The Supreme Court ruled that fines and corrective orders imposed on Naver by the Fair Trade Commission over alleged manipulation of video search algorithms to place its own video service higher in results must be cancelled.

The Seoul High Court had previously found that giving extra weight to Naver’s own video service was an unfair customer inducement and upheld the commission’s action on that point. The Supreme Court reversed that view and found neither of the two grounds was established.

According to the legal community on Nov. 30, the Supreme Court’s first division, led by Justice Seo Kyung-hwan, overturned a partial victory for Naver and returned the case to the Seoul High Court with instructions to rule in favour of Naver on all claims.

The commission said Naver overhauled its video search algorithm in August 2017, provided related information only to its own NaverTV service, and did not notify firms such as GomTV and AfreecaTV, which it viewed as competitors. It said these actions amounted to unfair distortion of search results.

It also said Naver designed the algorithm to give extra weight to videos listed in the NaverTV Theme section, placing them above other videos. It issued a corrective order in January 2021 and imposed a fine of 300,000,000 won.

In Naver’s lawsuit challenging the decision, the Seoul High Court ruled that not informing competitors of the algorithm change could not be deemed an unfair customer inducement and ordered the fine to be cancelled.

However, it upheld the view that giving extra weight to NaverTV Theme videos was an attempt to make customers wrongly believe the content was better than it actually was, and said the commission’s action was valid.

The Supreme Court rejected that reasoning as well.

The court said Naver could design a search algorithm that reflects its own value judgments and business strategy when supplying video search services. It said there was no requirement to disclose such detailed judgments or strategies to consumers or outsiders.

It said illegality arises only if the algorithm amounts to deception or misrepresentation likely to impair consumers’ rational choices or disrupt fair trade, and that giving extra weight to NaverTV Theme videos did not automatically constitute deception.

The court said Naver gave extra weight only to videos in the Theme section and that these videos underwent additional internal review before being allowed. It said giving extra weight to videos whose quality could be assured had some potential rationality or consumer benefit.

The court also said unfair customer inducement requires causing consumers to mistake a product as significantly superior to competitors’ offerings, and that this requirement was not met.

It said there was no proof that consumers viewed videos ranked higher in search results as significantly better. Naver had argued that titles, thumbnails and content were more important than ranking.

The court added that there was no evidence the weighting hindered rational video selection or viewing, or that many customers were at risk of harm.

The Supreme Court had earlier returned a separate case to the Seoul High Court in which the commission fined Naver over alleged manipulation of shopping service algorithms. It said algorithm adjustments were part of normal business activity and did not alone show an intent to restrict competition.

[Yonhap]