On September 14, 2021, the Korea Fair Trade Commission (the “KFTC”) issued a corrective order and a fine against Google for forcing mobile device manufacturers such as Samsung Electronics to sign anti-fragmentation agreements (“AFA”), which prevented the manufacturers from installing a modified operating system (“OS”) called “Fork OS,” a variant of Google’s Android OS.
We focus on the KFTC’s decision in greater detail below.
A. KFTC’s Decision According to the KFTC’s press release, Google forced device manufacturers to enter into the AFA as a condition for also entering into the Google Play Store License Agreement and Android OS Pre-Access Rights Agreement, which are necessary for the use of apps on mobile devices and development of high-end devices. However, the AFA prohibited the device manufacturers from not only installing Fork OS onto their newly released devices, but also from developing their own Fork OS or distributing software development kits, which are necessary for app developers to create apps that function on specific types of OS, to any partners or third parties. Such prohibition essentially prevented the development of Fork OS or devices installed with Fork OS, and even apps compatible with Fork OS.
Since Fork OS would have served as a competitor to Google’s Android OS, the KFTC viewed that Google was able to strengthen its position in the market by prohibiting the use and development of competing products. Competitors such as Amazon or Alibaba could not successfully enter the mobile OS market because even when they have successfully developed Fork OS, they were unable to find device manufacturers that were able to install their Fork OS due to the restriction in the AFA.
The KFTC also referred to market statistics in demonstrating the anticompetitive effects of the foregoing prohibitions. By 2019, the collective market share of major device manufacturers using Android OS in the global mobile device market amounted to 87%. As the number of device manufacturers under the AFA with Google increased, the means to release devices with Fork OS by Google’s competitors became less available, which resulted in the foreclosure of Fork OS’s entry into the market, according to the KFTC. Google’s position in the mobile OS market indeed gradually increased in the past decade, from 38% in 2010 to 97.7% in 2019, with a market share in the mobile app market of 95% to 99% between 2012 and 2019.
B. Sanctions Based on the foregoing, the KFTC issued the following corrective orders against Google:
(i) to stop forcing device manufacturers to enter into the AFA in connection with Google Play Store License Agreement and Android OS Pre-Access Rights Agreement; and (ii) to notify device manufacturers of the KFTC’s sanction, amend the existing AFA to reflect the corrective order, and report the amendments to the KFTC.
The KFTC specified that the above corrective orders apply to all AFAs entered into with not only the Korean manufacturers, but also foreign companies that manufacture, distribute, or sell devices that enter the Korean market.
The KFTC also imposed a fine in the amount of KRW 207.4 billion (approximately USD 177 million). Although the amount of fine remains subject to change depending on the relevant sales figures to be confirmed at a later point, this is the second-largest fine the KFTC has ever imposed, following its decision in 2016 to impose a KRW 1.03 trillion fine against Qualcomm (later adjusted to KRW 224.5 billion through appeals) for its abuse of market dominance.
C. Significance The KFTC noted that this decision would serve to restore competition in the mobile OS market. It further expressed its intention to enforce competition laws against any platform business that carries out anticompetitive conducts to maintain or reinforce its market dominance, whether the business is Korean or foreign, without discrimination. The KFTC currently has three additional pending cases against Google for (i) prohibiting app developers from launching their apps on competing app markets, (ii) forcing app developers to use its payment system and charging 30% as commission for in-app purchases, and (iii) forcing unfair terms in selling advertisements to app developers. Companies involved in the mobile OS or app businesses are advised to review their contractual status and compliance matters, and seek further legal advice as necessary.