The Supreme Court ruled that the Fair Trade Commission's disposition imposing a penalty surcharge on Kakao Entertainment's music service "Melon" for failing to properly inform consumers about the midterm cancellation function was unjustified.
After the Fair Trade Commission's investigation, the company operating the Melon service changed from Kakao to a subsidiary, and the reason is that imposing a penalty surcharge on Kakao as is amounts to an expansive interpretation of the law.
◇ Melon did not inform users how to cancel a 1-month streaming pass midterm
The Supreme Court's Second Division (Presiding Justice Park Young-jae) on this day sent back to the Seoul High Court, with an intent to reverse and remand, the order to pay a penalty surcharge in Kakao's lawsuit to cancel the corrective order and the penalty surcharge payment order against the Fair Trade Commission. It upheld the lower court's ruling that the corrective order disposition was lawful.
Earlier, in Jan. last year, the Fair Trade Commission decided to impose a corrective order and a 98 million won penalty surcharge on Kakao. According to the commission's investigation, from May 2017 to May 2021 Kakao sold a "subscription-type music listening-only pass" on the Melon app and elsewhere, but did not sufficiently inform users that before one month had passed they could apply for "midterm cancellation," which would allow them to be refunded for the unused portion if they canceled midterm.
The subscription-type music listening-only pass automatically charged a monthly fee once a month and provided a service that allowed users to listen to music on a smartphone or PC. As of 2021, a pass that did not allow music downloads but allowed unlimited streaming cost 7,900 won. If a user listened to music for only half a month and then applied for midterm cancellation, the user could get 3,950 won back.
While operating Melon, Kakao did not provide the midterm cancellation function in the smartphone app for Melon users. Users had to log in to the PC Melon webpage to apply for midterm cancellation. The Fair Trade Commission found that Melon did not sufficiently inform users that midterm cancellation was possible by this method.
◇ Supreme Court: "Interpreted the law by analogy" in the commission's disposition
But after the Fair Trade Commission finished its investigation, the company operating Melon changed, creating an issue.
Melon was originally a service launched by mobile carrier SKT in 2004. In 2008, SKT's subsidiary Loen Entertainment took over the operating rights, and Loen was sold to Star Invest in 2013.
Kakao acquired Loen in 2016, and Loen changed its name to Kakao M in Mar. 2018. In Sept. of the same year, Kakao merged Kakao M and directly operated Melon. Then, starting in July 2021, it was spun off as the subsidiary "Melon Company," and in Sept. of the same year Kakao Entertainment acquired Melon Company.
The Fair Trade Commission determined that the violation ended before Melon Company was partitioned from Kakao, so the violator was Kakao. However, at the time the penalty surcharge was imposed, Kakao was not operating Melon, so instead of issuing a business suspension, it imposed a 98 million won penalty surcharge.
Kakao, however, filed suit, saying the imposition of a penalty surcharge was unjustified because the commission began its investigation in Jan. 2021 and completed corrective measures in July of the same year.
Fair trade cases proceed under a two-instance system at the Seoul High Court and the Supreme Court for swift adjudication. In Jan. this year, the Seoul High Court ruled against the plaintiff, finding it proper to impose the penalty surcharge on Kakao, the company before partitioning. It held that Kakao profited from violations of the Electronic Commerce Act and that, under the relevant law, a penalty surcharge can be imposed in lieu of a business suspension, so the commission's disposition was not unlawful.
But the Supreme Court sided with Kakao. Its reasoning was that applying to Kakao, which became the parent company after Melon was separated into a distinct corporation, the provision allowing a penalty surcharge when consumers suffer severe inconvenience violates the principle of the prohibition on analogical interpretation, which holds that acts not prescribed by law cannot be punished by applying another law.