April 16, the Japanese government took action against LINE, the most popular messaging app in Japan, following a hacking incident in 2023 that compromised the data of 510,000 users. They issued unusual administrative guidance to LineYahoo, the company operating LINE in Japan, demanding a shareholder restructuring. This guidance called for Naver, the South Korean platform company, which invented and primarily services LINE in Japan, to sell their shares and relinquish control over the business management.

Naver, the South Korean company, promptly denounced the Japanese government’s intervention as unprecedented, discriminatory towards foreign companies, and damaging to the market economy. The South Korean government also pledged to safeguard their company’s rights against unjustified interventions by the Japanese government, which they viewed as an attempt to steal the Korean platform.

This ongoing dispute bears similarities to the US-China TikTok ban issue on multiple levels, highlighting the increasing number of cases where platform companies find themselves caught between concerns over national security and the principles of a free market economy.

What Is LINE?

LINE is a messaging app that was invented by Naver and launched in 2011. As Kakao Talk became the dominant messaging app in South Korea, Naver decided to focus on expanding LINE’s presence in international markets. Today, LINE boasts approximately 200 million users worldwide. In Japan, the app is used by over 96 million people, representing a significant portion of the country’s 122 million population. Additionally, LINE has become the national messaging app in Taiwan, with over 90% of the population using it, and in Thailand, where 70% of the population relies on the app for communication.

To create business synergy, LINE and Yahoo Japan, the largest search engine in Japan, merged and formed a joint venture called LineYahoo. During the merger, Naver and Softbank, the owner of Yahoo Japan, agreed to each hold a 50% stake in LineYahoo and share management rights. However, in practice, Softbank took the lead in managing LineYahoo’s business operations, while Naver focused on service maintenance, data management, and technological development.

What Are the Controversies?

Naver currently provides cybersecurity for the LINE messaging app, which has become a significant concern for Japanese policymakers, particularly regarding data security. In 2021, allegations emerged in Japan that Chinese companies subcontracted by Naver for data management might have leaked the personal information of Japanese LINE users. To address these concerns, Naver promised to establish a data storage center in Japan by the end of the same year. However, it was later revealed that Naver had concealed the fact that only text data would be stored in the new Japanese data center, while video, picture, and file data would remain stored in a data center located in South Korea. 

This concealment led to further allegations from Japanese media and right-wing policymakers, suggesting that the South Korean intelligence agency, the National Intelligence Service (NIS), might be using LINE for espionage purposes and to spy on Japanese government personnel and ordinary citizens. These concerns were amplified by related incidents in which China allegedly hacked the personal information of Taiwanese politicians and military personnel through their LINE app. Furthermore, in 2023, approximately 510,000 LINE users’ data was leaked by hackers from an unknown country. In fact, the NIS was previously involved in using Kakao Talk for domestic surveillance and spying missions in South Korea although there is currently no concrete evidence of such activities involving LINE.

Each time a hacking incident occurred involving LINE, the Japanese government issued administrative guidance to Naver, requesting reinforcement of their cybersecurity and privacy protection plan. Naver maintains that they have always complied with Japanese law and made efforts to address the Japanese government’s requests. Moreover, Naver claims that the number of hacking attempts targeting LINE is steadily decreasing due to their enhanced cybersecurity measures. However, in April, the Japanese government rejected Naver’s plan to upgrade its cybersecurity and announced that Naver’s plan was insufficient to alleviate security concerns surrounding LINE. As a result, the Japanese government asked Naver to sell their shares in LineYahoo and relinquish control over business management to Japan’s Softbank.

Japan’s unusual intervention in the private business sector has sparked controversy in South Korea, with some suggesting that Japan is attempting to steal the South Korean platform under the guise of national security concerns, as Japan aims to develop its own indigenous platform. Japan is one of the countries worldwide that has struggled to develop a robust platform industry, relying primarily on platforms from the United States and South Korea. According to South Korean analysts, this action could be a component of Japan’s broader plan to bolster its platform industry’s competitiveness and potentially even further its economic interests in Asia by leveraging LINE’s influence.

So, What Is Going to Happen?  

Naver recently announced that they will not sell their shares in LineYahoo, as demanded by the Japanese government’s administrative guidance. This decision appears feasible due to the non-binding nature of the administrative guidance and the active support from the South Korean government. However, the strained relationship with the Japanese government and Softbank is likely to make Naver’s business operations in Japan more difficult than before. Naver is already worried that the Japanese government might resort to other legal actions against LINE and exert more pressure on the company in the future.

The most probable course of action for Naver is to initiate long-term negotiations with Softbank, their business partner holding an equal share in LineYahoo, to either persuade the Japanese government or sell Naver’s stake to Softbank. Since Softbank is primarily a financial investment company, it lacks the experience and expertise needed to maintain LINE’s services and manage its data. Given that Softbank was already leading the business management of LINE in Japan in practice, even if Naver gives up their shares, from Softbank’s perspective, there is not much to gain from this conflict in terms of their relationship with their service provider. Alternatively, Naver may need to consider relinquishing their shares to Softbank while demanding higher selling prices and retaining their data management rights in LINE. 

Resembles TikTok Ban  

The current LINE issue involving Japan and South Korea shares several similarities with the TikTok controversy between the US and China. In both cases, governments have raised national security concerns about the potential misuse of user data and the risk of espionage by foreign entities due to the apps’ foreign ownership. This has led to pressure on the companies to divest or restructure their operations, with the LINE and TikTok issues emerging against the backdrop of broader geopolitical tensions and rivalries between the countries involved. The companies have had to navigate a delicate balance between complying with government demands and protecting their business interests and user bases. While there are some differences in scale and specific political contexts, the LINE issue highlights the growing importance of data governance and platform regulation in international relations, mirroring the key characteristics that have defined the TikTok controversy.

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