Coupang fined $102 million for alleged manipulation of search algorithm

Coupang Inc., South Korea's largest e-commerce platform, was fined 140 billion won ($102 million) on Thursday for allegedly manipulating search algorithms to place private brands and products it sold directly to the top of search rankings, the country's antitrust agency. said.

The Korea Fair Trade Commission (KFTC) also issued corrective orders regarding the allegation. She will report the online retailer and its subsidiary CPLB in charge of managing private brands to prosecutors for investigation.

In an immediate response, Coupang filed an injunction against the decision, which it said went against trends in digitalization and innovation.

The company argued that it was unprecedented in the world to raise issues regarding product presentation and impose a fine worth more than half of the combined penalty imposed on the country's top 500 companies in 2023.

The KFTC alleged that on Coupang's platform, at least 64,250 private brands and products it sold directly appeared continuously at the top of search results between February 2019 and July 2023 due to manipulation of its search algorithm and its search ranking adjustment.

Given the significant impact of search rankings on consumers' purchasing decisions, the alleged activities hindered competition and rational consumer choices, while distorting the allocation of resources, it added.

“Coupang has a dual status as a sales platform and seller of its own products,” the KFTC said in a statement. “Due to its dual status, a conflict of interest may arise in the sale of its own products and in the sale of its suppliers' products.”

Private brands and products sold directly by Coupang represent approximately 70% of Coupang's sales at the end of 2022, compared to approximately 60% at the end of 2019.

Some 210,000 sellers have displayed branded products on Coupang's platform.

Coupang, listed on the New York Stock Exchange, controls about one-third of the domestic e-commerce market with 31.11 million monthly active users as of May this year.

EMPLOYEE PRODUCT RATINGS

Coupang employees were found to have written positive reviews on private brands and products it sourced directly from manufacturers between February 2019 and July 2023, according to the government agency. They also reportedly gave them high marks.

The KFTC said 2,297 Coupang managers and employees posted 72,614 reviews of at least 7,342 products on the platform.

Sales of products with positive feedback and high ratings from Coupang employees increased, while other products experienced a decline in sales.

Following the antitrust ruling, Coupang canceled a groundbreaking ceremony scheduled for June 20 for the construction of a new distribution center in Busan, South Korea's second-largest city.

The construction is part of its 3 trillion won logistics investment plan announced in March this year to expand its Rocket Delivery service across the country.

The online shopping mall operator said it would reset its facility investment plan to square one, which could include stopping Rocket Delivery or next day delivery service.

“It would be difficult to continue providing Rocket Delivery services if we cannot freely recommend and sell private label products and those we purchase directly, given their high inventory levels,” he said in a press release.

Some industry observers see Coupang's strong protests against the KFTC's decision as aimed at gaining the upper hand in legal disputes with the commission.

Write to Yeong-Hyo Jeong and Jae-Kwang Ahn at [email protected]
Yeonhee Kim edited this article