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