The Fair Trade Commission imposed a penalty surcharge of over 20 billion won on Kakao Mobility (Kamo), but the court ruled to cancel it, leading the commission to decide to appeal. Previously, Kamo faced sanctions from the commission due to allegations of manipulating its dispatch algorithm to prioritize passenger calls for its affiliated taxis.
One reason the commission is considering an appeal regarding the Kamo case is to gain a standard for judging unfair practices involving algorithms. As platform operators diversify, the commission believes obtaining another Supreme Court precedent would be significant.
According to competition authorities on the 30th, the commission is weighing the Supreme Court appeal while reviewing the judgment regarding the cancellation suit filed by Kamo for corrective orders. This follows a decision made by the 7th Administrative Division of the Seoul High Court (Chief Judge Koo Hoi-geun), which favored Kamo on the 22nd. The plenary session proceeding at the commission has the nature of a first instance as the fair trade administrative lawsuit progresses from the Seoul High Court to the Supreme Court in a second instance structure.
This appeal is partly to emphasize the legitimacy of the actions taken, but more importantly, the commission views it as an opportunity to receive judicial judgment from the Supreme Court regarding algorithms. Abuses of market dominance and discriminatory practices associated with algorithms are unfair trading practices that have recently emerged alongside platforms. Since the first penalty (against Naver) was imposed in 2020, there has been insufficient time to accumulate investigative experience compared to disruptions in market order by traditional operators.
Seeking a ruling from the Supreme Court on the standards for violations of the Fair Trade Act related to algorithms through this appeal is a decision that the commission would not regret. It could be utilized in future investigations of platform operators to reduce the legal gray area.
What the commission is questioning is Kamo's medium taxi dispatch algorithm. The commission believes that Kamo has prioritized general calls to affiliated drivers since the start of its affiliated taxi service in 2019. Assuming a passenger called for a taxi through Kakao T, with drivers located 2, 4, and 6 minutes away, Kamo prioritized dispatching to the taxi that was 6 minutes away instead of the closer 2-minute and 4-minute taxis, which the commission deemed problematic.
The commission concluded that Kamo engaged in such practices to increase the number of affiliated taxis. Additionally, the commission noted that Kamo changed its priority dispatch logic to ensure that affiliated drivers with higher acceptance rates received more dispatches compared to non-affiliated drivers and excluded short-distance calls from the dispatch to benefit the income of affiliated drivers. As a result, Kamo received a penalty surcharge of 27.1 billion won from the commission.
The high court concluded that affiliated taxis and non-affiliated taxis do not have equal status. This means that since they do not have equal status, discriminatory trading conditions do not apply. The court emphasized that affiliated taxis pay about 3-4% of their revenue as a franchise fee to Kamo and accept calls without knowing the passenger's destination. The court also judged that even if the status of affiliated and non-affiliated taxis were the same, the algorithm of Kamo did not reach a level that could definitively say there was discrimination.
Meanwhile, several administrative lawsuits against the Fair Trade Commission have also been filed in relation to algorithms beyond Kamo. In 2020, the commission sanctioned Naver for artificially manipulating its shopping algorithm to prioritize its own products, leading Naver to file a lawsuit. The high court ruled in favor of the commission, but Naver appealed, and the Supreme Court's deliberations are still ongoing.
Coupang is also undergoing a trial in the high court on similar charges. However, the Supreme Court has determined that the enforcement of the commission's corrective order should be stayed, meaning its effect is currently suspended. The proceedings regarding the size of the penalty surcharge are still ongoing.