The Seoul High Court has overturned a fine imposed by the Fair Trade Commission (FTC) on Kakao (035720.KS), which had penalized the company for failing to properly notify users of a mid-term cancellation function for its music streaming service. The ruling followed the Supreme Court’s finding that the fine was unlawful.
The Seoul High Court’s Administrative Division 3 (presiding judge Yoon Kang-yeol) on Friday ruled in favor of Kakao in the retrial of its case against the FTC seeking to cancel corrective orders and the order to pay the fine, stating, “The order to pay the fine is canceled.”
Kakao sold subscription-based music streaming passes through its Melon and KakaoTalk apps, but failed to adequately inform consumers that they could request mid-term cancellation. Despite receiving a corrective order, Kakao subsequently repeated the same violation, creating grounds for a business suspension.
The issue arose after Kakao, following the emergence of grounds for business suspension, spun off the digital music streaming service division where the violations had occurred and established “Melon Company Inc.” Melon Company was later absorbed by Kakao Entertainment, a Kakao affiliate.
In January 2024, the FTC imposed a corrective order along with a fine of 98 million won on Kakao. Kakao filed a lawsuit challenging the decision, arguing that “the grounds for the corrective order and the order to pay the fine were transferred to the newly established spin-off company” and that “Kakao is not a legitimate target for imposition.”
The Seoul High Court sided with the FTC in January last year. The court ruled, “It is reasonable to view Kakao, as the surviving company after the split, as the target of the corrective order and fine imposition for violations of the Electronic Commerce Act prior to the company split.”
However, the Supreme Court reversed the case last November, finding the fine unlawful. Article 34, Paragraph 1 of the Electronic Commerce Act stipulates “a case where a business suspension is likely to cause severe inconvenience to consumers and others” as one of the grounds for imposing a fine in lieu of a business suspension. The FTC, by contrast, had imposed the fine on Kakao citing the reason that “a business suspension order would lack effectiveness due to the company split.”
The Supreme Court stated, “Taking the relevant provisions of the Electronic Commerce Act together, a fine in lieu of a business suspension may be imposed only in cases recognized as ‘likely to cause severe inconvenience to consumers and others.'” However, it found the corrective order lawful and upheld the lower court’s decision on that point.