. This development is particularly noteworthy because in recent months there have been various efforts, legislative and otherwise, to address the same issues in other jurisdictions including the U.S. and the EU. Against this backdrop, the Amendment can be expected to provide some guidance and insight for legislatures and regulatory agencies around the world.

Within Korea, the Amendment will expose app market operators to much greater regulatory scrutiny. Given the provisions of the Amendment and the public support for it, app market operators would face the prospects of a prompt and vigorous investigation if they maintain their current business practices, policies, and agreements in regard to payment processing. Hence, the Amendment will likely restore to app developers and content providers the freedom to choose the payment processing solution most appropriate for their apps, content, and business practices.

Like any new piece of legislation, however, the provisions introduced by the Amendment carry a few ambiguities. In particular, the term “among others, mobile content,” which is a key element of the new provisions, is not defined. Thus, it remains to be seen whether and to what extent the KCC, the primary enforcer of the Act, will apply that term in practice to regulate app market conduct concerning products and services other than mobile content.