May 07, 2024

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Line's official website

Experts have raised concerns over the Japanese government's action to pressure Korean portal giant Naver to cut its control of Line, the messaging app used by over 70 percent of the Japanese population, calling it an "unprecedented” case between the two countries with friendly relations.

Since last month, Japan's Ministry of Internal Affairs and Communications has directed Tokyo-based LY Corp., the operator of Line, to lower its dependency on Naver in the wake of a data breach incident.

LY Corp. is majority-owned by A Holdings, a 50-50 joint venture between Naver and SoftBank.

Pressured by the Japanese government, SoftBank is making moves to acquire Naver's stake in LY Corp. Attention is gathering on whether the management rights of Line, which Naver has grown into a global messenger over 13 years, will be seized by Japan.

Experts including business professors and lawyers saw the case as “very unprecedented” as a Korean company was being backed into a corner through another country's administrative guidance on equity matters.

The suggested that the Korean government should make diplomatic efforts to prevent the possible disputes between Korea and Japan over the issue.

LY Corp. has been ordered to submit a set of preventive measures and their implementation status by April 1 following a massive data leak of Line users in November. The Japanese government has also demanded Line to issue updates on its improvement efforts every three months for at least a year, according to the ministry.

About 510,000 pieces of personal information about users, business partners, employees and other personnel may have been leaked through Line subcontractor Naver Cloud, according to LY Corp. last month.

The company is working to prevent reoccurrences in the future through “strengthening contractor management, mitigating and fortifying protection against the risks associated with our systems and networks, and enhancing the security of our employee systems.”

Lee Seong-yeob, a professor of intellectual property strategy at Korea University's Graduate School of Management of Technology, said that Japan’s latest move shows its initiative to foster its own industries in areas where it is currently lagging behind Korea.

“If it is a data leak issue, it is enough to check if there was negligence and impose a corrective order or fine, but talking about selling stakes through administrative guidance is a separate issue. Applying pressure through administrative guidance rather lacks transparency,” the professor said.

He further urged the Korean government to take policy action against the business impact of the country's biggest IT platform, mentioning the case the US Chamber of Commerce criticized Korea's move to pass platform law in January to protect their tech giants that could be subject to regulation.

The expert also gave the recent TikTok war between the US and China as another example.

“Domestic companies have expanded their presence overseas and regulatory authorities’ major role is to protect citizens and companies. If a situation is (causing) suffering due to unfair treatment, it has to resolve the issue amicably.”

Rep. Yoon Sang-hyun of the ruling People Power Party, who served as chair of the National Assembly's Foreign Affairs and Unification Committee on Thursday, wrote a post on Facebook titled, “LY Corp. incident, Japan's excessive pressure pouring cold water on Korea-Japan industrial cooperation.”

The post continued: “This is an act that pours cold water on the relationship between the two countries, which has been pursuing industrial cooperation while sharing the values ​​of a market economy and liberal democracy.”

“Applying pressure with excessive measures that would only be applied to a company from a hostile country that misuses information can cause unnecessary misunderstandings and escalate into a diplomatic problem. ... Unless Japan is using cyber security measures as an excuse to remove the Korean company from the management of Line, which is used by more than 96 million Japanese citizens every month, the current unfair measures should be withdrawn immediately,” the post further read.

An international trade lawyer who requested anonymity also told The Korea Herald that it is very rare for a government to handle the corporate governance of a private company. Japan raising questions about a Korean company's corporate legal actions itself could become a trade issue as well.

When asked about Japan's administrative guidance as a violation of the Korea-Japan investment, however, he said that “clear basic measures” are required. “There is a high possibility that it will be a diplomatic solution and not a violation of the agreement (dispute over it),” he added.

Meanwhile, officials of Naver and Line Plus, the global arm of Japan-based LY Corp. declined to comment on the ongoing matter, including whether to shed Naver’s majority stake in LY Corp. or whether there were requests from the Japanese operator.

By Jie Ye-eun (yeeun@heraldcorp.com)
The Korea Herald