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Practice Notes Improved damages calculation for trademark, design and unfair competition infringement cases

Mirroring a recent amendment to the Patent Act which came into effect from December 10, 2020 (details here), the Trademark Act, Design Protection Act and Unfair Competition Prevention and Trade Secret Protection Act have also been amended to include an improved method for calculating damages in trademark, design and unfair competition infringement cases. The new amendments took effect from June 23, 2021.

Comparison of calculation methods

There are a number of methods by which damages may be calculated, as follows:

When calculating damages under the first method above, which may be preferred particularly if the infringing items undercut the price of the genuine goods, the upper ceiling used to be restricted by the IP owner’s own sales capacity.

Using a simple example, if the IP owner had the potential to sell a total of 1,000 items in the relevant timeframe that the infringement took place, but the IP owner actually sold only 100 items, the maximum number of additional items they could have theoretically sold if it not been for the infringement is 900, and even if the infringer sold more items than this, the final damages calculation would have been based on this ‘900’ figure.

The new calculation method, however, includes the addition of a reasonable license fee per infringing item sold in excess of the IP owner’s sales capacity.

A comparison of the previous and updated calculation methods is shown below:

Previous New
Lower among:
1. No. of infringing items disposed by infringer
2. (IP owner’s total sales capacity) – (No. of items actually disposed by IP owner)
x

 

IP owner’s per-item profit
Lower among:
1. No. of infringing items disposed by infringer
2. (IP owner’s total sales capacity) – (No. of items actually disposed by IP owner)
x

 

IP owner’s per-item profit
+

 

(‘Excess’ no. of items disposed by infringer) x (Reasonable license fee for the infringed IP right)

Reason for the amendments and expected effects

The previous calculation method was particularly disadvantageous when the IP rights of small companies without access to large-scale production facilities were infringed. In such cases, despite having IP rights in their technology, idea or brand, small-or medium-sized companies could lose out to infringers with large-scale production capacity as the damages available even if infringement was acknowledged would be severely limited.

This situation is addressed in the revised calculation method, and IP owners will now be able to receive compensation commensurate with the scale of the infringement, even if they could not have achieved such sales themselves. It is expected that these changes will reduce the incentive to steal or copy IP and instead encourage a greater uptake in license agreements, ultimately promoting the growth of small- and medium-sized companies.

These revisions, when combined with the recently-introduced treble damages system available in infringement suits (details here), mean that the protection available to IP holders against intentional infringement is now stronger than ever in Korea, and claiming damages from infringers should now be a more approachable solution where it might not have been practical or financially advantageous to do so in the past.

The one remaining Achilles’ heel in this system is the difficulty in actually proving intentional infringement (also touched on in our earlier article here), and in the press release concerning the subject revisions, a KIPO spokesperson was quoted as saying that they plan to introduce an improved evidence-collection system as soon as possible to address this deficiency. We will of course report further on this topic as soon as there are any updates.

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      2021-07-08 10:40:00

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