[Free Speech Forum] Is Apple Really Unfair?

The Korea Fair Trade Commission recently ordered Apple to undertake voluntary corrective measures. The reason was that Apple had allegedly engaged in “gapjil”—abuse of power—by forcing mobile carriers to bear advertising costs and shifting free repair costs onto them. Apple must now not only cover advertising expenses itself, but also invest KRW 100 billion to promote coexistence with small and medium-sized businesses. The telecommunications industry has responded positively to this ruling. However, some argue that the Korea Fair Trade Commission’s sanctions against Apple are themselves unfair. So who is right?

To answer that question, we must first consider the meaning of “gapjil.” “Gapjil” refers to unfair conduct in which the party in a superior position of power forces unjust demands on the weaker party in a legal or contractual relationship, and it occurs mainly in employment relationships where there is a clear hierarchy. But Apple and the mobile carriers are not in an employment relationship; they are in a contractual relationship between a manufacturer and distributors cooperating for mutual benefit. Therefore, Apple’s decision not to pay advertising costs was not a unilateral imposition by Apple alone, but one made with the carriers’ consent. It is difficult to regard this as one-sided “gapjil.”

Moreover, it is hard to argue that Apple abused a dominant position, given its low domestic market share. According to Counterpoint Research, Apple accounted for 20% of South Korea’s smartphone market last year, only one-third the level of market leader Samsung Electronics at 60%. If LG Electronics withdraws from the smartphone business, the market share gap is expected to widen even further.

What makes Apple look like the “superior party” is its strong bargaining power. As its brand value rises and more consumers want iPhones, Apple is able to secure more favorable terms in negotiations with carriers. But Apple’s bargaining power was formed through natural market order and competition; it cannot simply be dismissed as unfairly acquired power. That said, from the carriers’ perspective, the iPhone has a strong effect in attracting subscribers, and there is also the precedent of exclusive supply to KT, so it is true that they have accepted many of Apple’s demands. Even so, a third party should not impose standards of “equality” or “fairness” on a conclusion reached through agreement between Apple and the carriers. From this perspective, there is room to question whether intervention by the Korea Fair Trade Commission was really necessary.

In Japan, where carriers have much stronger bargaining power than manufacturers, the exact opposite pattern sometimes appears. In particular, NTT Docomo, which holds the number one market share, has such strong bargaining power over manufacturers that it conceals the manufacturers’ names and assigns new product names of its own. Even in its relationship with Apple, Docomo did not yield easily. Because it was dissatisfied with Apple’s terms, it did not sell the iPhone until 2011. The reason Docomo was able to refuse a contract with Apple for more than three years was that its bargaining power was that strong—not because it engaged in “gapjil.” Likewise, the fact that Apple’s demands were eventually accepted was also Docomo’s choice, not Apple’s “gapjil.”

If negotiations are conducted between parties acting of their own free will, outside intervention should be excluded. The Korea Fair Trade Commission’s decision against Apple not only suppresses free corporate activity, but is itself unfair. The Commission should properly distinguish between negotiations that merely look like “gapjil” because one side clearly has the upper hand, and genuine abuse of power. The fact that South Korea’s three major telecommunications companies—SKT, KT, and LG U+—accepted Apple’s demands in order to secure more profit amid fierce competition with one another is a natural result of competition and is difficult to view as “gapjil.”

Contracts formed through free negotiation between companies should be viewed from a practical perspective rather than a moral one. Even if a contract appears unfair at first glance, if both sides agreed to it in order to pursue their respective interests, it is part of fair economic activity. Therefore, the Korea Fair Trade Commission’s order of voluntary corrective measures regarding Apple’s “abuse of trading position” is, in fact, unfair in some respects. The saying that “with great power comes great responsibility” also cannot be applied to contracts between companies, which are governed by bargaining power. At the negotiating table, freedom of contract must be guaranteed regardless of the relative strength of the parties.

Minsun Cho, Intern Researcher, Center for Free Enterprise (CFE)

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Original title: [자유발언대] 애플은 과연 불공정한가?

Author: Min-seon Jo

Date: 2021-03-18

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&pn=12&idx=23574