FTC pressures Oracle Korea to settle unfair practices

By Kim Yoo-chul

Kim Hyung-rae, Oracle Korea CEO

Oracle Korea is being pressured to admit its alleged unfair business practices by the Korea Fair Trade Commission (KFTC).

The Korean subsidiary of the U.S.-based software company is accused of forcing Korean clients to use only its products, bundling its database management system (DBMS) product with other products and services, as well as dumping products on the market at unfair prices.

“Despite repeated denials, KFTC still believes that Oracle Korea was abusing its market power to control the sales of its products by requiring its clients to sign contracts in maintenance with selling its DBMS,” an official said. “If Oracle Korea remains cooperative and wants an early settlement of the issue, then the fine and other penalties may be reduced.”

The regulator has been investigating the company since last year over its controversial marketing strategies for the sale of its bundle packages.

If Oracle is fined, then the company may be forced to change some of its business policies and be hit with lawsuits in other markets where it operates.

For this reason, Oracle Korea hired top private law firms to defend the company, and head offices in the United States are providing legal services.

The official said Oracle Korea was “unofficially” hoping for settlements. “The main issue is to fix the terms of details of the sanction against Oracle Korea,” the official said.

The Competition Act dominance provision seeks to prevent companies that dominate a market from engaging in anti-competitive acts that harm competitors, and thereby significantly lessen competition.

DBMS is Oracle’s main revenue source, targeting public organizations and financial companies ranging from private banks to securities companies in Korea. Its local market share is about 58 percent. Last year, Oracle Korea earned 488.6 billion won in sales.

Additionally, according to officials directly familiar with the issue, Oracle Korea is also suspected of manipulating the price of its products by supplying key items significantly below the market price, a move to keep its market position by reducing competition.

“Oracle Korea recently won contracts with the country’s defense agencies by beating out its chief rivals,” another official said. “However, the company is believed to have drastically cut its bidding price to win the contracts. Despite repeated unofficial verbal warnings, Oracle Korea has continued such controversial business practices.”

The officials said such unfair business practices and the dumping of its products have handed the company a big advantage.

Oracle Korea may be fined and also restricted from using its market power to boost its share in certain products, in addition to having to continue providing software upgrade support regardless of the ruling.

Because Oracle generates profit by collecting maintenance fees from clients using its software, the sanction would pressure the company to change its maintenance policy.

The FTC’s review committee recently delayed its decision on punishing the company because the regulator needs to review “challenges” that Oracle’s legal representatives have made.

“Oracle Korea has long been asking its clients to pay fixed maintenance service fees regardless of product specialties. This is also against fair trade competition,” said a Korea Software Copyright Committee official.

The Oracle case is in line with similar moves by the local anti-trust regulator to investigate U.S.-based mobile chip titan Qualcomm, which allegedly has been abusing its dominant market position here.

Qualcomm is expected to be fined and agree to cap royalty rates and not to initiate legal disputes related to certain patents.