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Practice Notes

Proposed law revision to tackle importation of ‘personal use’ counterfeit goods

A proposed amendment to the Korean Trademark Act has been announced which would address the issue of counterfeit goods being shipped into the country by foreign sellers. Currently, there is ambiguity in determining whether such shipments constitute trademark infringement, making it difficult for Customs authorities to block them under the provisions of the Customs Act dealing with intellectual property violations.      ▒  What is changing?   The revision introduces a new clause that defines the act of a foreign seller shipping goods marked with a trademark into Korea as a form of "trademark use". In doing so, "supply" by foreign sellers will be separated from the act of "import", typically carried out by domestic buyers, and this distinction will allow authorities to treat such imports as trademark infringement, even if the seller is overseas and the item is for personal use.       ▒  What is the expected effect?   With Customs authorities having a clear legal basis to seize and block counterfeit goods from entering the country, even if they are intended for personal use, border enforcement is expected to be considerably strengthened with enhanced protection for domestic trademark holders against overseas counterfeiters. At the same time, individual consumers importing goods for personal, non-commercial use will not be punished.       ▒  What is the timeline?    The public have been invited to submit opinions on the proposed changes by 14 October. In the absence of any unexpected developments, the amendments are expected to be promulgated before the end of the year and would take effect immediately.       Written by Jonathan MASTERS and Sang-eun SHIN

2024-09-12
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Practice Notes

Pro-patentee Legislative Push in South Korea: Quintuple Punitive Damages Provision Comes Into Effect

An amendment to article 128(8) of the Korean Patent Act, increasing the amount of punitive damages that can be awarded for patent infringement, is now in effect. For infringing acts committed on or after August 21st, 2024, punitive damages of up to five times the actual damages may be imposed when the infringement is deemed willful.    This is an increase on the previously-available treble damages, and marks another development in the ongoing legislative trend in Korea toward increasing protection for patentees.    Concurrent amendments to the Unfair Competition Prevention and Trade Secret Protection Act also introduce quintuple damages for willful trade secret infringement and theft of ideas, as well as stronger criminal penalties against corporations for such acts. The Trademark Act was not amended, and retains the treble damages standard.      ▒  Background to the amendment   The new amendment comes just five years after punitive damages (treble) were first introduced via a previous amendment in 2019, and seeks to protect patentees by encouraging them to actively assert their rights, as well as to deter infringers with the threat of significant damages, thus helping to shake Korea’s mantle of being a less attractive forum for aggrieved patentees compared to other countries where courts tend to award more substantial damages.    As emphasized by the Korean Intellectual Property Office (KIPO) in explaining the background to the amendment, the average value of damages won by plaintiffs in patent infringement lawsuits in Korea is significantly less than that won in the U.S. KIPO describes a negative cycle in which ‘copying technology’ is perceived as more profitable than owning patents or trade secrets, and faced with the prospect of insufficient damages even if victorious, aggrieved plaintiffs then give up on enforcing their IP rights through infringement litigation. The quintuple damages provision is intended to break this cycle by providing the possibility of damage awards that are high even by international standards.       ▒  Willfulness and how to prove it   The provision on how to determine whether to award punitive damages, article 128(9), was not amended, and still lists the same eight factors:        (1)  whether the infringer holds a dominant position;     (2)  whether the infringer was aware the act would cause harm to the patentee;     (3)  the scale of such harm to the patentee;     (4)  the resulting economic benefits to the infringer;     (5)  the frequency and length of the infringing acts;     (6)  the criminal sanction for the infringing acts;     (7)  the infringer’s financial status; and     (8)  the efforts the infringer has made to reduce the harm to the patentee. Since the IP High Court has yet to actually award punitive damages, there is as yet no authoritative finding on exactly what kinds of facts will persuade courts to determine willfulness based on these factors.    Indeed, the new amendment comes at a time when only one Korean court has awarded punitive damages at all. In that case, the Busan District Court (case no. 2023gahap42160) considered the totality of the facts to award punitive damages (0.5 times damages for the applicable infringing acts) in addition to the compensatory damages (profits of the infringer), but did not offer explicit guidance on how exactly it applied the above article 128(9) factors to the facts. Appeal proceedings for this case are currently ongoing at the IP High Court, which will hopefully bring some clarity to the matter.   Yet as a practical matter in the meanwhile, considering the Busan District Court’s fact-based approach, patentees claiming infringement would be advised to be aggressive in proactively asserting their rights – using cease-and-desist letters, attempts at formal mediation, seeking a declaratory finding of infringement in a scope confirmation trial, etc. – and then use all such facts as evidence of willfulness. On the other side, companies should be aware of the risk of increased damages, and ensure that they respond actively and in good faith when on notice of possible infringement.       ▒  Indirect & direct effects of the amendment    Although the small number of actual cases recognizing punitive damages and the still passive attitude of Korean courts may diminish the immediate significance of the amendment, in many cases the judiciary follows the efforts of the legislature, albeit belatedly – and the amendment can be seen as a clear signal that Korean courts will move in a direction favorable to patent holders.   Moreover, considering the Supreme Court's ruling (case no. 2018da231550) issued on March 11, 2022, which held that punitive damages awarded in U.S. court judgments can be enforced in Korea, taking into account the existence of the punitive damages statute in Korean law, it is expected that U.S. patent holders who have been awarded punitive damages in U.S. courts will be able to enforce those amounts more easily in Korea.      ▒  Other patentee-friendly provisions and developments    While uncertainties may remain about the practical impact of the new amendment, it should be viewed in the context of the bigger picture of patent enforcement in Korea, which (i) is favorable to plaintiffs in other ways, (ii) has been steadily moving in a patentee-friendly direction in terms of patent enforcement in recent years, (iii) promises to continue this movement with further future revisions to discovery rules.    Permanent injunctions  While Korean courts have not been so aggressive in awarding punitive damages, courts are much more generous in granting injunctions once infringement is decided. Plaintiffs who succeed in proving infringement are in a strong position to enjoin the infringer’s conduct through permanent injunctions. Article 126 of the Patent Act provides patentees with a right to a permanent injunction against the infringer, and as long as the subject of the injunction and the type of action are clearly specified, Korean courts issue injunction orders against infringers on valid patents. The position of the Korean courts on injunction thus contrasts with the U.S. position post-eBay Inc. v. MercExchange, L.L.C, where the court rejected automatic grants of permanent injunctions and set a higher bar for granting them.    Patent infringement as a crime Furthermore, willful patent infringement is also a criminal offence in Korea, with perpetrators facing imprisonment of up to seven years or a fine of up to KRW 100 million (around USD 75,000) under article 225(1) of the Patent Act. The risk of criminal conviction is not only a deterrent, but can also be a useful bargaining chip for patentees: in practice, since the criminal prosecution cannot continue against the express will of the victim (article 225(2)), most criminal infringement cases end by agreement between defendant and complainant before a verdict is reached.(1)   These criminal provisions have also been the subject of progressive developments over recent years, with a 2020 amendment to the Patent Act removing the requirement of the complaint of a victim as a prerequisite to prosecution (thus opening the door to investigation at the discretion of investigative authorities). Further, the authority of the Special Judicial Police of KIPO – originally limited to investigating counterfeits – was expanded in March 2019 to allow for the investigation of patent infringement. Since 2019, the indictment rate for alleged violations of the Patent Act has steadily increased.(2)   Korean-style discovery – the final piece of the puzzle? It is frequently noted that Korea’s lack of a comprehensive discovery system is a key factor in making the country a challenging jurisdiction for patentees. Obtaining evidence from opponents involves motion processes, and defendants often have no recourse if a defendant conceals, manipulates, or simply denies the existence of the evidence – making it difficult for plaintiffs to meet their burden of proof in proving infringement.   In recent years, legislation has been introduced to ease the plaintiff’s evidentiary burden. Among other Patent Act revisions, a 2016 amendment prevented defendants from simply refusing production by alleging that the requested documents contain trade secrets, and a 2019 amendment introduced article 126-2, which obliges defendants faced with a plausible allegation of specific infringing acts to present details of their own actual specific acts. Failing to do so without good cause may result in the court deeming the specific infringing acts claimed by the plaintiff to be true. In principle, article 126-2 promises to reduce the plaintiff’s evidentiary burden by making it more difficult for alleged infringers to baldly deny alleged infringement without offering any counter-evidence of their own actual activities. In practice, however, courts have so far been reluctant to utilize this provision to its full potential.   The new amendment did not introduce any further revisions on this front. However, change may be on the horizon: KIPO and the National Assembly have for the past few years been actively discussing and promoting the introduction of a ‘Korean-style discovery system’ for patent infringement matters. The main proposals include the introduction of a court-appointed investigator empowered to investigate the site of the alleged infringement, a deposition system, and data preservation orders to prevent the destruction of evidence.(3) Legislative discussions around the introduction of a broader, comprehensive discovery system are also underway.(4)   Further development on this front can be expected to provide another key missing piece to the puzzle of patent enforcement in Korea.      ▒  Conclusion   Combined with other patentee-friendly rules and developments as discussed above, the quintuple damages amendment represents another step in the incremental movement towards strengthening patent enforcement in Korea, as well as strengthening Korea’s appeal as a forum for patent litigation.   Written by Simon VOGET and Sung-wook KIM    

2024-08-23
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Practice Notes

Korean IP High Court awards damages for indirect infringement in semiconductor patent dispute

             ▒  Introduction               In February 2024, a global semiconductor equipment manufacturer (hereinafter “plaintiff”) won a patent infringement lawsuit in Korea against a local company (hereinafter “defendant”). Unlike in the court of first instance, the Intellectual Property High Court of Korea (IP High Court) in the second instance ordered the defendant to cease its patent infringement and pay damages of approximately USD 2.6 million to the plaintiff (IP High Court Decision 2023na 10204, February 15, 2024). The plaintiff is known to have recently issued warnings regarding patent infringement to multiple Korean semiconductor equipment manufacturers based on the IP High Court's ruling, suggesting that patent disputes in the semiconductor equipment field are likely to multiply in Korea.   ▒  Background   The patent that was the subject of the litigation was the plaintiff's Korean Patent No. 10-1708060 (the Korean national phase entry application for PCT/US2009/001593; hereinafter referred to as the “'060 patent”). The '060 patent relates to a cam lock electrode clamp, and is directed to fixing an electrode to the shower head of an etching equipment through rotation of a camshaft and the resulting change in spring force.    As the claim elements thereof, the '060 patent comprises a stud (205; red), a disc spring (215; blue), a socket (213; yellow), and a camshaft (207; green). The stud, disc spring, and socket together form a so-called “stud/socket assembly” and this assembly is mounted on an electrode, and the camshaft is provided on a backing plate. When the camshaft rotates while the head of the stud is in the region of the camshaft, movement of the stud in the vertical direction is induced, which accordingly compresses the spring and fixes the electrode to the backing plate by the restoring force provided by the spring.                                                                                                            <Figs. 2a and 2b of the '060 patent>                                                                                                                                   While multiple Korean semiconductor manufacturers were purchasing and using etching equipment from the plaintiff's “A” product family, to which the '060 patent was applied, the defendant began selling a product substantially identical to the stud/socket assembly of the '060 patent to said semiconductor manufacturers, specifying that it is used in the plaintiff's “A” product family.                                                                                                                                                                                    <'060 patent's stud/socket assembly (left) and defendant's stud/socket assembly (right)>    ▒  Whether the defendant's product constitutes indirect infringement on the '060 patent   In Korea, even when there is no direct infringement because not all of the claim elements of a patented invention are implemented in an accused product, acts one step prior to direct infringement with a high probability of leading to direct infringement are regarded as infringing acts (i.e. indirect infringement).   The defendant’s product lacked a camshaft, and thus did not constitute direct infringement of the '060 patent; and the parties thus mainly contested the issue of whether there was indirect infringement.   Under Article 127 of the Korean Patent Act, in order to establish indirect infringement, the following requirements must be met:      Ⓐ Production or assignment of a product used for the production of the patented invention     Ⓑ The product must have no other use than for the production of the patented invention With regard to requirement Ⓐ, if the accused product is a component for a patented invention that is a finished product, and is a consumable, precedent further requires that: (i) the component corresponds to an essential element; (ii) the component is not generally readily available; (iii) replacement of the component was expected from the time of purchase; and (iv) the patent holder manufactures and sells such component separately (Supreme Court Decision 98hu 2580, January 30, 2001). This is to ensure that patent holders for finished products do not hold excessive monopoly power in the consumables market.   In the present case, the IP High Court found that ⓐ since the defendant specified when selling the stud/socket assembly that it was used in the plaintiff's “A” product family, it is obvious that the defendant's stud/socket assembly is used for the production of the cam lock clamp of the '060 patent, and ⓑ the defendant did not make any reasonable argument regarding other uses for the assembly. In addition, the IP High Court cited the following facts in determining that the defendant's sale of the stud/socket assembly constituted indirect infringement on the '060 patent: (i) the defendant's stud/socket assembly is a core and essential element in fixing the electrode to the backing plate; (ii) it is difficult to regard the stud/socket assembly as a product having general versatility, (iii) replacement thereof was expected at the time of purchase; and (iv) the plaintiff was manufacturing and selling the stud/socket assembly separately.      ▒  Whether direct infringement is a prerequisite in order for indirect infringement        to be recognized   According to the exhaustion doctrine, if a patent holder legally sells a product to which a patented invention is applied, the patent rights to the product are treated as exhausted and infringement cannot be claimed for subsequent implementation thereof (Supreme Court Decision 2017da 289903, January 31, 2019). However, beyond the mere repair of the product, replacing a component that corresponds to an essential part thereof is considered a reproduction or reconstruction of the patented invention, and constitutes patent infringement (Seoul Central District Court Decision 2005gahap 48548, August 23, 2006).   The defendant argued that, from the perspective of the Korean semiconductor manufacturers who purchased the defendant’s stud/socket assembly, they legally purchased the plaintiff's equipment and merely replaced some consumable components during use, and accordingly, since the plaintiff's patent rights to the equipment in question had been exhausted and no direct infringement occurred, its act of selling its stud/socket assembly did not constitute indirect infringement. This appears to be based on the position that indirect infringement is recognized only if direct infringement has occurred (the so-called “dependency theory”). The contrary position to this is that indirect infringement can be recognized independently, regardless of whether or not there is direct infringement (“independence theory”).   Korean courts have not yet established a consistent position on this, and are considered to be judging each case differently. In the present case, the IP High Court rejected the defendant's argument, holding that the replacement of the stud/socket assembly of the plaintiff's “A” product family with the defendant’s stud/socket assembly constitutes a new production activity falling outside the generally acceptable scope of repairs. The gist of such a finding is that even if the dependency theory were followed, there would no problem with recognizing indirect infringement, since direct infringement is recognized; and as such, it cannot be concluded that the IP High Court adopted the dependency theory. However, in that the IP High Court did not go so far as to state that there is no need to consider whether there is direct infringement, the ruling can be regarded as being closer to the dependency theory.      ▒  Takeaways   - Starting from the perception that the scope of recognition of indirect infringement in Korea is narrower than in other countries, discussions on revising the law around indirect infringement to provide greater protection for patent holders are actively underway at the Korean Intellectual Property Office, and courts are also making rulings, for example, easing the burden of proof from the perspective of protecting patent holders. Therefore, as a patent holder for a finished product, it would be advisable to pay attention to trends in the consumables market.   - In determining whether the implementation of a component of a finished product patent is recognized as indirect infringement, the court requires the patent holder to manufacture and sell the component in question separately. Accordingly, if some elements of the patented invention are consumable articles that are expected to be replaced, it may be advantageous in terms of strengthening their rights for patent holders to conduct business regarding the consumable product, even on a small scale.   - In the present ruling, the IP High Court suggested direct infringement of the '060 patent by the Korean semiconductor manufacturers that purchased etching equipment from the plaintiff. Since these companies are customers of the plaintiff, it will be interesting to see what measures the plaintiff takes with respect to these manufacturers going forward.

2024-07-18
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