Korea Update: Legislative Notice for the Amendment of the Act on Consumer Protection in Electronic Commerce

On March 5, the Korea Fair Trade Commission (the “KFTC”) announced the amendment to the Act on Consumer Protection in Electronic Commerce. (the “Electronic Commerce Act”, or the “E-Commerce Act”) (the “Amendment”). Through the Amendment, the KFTC is looking to (i) reform the current regulatory system to better reflect the recent changes to the market resulting from, among other factors, the accelerated development of the digital economy / “untact” transactions, and to (ii) effectively prevent and remedy damages incurred by consumers making every day online transactions.

Key Provisions of the Amendment

Through the Amendment, KFTC seeks to (i) strengthen the responsibilities and obligations of platform business operators, (ii) expand the available measures to prevent consumers from being harmed during their engagement with new types of platform-based transactions, (iii) facilitate and ease the requirements with respect to the utilization of temporary suspension orders, (iv) introduce new measures such as the consent resolution system, (v) provide for extraterritoriality of the Electronic Commerce Act, and (vi) require the designation of a local representative for foreign entities without a physical presence in Korea.

Amendment to the Classification of “Electronic Commerce Business Operators”

The current E-Commerce Act classifies “electronic commerce business operators” (“Electronic Business Operator”) into 10 different types of business operators. Under the Amendment, Electronic Business Operators are reclassified into the following three categories: (i) “Online Platform Business Operators” (“Platform Operators”), (ii) “Online Platform User Businesses” (“Platform Sellers”), and (iii) “Businesses Operating its Own Websites”.

Stop Online Distribution of Dangerous Goods

Under the Amendment, an Electronic Business Operator is required to cooperate with a recall ordered by government agencies pursuant to relevant regulations. In addition, if an Electronic Business Operator meets certain size thresholds, the Amendment enables different government authorities to directly issue orders to the Electronic Business Operator to implement necessary technical measures to effect the recall.

Transparency of Information

The Amendment requires an Electronic Business Operator to provide (i) separate and distinct set of information about search results and advertisements, and (ii) information on key criteria for determining search and/or exposure rankings. An Electronic Business Operator is further required to disclose information in connection with the collection and/or processing of consumer reviews.

Disclosure Requirements with Respect to Personalized Advertisements

Under the Amendment, if an Electronic Business Operator runs advertisements which target individual consumers in consideration of each consumer’s preferences, ages, consumption patterns, and other factors (“Personalized Ads”), such Electronic Business Operator must (i) identify such Personalized Ads (i.e., notify consumers that the ads they are viewing are Personalized Ads), and (ii) give consumers the option to decline such Personalized Ads.

Disclosure Requirements with Respect to Platform Operators

Platform Operators that engage in both direct sale of goods and intermediate sale of goods are required to distinguish (and provide notice of such distinction) between directly sold goods and goods sold through intermediary transactions so as not to mislead consumers regarding the identity of the seller. The Amendment also requires Platform Operators to indicate the tasks that they perform throughout the transaction process (the “Platform Operator’s Tasks”) (i.e., receiving applications for subscription, taking payment, settling accounts, processing and providing refunds, and shipping products).

Heightened Responsibilities of Platform Operators

Under the Amendment, if a Platform Operator (i) caused a consumer to misunderstand that the Platform Operator is a “party to the transaction” (e.g., failure to provide relevant legal notices, failure to provide accurate information about the Platform Sellers, executing advertising or supply agreements in the Platform Operator’s name, etc.), or (ii) harmed a consumer, either negligently or intentionally, whilst completing the Platform Operator’s Tasks, the Platform Operator will be jointly liable with the relevant Platform Seller. The Platform Operator will bear the burden of proving that it did not act intentionally or negligently.

Consumer Protection in C2C Transactions

A C2C platform operator is required to provide the individual sellers’ name, address and contact information in case of a dispute between a seller and consumer. A C2C platform operator is also encouraged to utilize escrows.

Obligations of Platform Operators to Resolve Disputes and Provide Information

The Amendment provides Online Platform Operator’s obligation to take measures to resolve any disputes arising from sale and purchase through its platform.

Information exchange platform (e.g. SNS) operators will bear responsibilities similar to the obligations of an “electronic message board service” provider under the current E-Commerce Act, including the obligation to establish a system to enable consumers to file requests for relief by proxy, and to guide the Platform Sellers to comply with its obligations under the E-Commerce Act.

Online Platform Operators that intermediate transactions (e.g. open market) or provide means of connection (e.g. price comparison sites) must be more proactive, and investigate the cause of the dispute and assess the damage, in order to resolve disputes. Details will be provided in the presidential decree.

The Amendment also requires Online Platform Operators to provide identity information (such as name, address and phone number) of Platform Sellers to consumers.

Platform Operators that intermediate transactions on its platform have obligations that are similar to those of an “e-commerce brokerage” business under the current E-Commerce Act, such as the obligation to provide identity information of the Platform Sellers to the consumers.

Platform Operators that provide means of connection (e.g. price comparison sites) have obligations that are similar to those of an “electronic message board service” provider under the current E-Commerce Act in that they must provide identity information of the Platform Seller to the consumer if there is a dispute.

Easing Requirements for Temporary Suspension Orders

Under the current E-Commerce Act, there must be a “clear violation of law”, and “actual damage caused by such violation” in order for the KFTC to issue a temporary suspension order. If the Amendment passes, the KFTC will be able to issue temporary suspension orders based on a “clear suspicion of a violation of law”.

Establishment of an E-commerce Dispute Mediation Committee

A dispute mediation committee that specializes in the resolution of online consumer disputes will be newly established under the Korea Consumer Agency.

Extraterritorial Application and Designation of a Local Representative

Under the Amendment, the E-Commerce Act will apply to extraterritorial activities that affect Korean consumers. Large-scale overseas business operators that do not have a domestic address or branch office will be required to designate a local representative to handle consumer complaints and dispute resolution, and file / submit materials and information on behalf of such overseas business operator.

By Yulchon, Korea, a Transatlantic Law International Affiliated Firm. 

For further information or for any assistance please contact korea@transatlanticlaw.com 

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