Line’s user databases were housed on cloud servers operated by Naver, and Japanese regulators have argued that the hack underscored cybersecurity risks from the South Korean firm’s oversight role. (Image courtesy of NHN)
SEOUL, April 25 (Korea Bizwire) – A major Japanese internet company partly owned by Naver, South Korea’s biggest web portal, is facing pressure from Tokyo to strip the Korean tech firm of its controlling stake after a data breach last year, an extraordinarily aggressive move that threatens to upend a rare alliance between corporate giants from the two neighboring countries.
Line Yahoo, a mobile messaging and web services company jointly owned by Naver and SoftBank of Japan, has been told by the Japanese government to reconsider its capital ties with Naver in the wake of a cyberattack in November that exposed personal data of some 510,000 users, according to local news reports.
Line’s user databases were housed on cloud servers operated by Naver, and Japanese regulators have argued that the hack underscored cybersecurity risks from the South Korean firm’s oversight role. Officials want SoftBank to increase its 50 percent stake in a holding company that controls Line Yahoo.
The situation has raised alarms in South Korea that Japan is using national security justifications to force out a major Korean tech company from a leading platform serving Japanese consumers, in a manner reminiscent of recent U.S. efforts to ban the Chinese app TikTok over data concerns.
While the United States and China are strategic rivals, South Korea and Japan remain friendly, despite a complicated history and conflicting diplomatic interests, making Tokyo’s interventionist stance against Naver highly unorthodox, analysts say.
President Yoon Suk Yeol’s administration has prioritized improving ties with Japan as the two countries, along with the United States, seek to counter an increasingly assertive China.
Line Yahoo was formed in 2021 by merging Naver’s Line messaging app, one of the most popular in Japan with over 96 million users, and Yahoo’s internet services operated by SoftBank. The companies agreed to an unusual joint management structure, with Naver and SoftBank each holding a 50 percent stake in the holding firm.
But after the data breach, Japan’s telecommunications ministry issued an administrative guidance in March instructing Line Yahoo to reduce its reliance on Naver’s systems. It has requested SoftBank take more “capital involvement” in Line Yahoo by July 1, effectively pressing it to purchase the Korean company’s stake.
Naver Corp.’s headquarters in Seongnam, just southeast of Seoul (Image courtesy of Yonhap)
While administrative guidance lacks legal force in Japan, companies almost never defy such directives from powerful bureaucracies. Naver is weighing options like bolstering cybersecurity but is resistant to the idea of an enforced sale, according to people with knowledge of the situation.
“For an allied country to pressure the stake of a partner’s company is highly unusual,” said one tech executive in South Korea, who spoke on condition of anonymity to discuss a sensitive situation. “It sends the message that they cannot fully trust that country’s companies.”
Naver representatives had no immediate comment. Japan’s telecommunications ministry did not respond to a request for comment.
Naver’s predicament underscores how national security concerns over data have increasingly embroiled the tech sector in geopolitical frictions. But this rift cuts against the regional cooperation advocated by U.S. allies like South Korea and Japan as they align to counter threats from rivals like China and North Korea.
While data breaches have prompted governments to levy fines or demand security upgrades, experts said they could not recall precedents of a country strong-arming a foreign partner company to sell its ownership stake in a domestic platform over such an incident, especially one involving fellow allies.
“Unless Naver was engaged in clear misuse of user data, which there’s no evidence of, this seems like an overly heavy-handed response that could disrupt economic cooperation between the two countries,” said Kazuto Suzuki, a professor of science and technology policy at the University of Tokyo.
Kevin Lee (kevinlee@koreabizwire.com)
