Kakao last month won a Supreme Court ruling canceling a Fair Trade Commission penalty surcharge over allegations that it violated the Electronic Commerce Act by failing to properly inform Melon users of their right to cancel midterm. The Supreme Court said Kakao did commit an illegal act. However, it said the Fair Trade Commission had no legal basis to impose a penalty surcharge on Kakao.
Academia says the root cause, the Electronic Commerce Act, needs to be amended to address such rulings. Kakao transferred the Melon business unit to its affiliate Kakao Entertainment after the period when the problematic conduct occurred. In such cases, the Fair Trade Act allows the Fair Trade Commission to sanction Kakao Entertainment. But the Electronic Commerce Act has no such provision. As a result, the Fair Trade Commission had no choice but to sanction Kakao, only to have it canceled by the Supreme Court.
◇ Avoiding e-commerce sanctions by transferring the violating business unit to another affiliate
In Jan. last year, the Fair Trade Commission said, "Kakao did not sufficiently inform Melon subscription customers from 2017 to 2021 that they could cancel midterm." The Fair Trade Commission said this conduct constituted "luring or transacting with consumers by informing them of false facts or using deceptive methods," which is prohibited by the Electronic Commerce Act. It then imposed a 98 million won penalty surcharge and a corrective order on Kakao.
However, at the time of the sanction, Melon was being operated by Kakao Entertainment. Kakao had operated it, but in July 2021, it partitioned the Melon business unit and transferred it to Kakao Entertainment two months later. If this had been a Fair Trade Act violation, the Fair Trade Commission could have sanctioned Kakao Entertainment. That is because the Fair Trade Act allows a penalty surcharge to be imposed on a "company that survives a merger or is established by a merger."
But in this case, the Fair Trade Commission said, "The Electronic Commerce Act has no basis to sanction Kakao Entertainment." Article 34 of the Electronic Commerce Act states that "if a business operator that violated the law has merged, a penalty surcharge may be imposed on the company after the merger." When a business unit is transferred by means other than a merger, there is no way to sanction the transferee company.
In the end, the Fair Trade Commission imposed a penalty surcharge on Kakao. The Electronic Commerce Act basically calls for imposing a business suspension on corporations. However, it determined that imposing a business suspension on Kakao, which no longer operates Melon, would be ineffective. The Seoul High Court later said the Fair Trade Commission's disposition was correct in the lawsuit Kakao filed to cancel the penalty surcharge.
◇ "The law should be changed so the company that takes over the problematic business can be sanctioned"
The Supreme Court, by contrast, said the Fair Trade Commission ordered a penalty surcharge even though it could not impose one in place of a business suspension, and ordered the cancellation. The Electronic Commerce Act states that a penalty surcharge may be imposed "when it is recognized that a business suspension is likely to cause severe inconvenience to consumers, etc." The Supreme Court ruled to the effect that "the fact that the effectiveness of a business suspension has disappeared due to business partitioning is not a case likely to cause severe inconvenience to consumers, etc."
Lee Hwang, a professor at Korea University Law School, said, "At the time the Electronic Commerce Act was being drafted, there were few cases of transferring violating business units to affiliates, so such a provision was not included." He added, "Without a provision that the company newly taking over the business succeeds to the payment obligation of the corporation that must bear the penalty surcharge, similar problems will not be resolved."