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As the oldest IP Law Firm in South Korea, NAM & NAM has a long history of working experiences with global clients since the day
NAM & NAM was established in 1952

2024
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Practice Notes

Repair vs. Reform: Even if the product dies, the trademark lives on

You open your closet and notice an old luxury bag with frayed edges. It's old and a bit tattered, but as it's an expensive item from a prestigious label, you haven’t been able to find it in your heart to throw it away.  However, if you can transform the old bag — that has certainly seen better days — into something new, wouldn't it be a novel idea to have a leather craftsperson turn it into a purse?  That is, so long as the artisan is not breaking the law by doing so.   Trademark law generally recognizes the right of the owner of a trademarked product, whether it be a handbag or a luxury car, to resell the item without permission from the manufacturer. Resale by the first purchaser of the original article under the manufacturer’s trademark is neither trademark infringement nor unfair competition.   Trademark rights exhaustion, often referred to as the “first sale doctrine”, is a concept whereby once a trademark owner has sold a product bearing their trademark or granted permission for its sale, they are unable to prevent downstream owners from subsequently selling or reselling the same product. However, complications arise when a trademarked product is altered or dressed up in some way before being resold, or even when the product is reformed or transformed into an entirely different product for its owner.   There was recently an interesting case in Korea dealing with this issue, which we will look at below.   Seoul Central District Court: Case 2022GaHap513476 (October 2023)   In this case, the plaintiff alleged that the defendant’s “reforming” of (genuine) goods bearing the Louis Vuitton trademark into different products constituted trademark infringement and/or an act of unfair competition. Specifically, the defendant offered a “reform” service of taking old or damaged goods and turning them into a new product — for example, taking a bag and transforming it into a different bag, or into wallets, card cases etc. The following example pictures are taken from the court decision:   Before After   The plaintiff’s claims were as follows:   The defendant’s actions constituted “use” of the plaintiff’s trademark, specifically, producing the items corresponded to “[d]isplaying a trademark on goods or packages of goods” per Article 2(2)-11(a) of the Trademark Act, and returning the reformed product to the owner of the bag corresponded to “[t]ransferring or delivering goods or packages of goods on which a trademark is displayed” per Article 2(2)-11(b) of the same Act. The defendant’s sale of “reformed” products constituted “an act of doing damage to distinctiveness or reputation attached to another person's mark” per Article 2-1(c) of the Unfair Competition Prevention and Trade Secret Protection Act.   The defendant’s rebuttals were as follows:   The trademark owner’s rights were exhausted when the bags in question were first sold to consumers. The “reformed” bags were made per individual customers’ specifications and were returned to the same customer, with no intention of selling to third parties, and thus do not fall under the exception to trademark exhaustion (i.e. “processing or repair to the extent of damaging the identity of the original product”). Thus, no new products bearing the trademark were produced. The products in question cannot be considered “goods” for the purpose of “use of a trademark” under the Trademark Act, as the products are individually received from and subsequently returned to the same customer, so are not mass produced or distributed. Further, the marks are not used “as a trademark” as the bag owner would have no confusion concerning the source of the reformed product.   While the court did not consider the unfair competition claim, it decided that the defendant’s actions were “trademark use” that infringed the plaintiff’s registered trademarks for identical/similar designated goods. In reaching this decision, several interesting points were discussed.   The court confirmed that “reforming” of the products was beyond the scope of simple processing/repair; namely, as the reforming was of an extent where the identity of the original product was damaged, it was akin to an act of production and thus the trademark owner should still be permitted to claim the effect of trademark rights. In reaching this conclusion it was not considered relevant that the “reformed” products were only produced for the owner of the original product, and were not sold to third parties.   Addressing the defendant’s rebuttals, the court decided that the products in question are able to be considered “goods” under the Trademark Act as they have inherent exchange value and are capable of being the object of independent commercial transactions. The scale of an infringer’s production capabilities were not considered relevant in protecting the source indication function of a trademark.   While acknowledging that the products in question were not intended to be sold to anyone other than the original bag owner, and thus the recipient of the reformed goods would be unlikely to mistakenly believe they were manufactured and sold by the plaintiff, the court stated that general consumers could still be confused as to the source of the goods if the reformed products are viewed by or transferred to a third party.   As a result, the defendant was ordered to cease production of “reformed” products using fabric/materials indicating the plaintiff’s trademark, and was ordered to pay compensatory damages of 15 million KRW (approx. $11,600 USD). In calculating damages, the court considered the defendant’s revenue attributed to the reformed products (23.8 million KRW, approx. $18,400 USD) but in the absence of data showing profit, and considering the lack of any evidence suggesting the reformed products were sold as used products, settled on a “reasonable amount of damages on the basis of the meaning of all pleadings and the result of the examination of evidence” per Article 110(6) of the Trademark Act.   The decision is currently on appeal to the IP High Court.   Comments   While some have criticized the decision, arguing that the exhaustion of trademark rights should apply equally to the contractor carrying out “reform” work strictly upon request of the product owner, others have welcomed the judgement as it reduces the risk of consumer confusion and damage to the trademark owner’s reputation due to the creation of products that do not meet their quality control standards. In pursuing this claim, rather than seeking a sizable damages payout it is understood that Louis Vuitton wishes to protect the strong reputation its trademark enjoys by discouraging “reforming” by private contractors.   If ultimately confirmed, this decision will be welcomed by brand owners as it would somewhat extend their ability to control use of trademarks beyond the first sale doctrine, and would likely result in a number of infringement lawsuits brought by luxury brand owners against other companies involved in similar “reform” practices.   It is possible such a decision, if confirmed, would also extend to repair/refurbishment services in other consumer sectors such as automobile tuning, upgrading of electronic devices etc. which are typically carried out for the sole benefit of the owner of the product in question, and not for sale to third parties. Further clarification on this point, hopefully with specific criteria for determining at what point processing of an item results in damage to the identity of the original product, will be necessary to avoid consumer and business confusion.   For the meantime, contractors offering aftermarket repair or refurbishment services will need to be more careful about crossing the line between “repair” and “reform” when carrying out customer’s requests.   Any further updates on this issue following the appeal will be reported when available.

2023-12-28
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Practice Notes

Korean Trademark Act revision effective from May 2024 allows for letters of consent

Following news shared earlier in the year about the likely introduction of a letter of consent system in Korea, the relevant bill passed the National Assembly in early October and the revised Trademark Act has recently been promulgated, with an effective date of May 1, 2024.   The Act also contains several other amendments of note. Please refer to the following:   Letters of consent   In response to a refusal based on citation of a senior mark, a letter of consent from the owner of the senior mark may be submitted to KIPO in order to overcome the refusal ground.   Further, the supplementary provisions to the amended Act clarify that letters of consent will be accepted even for applications filed before the effective date of the amendment, with the new rules applying at the time a decision on trademark registration is made by the examiner. In other words, from May 1, 2024 onwards a letter of consent may be submitted to overcome a refusal ground regardless of the filing date of the application.   However, an exception is that letters of consent will not be accepted when the two marks in question are identical and both marks cover identical goods/services.   A new cancellation ground applying to trademarks registered based on a letter of consent will also be available, and may be utilized in situations where anti-competitive use of the mark causes consumer confusion or deception.   Division of International Registrations   It is fairly common practice for applicants whose trademark application has been partially refused to divide out the problematic goods/services in order to register the remaining goods/services first. While such an option has been available for national applications in Korea, it has not been possible to do so for International Registrations unless the divided goods were being partially assigned to another party.   This limitation has now been removed in the amended Act, so owners of International Registrations designating South Korea will also be able to divide their applications.   Other   The amended Act will further allow for:   Extinguishment of rights following death of TM Owner: Currently, if the heir of a deceased trademark owner does not record the transfer of rights within three years of the date of death, the trademark rights expire.  The amended Act further prescribes that if there is no known heir at the time of death, the trademark rights expire immediately. Automatic recognition of priority claim for converted applications: Where an application is converted from one type to another (e.g. additional goods registration to standard application, standard application to collective mark etc.), where the original application had a valid priority claim, the same will be recognized for the converted application. (This removes the current need to make the same priority claim for the converted application.) Easier replacement of national registration with International Registration: In cases where the Korean designation of an International Registration (IR) is for a mark identical to a national registered mark, is owned by the same party as said national registered mark, and the Korean designation of the IR mark was made after the registration date of the national mark, the application date of the IR mark will be deemed to be the application date of the national registration, with respect to any goods/services that overlap with those of the national registered mark. (This removes the current need for all goods/services of the national registered mark to be included in the specification of the IR mark.)

2023-11-10
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Practice Notes

Fashion Influencer Arrested in Connection With Large-scale Counterfeit Operation Following KIPO Special Judicial Police Investigation

On September 14, 2023, the Director of KIPO’s Intellectual Property Protection & International Cooperation Bureau announced that an SNS fashion influencer had been arrested in connection with the manufacture and sale of counterfeit luxury-brand items. The influencer, referred to as “Miss A”, was the CEO of a company which was established in 2021 and had six other employees involved in marketing, finance, order management, product packaging, shipping, and customer management. Miss A used her position as a prominent fashion influencer to promote products and sell to buyers via a secret membership system limited to customers with high purchasing power. In an attempt to avoid detection, the sales were invite-only and limited to a short time frame on weekends. Starting from November 2020, the enterprise achieved a total of 2.43 billion won (approx. $1.8 million USD) in criminal profits, with an equivalent genuine item price of around $25 million USD. All together 58 brands were counterfeited, including both Korean and foreign brands, with over 20,000 items of clothing, shoes and jewelry produced. It was revealed that Miss A already had previous convictions relating to the sale of counterfeit products, based on violations of trademark law. However, as these earlier offences only resulted in fines of between 2-4 million won (approx. $1,500-3,000 USD), far less than the profit illegally obtained,  it is clear that they did not act as an effective deterrent. To avoid infringing trademark laws, Miss A re-created the designs of luxury goods but attached her own labels to the imitation products. The imitation products were often based on new designs which had not yet been released in Korea, but which Miss A had early access to as a VIP luxury brand customer.  Comparison of counterfeit (L) vs genuine (R) products, and display of confiscated items. (Source: Korean Intellectual Property Office)   (For reference, designs are protectable for up to 20 years in Korea if formally applied for and registered at KIPO, while unregistered designs are afforded protection against “dead copy” knockoffs for a period of three years following their realization under unfair competition laws. Design applications for fashion items such as clothing and footwear are subject to “partial examination” in Korea, with registration usually granted in around two weeks. More information available here.)   The enterprise did not produce the products themselves but utilized a network involving Korean clothing manufacturers, jewelry manufacturers and shoe manufacturers, as well as Korean clothing wholesalers based in Shenzen, China. These other entities — a total of 14 manufacturers — are also currently being investigated and indictment is expected soon.   Following a complaint in December 2022, the Technology & Design division of the KIPO Special Judicial Police (SJP)[1] began an investigation, revealing the systematic and large-scale nature of the operation. In addition to a search and seizure warrant executed on the residence and corporate office of Miss A, the court, in cooperation with the Daejeon District Prosecutors' Office Patent Crime Investigation Department and Crime Proceeds Recovery Team, collected and preserved assets including financial accounts, bonds and real estate property following an asset investigation. A preliminary arrest warrant was issued for Miss A during the investigation and a total of eight people, including the other six employees involved in the enterprise, have been referred to the Prosecution.   From a legal perspective the result is significant in that it is the first case where criminal proceeds have been preserved based on a violation of design or unfair competition laws. It is also the largest amount which has been recovered in a single operation by the KIPO SJP since its creation. This was possible due to a January 2022 amendment of the Act On Regulation And Punishment Of Criminal Proceeds Concealment — a law which inter alia deals with the confiscation and collection of criminal proceeds, but which previously only applied to violations of a set of specific laws. While the Trademark Act was included in this earlier list, the law now more broadly covers crimes that carry a criminal penalty of three or more years’ imprisonment, thus extending to design and unfair competition laws which were previously not included.    NOTES: [1] The term Special Judicial Police (SJP) refers to judicial police with investigative powers limited to a specific area requiring specialized knowledge. The KIPO Special Judicial Police, which has the authority to conduct criminal investigations and raids, is organized under KIPO’s Intellectual Property Protection & International Cooperation Bureau and is composed of officers with expert knowledge of IP laws, including PhD holders, patent attorneys, lawyers and forensic experts. When founded in 2010 the KIPO SJP’s jurisdiction was limited to the investigation of trademark infringements, but has since grown to encompass design, patent, and trade secret violations. The KIPO SJP are commonly referred to as the “Trademark Police” or “Technology Police”, depending on the relevant division.

2023-09-21
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