In a case where the Fair Trade Commission imposed a penalty surcharge on Naver for manipulating its shopping service search algorithm by exploiting a dominant position, the Supreme Court overturned the lower court ruling that had found the surcharge lawful and remanded the case. The Supreme Court ruled that adjusting or changing an algorithm itself falls within normal business activity and, by itself, cannot be used to infer an intent to restrict competition.
According to the legal community on Oct. 17, the Supreme Court's Division 2 (presiding Justice Oh Kyung-mi) the previous day overturned the lower court and sent the case back to the Seoul High Court in the appeal of Naver's lawsuit seeking to cancel the "corrective order and penalty surcharge payment order" against the Fair Trade Commission. It came 4 years and 7 months after Naver filed suit challenging the commission's disposition.
Earlier, in Oct. 2020, the Fair Trade Commission imposed a penalty surcharge of about 26.6 billion won and issued a corrective order, saying Naver distorted market competition by adjusting the search algorithm on its comparison shopping service "Naver Shopping" to favor its own open market platform "Smart Store."
According to the commission's investigation, from February to May 2012 Naver adjusted the algorithm so that competitors' products from Gmarket, 11Street, Auction, and Interpark were pushed back in search results, and in July of the same year it took steps to guarantee an exposure ratio of 15% to 20% for its own products.
In this connection, in Dec. 2022 the Seoul High Court sided with the commission, saying, "Naver's conduct was unfair transaction using a market-dominant position." At the time, the bench determined that "given that Naver analyzed the effects of the search algorithm adjustments and formulated internal plans, there was an intent to restrict competition."
But the Supreme Court reached a different conclusion. The court held, "Adjusting or changing a search algorithm itself is part of normal business activity," and "one cannot infer an intent or purpose to restrict competition merely because a particular result occurred."
In particular, regarding the commission's selection of five instances—among dozens of Naver's algorithm adjustments—that produced results favorable to the company as grounds for the disposition, the court noted that this "risks distorting the actual intent or purpose."
The court added, "The lower court did not sufficiently examine whether Naver's increased market share resulted from the conduct at issue or from market performance or growth across the industry," and explained that "it should have comprehensively considered that during the period in question, competitors' transaction amounts in the open market sector also increased and new entrants appeared."