Roche v. Celltrion re: Herceptin Patent Infringement Lawsuit over Biosimilar Herzuma

Celltrion, a Korean company developed a biosimilar Herzuma to Herceptin (trastuzumab) and obtained market approval (MA) for a biosimilar Herzuma (trastuzumab) from KFDA on January 16, 2014. It has been approved for treatment of early and advanced (metastatic) HER2-positive metastatic breast cancer as well as advanced (metastatic) stomach cancer.

Roche has marketed Herception for the treatment of HER2-positive metastatic breast cancer in 150 mg in Korea. However, for high strength of 440 mg, Roche obtained MA just January 26, 2014. Celltrion obtained MA of the first trastuzumab biosimilar for two strengths, 150 mg and 440 mg at the same time and will launch them soon.

Roche filed lawsuit against Celltrion alleging that Herzuma infringes Roche’s patents. More details will follow soon after they are available.

Menarini’s Priligy (Dapoxetine HCl) Use Patent held Not Valid as being Obvious

Menarini launched Priligy in Korea. Dapoxetine HCl is the active ingredient in Priligy tablets. Korean patent No. 719, 977 covers the branded products and is listed in Green List of KFDA. The patented invention is “Methods of Using Rapid-Onset Selective Serotonin Reuptake Inhibitors for Treating Sexual Dysfunction.” The patent at issue is not for a compound invention but for the second use invention. The Korean patent for the second use invention will expire on June 5, 2021. Several Korean generic companies filed invalidity proceedings to challenge the second use patent. Menarini will face generic companies’ challenges soon.

On August 23, 2013, the IPT of KIPO held that the patent in issue is not valid because the compound and its use have been disclosed in the prior art. There has been no challenge to the compound patent so far. The key issue for the second use patent was a new limitation of “on as as-needed basis” in claim language. The patentee argued that such a new limitation was not found in the prior art and made the claimed use invention being novel and nonobvious over the prior art. However, the IPT rejected the argument on the ground that such limitation is related to a method of administering a drug and thus such limitation may not be regarded as an element for a patent claim under Korean patent law.

The patentee appealed the IPT decision to the Patent Court and the case is pending.

EV Battery Patent Infringement Lawsuits – LG Chem vs. SK Innovation

Two Korean companies, LG Chem and SK Innovation are major suppliers for EV batteries to top 10 global car makers including GM, VW, Renault, etc. In 2012, LG Chem filed a patent infringement lawsuit against SK Innovation at the Seoul Central District Court. The court for the first instance trial held last Friday that LG’s patent was not infringed by SK Innovation.

The patent in issue is directed to the inorganic material-coated separator that is a key part of large rechargeable batteries for EV battery. The court held that SK Innovation’s inorganic material-coated separator has a different structure from the porous structure of the active layer coating the separator of LG Chem’s patented invention.

On the other hand, under the bifurcated system in Korean patent law, SK Innovation challenged the validity of LG Chem’s patent and was successful in invalidity proceedings at the IPT of KIPO and further at the Patent Court. However, the Supreme Court revoked the lower court decision of invalidity and returned the case to the Patent Court. The invalidity case is pending at the Patent Court.

LG Chem announced to appeal the first instance court decision to the Seoul High Court immediately after they received the losing decision.

Low Dose Entecavir Formulation in Korean Patent held as being Obvious by the IPT of KIPO

Entecavir is the active ingredient in Baraclude tablets of BMS. The drug has been sold for the treatment of chronic hepatitis B virus infection in Korea. When Korean generic companies noticed that a US district court found that entecavir would have been obvious in light of the prior art, they filed an invalidity trial to challenge the validity of the corresponding Korean compound patent, too. The invalidity case is pending in the IPT of KIPO.

On the other hand, Baraclude is covered by another patent for low dose formulation of entecavir. Several companies including those want to launch generic versions of Baraclude after expiry of extecavir compound patent, filed separate proceedings to challenge non-obviousness of law dose formulation over the prior art. The subject Korean patent is No. 757,155 that claims low dose entecavir formulations of 0.5mg or 1.0 mg for the treatment of chronic hepatitis B virus infection. The prior art discloses enetcavir compound, its use, a range of doses and animal test data, but did not disclose claimed doses.

On April 30, 2013, the IPT held that low dose entecavir formulations of 0.5mg or 1.0 mg should be regarded being obvious over the prior art. To the IPT decision, the patentee BMS appealed to the Patent Court and argued that a person of ordinary skill could have neither anticipated nor determined the claimed low dose formulations of 0.5mg or 1.0 mg entecavir from the prior art. Oral hearings were held two days for expert witness examination and BMS’s expert argued at the Patent Court that determining specific doses for human required numerous trials. The panel of 3 judges in the Patent Court will decide the case on March 14, 2014.

Canon v. Baiksan OPC – Patent Owner Canon Awarded US$14 million Damage for Patent Infringement in Korea

The patentee Canon filed many lawsuits against Korean companies. Canon alleged that local companies’ manufacturing and marketing of several printer cartridges for use in Canon and other branded printers infringed Canon’s patents. While local companies challenged validities of Canon’s patents, Canon saved their patented claims from invalidity challenges finally.

On June 7, 2013, the district court of Seoul Central District held that Canon’s patents were infringed and ordered that the defendant, Baiksan OPC must stop manufacturing and selling cartridges and further destroy infringing finished or half finished products. Further, the court awarded Canon about US$14 million as damage compensation.

There are 3 ways to compute damage amount under Article 128 of the Korean Patent Act. Among 3 ways of lost profit of the patent owner, infringer’s unjust profit and a reasonable royalty, the court applied the second method based on infringer’s unjust profit for Canon’s damage compensation.

According to Article 128, paragraph 2, it is possible for a patentee to seek damages based on the profit of infringer. The profit of infringer in the provision should be the actual profit that is the amount of money in which all costs are subtracted from the total sales. The cartridges were exported to foreign markets and the customs had records of sales. The patentee may obtain such data or real records through a court order. Accordingly, the only issue for computing damages in canon case is profit ratio of infringing goods.

In principle, a plaintiff can proves the profit with account data of an infringer. However, it is not easy to figure out accurate data because the infringer does not have a single item and thus can reduce the profit by allocating costs to the subject item. Sometimes the data produced by an infringer are not reliable, too.

Usually the patentee has used the balance sheets of infringers. However, the profit computed by such balance sheets cannot be accurate because the balance sheet of a company reflects final outcome of total business activities rather than a single subject product. As an alternative option, a patentee may use an official statistic number of the government. The tax department of the Korean government noticed an official data regarding an average profit ratio per each business area every year.

According to the official notices, average profits for periods of infringements were 10% for computer printer fields. Under the Korean patent law, courts have discretion to determine a moderate amount of damage to prevent non-compensation to a patentee even though the infringement is found but no sufficient evidence to prove an amount of damage exists. It eases the patentee’s burden of proof. Based on the provision, the district court computed damage of Canon’s patent infringement through the total sales of infringement x 10%. The total amount of US$14 million is a quite big number in the history of patent infringement litigation in Korea.

False Patent Marking

Many companies mark their products as patented by the patent number on the product or its packaging. Often they mark their products as patented by the patent application number on the product or its packaging before obtaining granted patent. It is false patent marking. More often many companies continue to mark their products as patented by the patent number on the product or its packaging after the expiry of the patent. That is false patent marking, too.

Patent marking may create consumer goodwill by suggesting that the product is innovative and further deter competitors to enter market with the same product. Even before patent granted, manufacturers may try to achieve similar effect through marking product with a patent application number. On the other hand, continued listing of an expired patent would continue to benefit the manufacturer, too.

In Korea, false patent marking can be charged as a crime. The person or company who did such false patent marking shall be imprisoned not more that 3 years or fined not more than KRW20million (about US$22,000). Several cases law show around US$5,000 fines for false marking.

The Korean Patent Act provides a cause of action against those who falsely claim that their products are patented. A company that falsely marks or advertises a product as patented can be held liable. However, it usually is not a cause of action for civil lawsuit including damage compensation. Without exceptional circumstances, false patent marking is within criminal sanction in Korea. Furthermore, under the Korean patent law, it does not require to falsely mark “for the purpose of deceiving the public” as like in the U.S. The intent or knowledge on false marking is enough.

Basically patent marking is not required by the Korean patent law. Without patent marking, a patentee may obtain a preliminary or permanent injunction against infringers. Unlike the injunction remedy, however, the patentee must prove the intent or negligence of infringers in order to obtain damage compensation from the infringers. Marking is an effective and convenient method to prove it and has been used ordinarily in practice.

Expedited Examination for Green Technology Patent Application

KIPO provided accelerated examination system for green technology patent application. It is to examine green technology patent application more expeditiously than normal track examination as well as accelerated track for other technology patent applications.

Korea enacted the Low-Carbon Green Growth Basic Act to promote new developments with low carbon and green growth. Under the new law, the government issues certification of green tech or financial aid to companies who are involved in green technology. Any inventions generated by such projects are eligible for the expedited examination. These include solar, wind, geothermal, tidal, wave energy, biofuels, energy storage technologies such as advanced batteries, other renewable energy techs. Also, it includes carbon capture and storage technologies, LED lighting, etc.

According to KIPO, an application may obtain examination result as the first office action within Ione (1) month from the request. It is really short time while it takes about 17 months on average to have the first OA for an ordinary application. In case an application is finally rejected and an applicant has appealed, the case will be processed as an accelerated appeal proceeding as well. The outcome of appeal will be provided within four months. Under normal appeal trials, it takes about ten months to be decided.

In order to request such expedited examination for green tech patent application, an applicant must submit a search report to KIPO. The prior art search report should be made from one of the official prior art search organizations designated by KIPO that includes Korea Institute of Patent Information, WIPS and IP Solution.

So far, examination results have been given within one month in all but a few cases that failed to satisfy the super-accelerated examination prerequisites. The fastest case to date took only 11 days from application to registration.

Pfizer’s Victory in Lyrica® Patent Infringement Lawsuit in Korea

Based on Pfizer’s Lyrica patent, Korean courts granted preliminary injunctions for patent infringement against two Korean pharmaceutical companies. The local companies launched a generic version of Lyrica last year. The active ingredient of Lyrica is pregabalin that is a known chemical compound and a derivative of GABA (gamma-aminobutyirc acid). Further, the pharmacological effect of pregabalin is known as a depressive neurotransmitter and has been sold as an anti-convulgent drug for a long time. Pfizer discovered a new medicinal use of pregabalin. The subject Korean Patent No. 491282 is directed to a new use of pregabalin for treating pain. It is a second use invention that is one of the main indications of Lyrica.

Korean companies challenged validity of the subject patent on the ground that the new use of pregabalin for treating pain can be anticipated or is obvious over the prior art. They alleged that the pain killing effect might be in the scope of anticipation of an ordinary skilled person because the prior art discloses the compound and its neurotransmitter depressing effect. Also, the blocking of certain neurotransmitter flow may be correlated with anti-pain effect. The IPT of KIPO and the Patent Court, however, maintained the patent by rejecting non-obviousness challenge. The invalidity proceeding has been reviewed by a separate authority rather than a civil court under bifurcation system and is pending before the Supreme Court as a final stage now.

In the meantime, the patentee brought lawsuit for seeking preliminary injunctions against generic companies before the Seoul Central District Court. Recently Pfizer won the cases and was successful in blocking selling generic version of Lyrica in Korea.

Tips for Saving Cost in Korea

There are several ways to save the cost of prosecuting a patent application and maintaining once it has been granted. And the key to considerably lowering the expense is to reduce the number of claims by incorporating multiple claims.

There are three ways in which reducing the number of claims can help save cost. First, an applicant can save cost during substantive examination, where the applicant must pay the total amount of US$37 multiplied by the number of claims in addition to the official fee of US$121. Second, once the patent has been granted, the applicant can reduce the amount of annuities, where they are charged based on the basic fee of US$36 multiplied by the number of granted claims in addition to the official fee of US$42. Lastly, the applicant can save the cost of translating the claims and the costs of prosecution and maintenance.

Much like EPO and JPO, multiple dependent sub-claims are permissible under Korean patent law. And for PCT route applications, it is recommendable to redraft claims to reduce the number of claims by using multiple dependent claims before starting the international phase.

But the Korean Rule of claim dependency is different from that of the EPO and the USPTO. According to the Korean Regulation, “No claim referring to two or more claims shall refer to another dependent claim to which two or more claims are referred.” This is to avoid high complexity caused by limitless dependent sub-claims. Therefore, the number of claims must be reduced within the limitation of the Rule in Korea.

In closing, an applicant can effectively reduce the number of claims without altering the scope of claims, and accordingly is able substantially to cut the cost of prosecuting an application and maintaining the granted patent.

Check Points & Actions Must Be Considered Before Enforcement Actions

Patented claims must be valid and infringed in theory. However such claims are not common in reality. Accordingly a patentee must check strength of his patent before enforcing his patent against accused infringers. To be a valid patent claim, it should be strong enough to sustain invalidity challenges. The scope of the claim must be narrow enough to be novel and non-obvious over the prior art. On the other hand, a claim should be infringed by the competitor’s product or process. For this purpose, the scope of a claim must be broad enough to cover competitor’s product or process. These are contradictory and it is really hard to achieve desirable balance between two opposites.

Before filing a patent infringement lawsuit, it is desirable for a patentee to check strength of each patented claim based on thorough prior art search. Usually, it is necessary to fix any errors in issued patents, protect claims from possible invalidity challenges through amending claims to be novel and non-obvious over the prior art; and further pursue claims directed to competitor’s products or process if possible.

Two ways are available to amend patented claims after granting a patent in Korea. Before a patent infringement action, a patentee may amend claims as precautionary measure through ex parte proceeding at the IPT of KIPO. Namely, the first way is an independent petition to request amendment as like re-issue request in the U.S. Actually, Korea use a different terminology of “correct” for granted patents rather than “amend” for pending application before grant. It is to differentiate from each other because two terms do not have the same meaning.

The second option to amend a patented claim is correlated with an invalidity proceeding. During invalidity proceeding, a patentee may request to amend granted claims as a defense. It is very common to file a motion to correct patents during invalidity proceeding. This is inter partes proceedings between a patentee and a challenger and consolidated in invalidity proceeding. Both parties may argue whether or not such amendment to be allowed.

A patentee may amend granted claims of a patent within the scope of original disclosure and within the scope of protection of the patent as granted. In reality, post grant corrections of claims are allowed within a very limited scope. The correction must be made to (1) narrow a claim, (2) correct typological errors, or (3) clarify ambiguous description. The correction must not broaden or alter the scope of the patent right.

Recent Developments of KIPO Examination Capability

According to WIPO statistics, Korea has been ranked No. 4 in the number of patent filings with KIPO, and No. 5 in the number of PCT application filings in the recent several years. KIPO announced that they achieved one of the fastest examinations in the world. KIPO has over 1,000 members including about 700 patent examiners. Among the patent examiners, nearly 40% of the examiners have doctorate degrees and the others are well qualified as they passed a high standard national examination.

KIPO has been serving as both an international search authority and an international preliminary examination authority for international applications under the PCT since January 1, 2006. The USPTO, which files the largest number of PCT applications in the world, has designated KIPO as a competent international searching and examination authority for international applications filed at the USPTO under the PCT. The USPTO decision can be interpreted as recognition that KIPO’s examination capabilities meet world standards. According to KIPO, their fees are much less than those of the USPTO and the EPO.

Applicants can compare the quality of examination, costs and conveniences of each patent office to conduct international searches and preliminary examinations of PCT applications. According to KIPO, Microsoft, Intel, Hewlett-Packard, Google, 3M and Kimberly-Clark have used KIPO as their PCT International Search Agency.

Under the circumstances, foreign applicants may obtain a search or examination report within ten months after filing a patent application in Korea. We believe that the applicant, like Microsoft Corporation, might benefit from KIPO’s highly qualified and speedy examination capabilities.

Data Exclusivity (DE) in Korea

In pharmaceutical industry, data exclusivity (DE) is an important IP right. DE is to protect the value of extensive pre-clinical and clinical data that establish a drug’s safety and efficacy, clinical indications and uses.

KFDA provides such DE through PMS (Post Marketing Surveillance) system. Before the expiry of PMS period, no generic drug is allowed to market. During PMS period, third parties cannot obtain approval for generic versions of the same product unless they can submit data that are (1) different from the data submitted for the first approval; and (2) equivalent to or exceeds the scope of data submitted for the first approval. There is no real case to obtain before expiry of PMS in Korea so far. Therefore, such PMS system has played an effective Data Exclusivity for drug developers.

Two categories of DE exist as follows:

1. New Drug – 6 years from marketing

    A. New Chemical Entity (NCE)
    B. Ethical Drugs different from already licensed drugs in terms of active ingredients or mixture ratios
    C. Ethical Drugs different from already licensed ones in the route of administration, while containing the same active ingredients

2. Improvement Drug – 4 years from marketing

    A. Ethical drugs which are identical to already licensed drugs in terms of active ingredients and route of administration but distinctively different in added indications.
    B. Ethical drugs which are modification of the structure, formulation, or indication of existing drugs. It is generally an improved version of the original drug in terms of safety, efficacy or convenience.

KFDA Guidance on Mobile App for Medical Use

KFDA* announced that the Safety Guidelines for Mobile Medical Applications should be applied on December 31, 2013. The gist of guideline is summarized as follows:

1. Subject App

All mobile platforms including smartphone, tablet PC and smart watch for the medical use may be subject to the guidelines. But the scope shall be limited to the Apps whose use meets the definition of a medical device under Article 2 of the Medical Device Act.

According to KFDA, the guidelines would be applied to the apps below:

   A. Apps that remotely control medical devices
   B. Apps that display, store or analyze data acquired from medical devices
   C. Apps that transform the mobile platform into a medical device by using attachments such as electrodes or sensors
   D. Apps that act as a medical device by using sensors within the mobile platform
   E. Apps that perform patient-specific analysis and provide diagnosis or treatment recommendations.

2. Required Marketing Approval

Before launching a mobile medical app, the publisher shall obtain market approval from KFDA. It is required as like a medical device. It must meet the safety requirements of KFDA guidelines; i.e., Criteria and Standards for the Electrical and Mechanical Safety of Medical Devices, Criteria and Standards for Electromagnetic Safety of Medical Devices, Standard of Medical Device Software Validation, etc.

Furthermore, the applicant must meet the guidelines about the activities to collect, store and process personal medical information. He or she must protect personal information properly pursuant to the KFDA Guidelines of Approval and Examination of U-Healthcare Medical Devices.

* KFDA officially changed its name to the Ministry of Food and Drug Safety (MFDS) in March 2013.

Litigation Costs and Attorney Fees

Official fees for a preliminary injunction action or a permanent injunction action would be small rather than significant. Those would be about US$400. A lawsuit to the Patent Court is an administrative lawsuit that seeks to review the decision of the IPT of KIPO. Official fee for such action to the Patent Court would be small, too (about US$400).

As to a lawsuit for damage compensation, official fees are correlated with the amount of claims. For the first instance lawsuit, a plaintiff must pay 0.5% of claimed amount as official fee. Accordingly, it could be considerable amount.

In terms of attorney fees, two options are usually used in Korea; Flat fee in lump sum or hourly charge based on actually spent time. Considering the unpredictable nature and complexity of patent infringement litigation, it is extremely difficult to estimate the total cost of litigation. Just as a rough estimate, it would be approximately US$150,000 ~ 300,000 for a district court action for a straightforward litigation case. In a big case with complex and difficult technology issues, it may cost much more. In addition, translation of court documents into English will increase costs accordingly.

Korean laws allow the prevailing party to claim court costs and legal fees from the losing party. Official fees and legal costs paid to a court are usually reimbursed in full to the prevailing party. As to attorney fees, however, the Supreme Court has a regulation that limits the reimbursement of actual attorney fees. For instance, for a PI case, a prevailing party may recover about US$3000 per instance from a losing party; not more than US$10,000 in total. However, the amount for damage lawsuit is correlated with the amount of claim and ration of winning. That may be quite different. At any way, it is safe to assume that the amount as a reimbursement of legal fees could be substantially less than the actual cost.

Appeal Procedure

Appeal to High Court

The losing party may appeal the district court decision to a high court (a court of appeal). A notice of appeal must be filed within 14 days of the receipt date of the court decision. The appeal period cannot be extended. When a notice of appeal is filed, the district court will send all documents to the court of appeal, which dockets and schedules the case. Then, the court of appeal orders the appellant to submit an appeal brief.

There is no limit on grounds of appeal. The court of appeal will review the case on de novo basis including factual errors and legal errors. An appellee will submit an opposing brief to an appeal brief. Both parties may submit new arguments and new exhibits during the appeal procedure. After exchanging briefs, the court set oral hearings. Usually it takes less than 1 year to a judgment in an appeal court.

Final Appeal to the Supreme Court

The losing party in an appeal proceeding may appeal the decision of the appeal court to the Supreme Court. The notice of re-appeal to the Supreme Court must be filed with the appeal court within 14 days from the receipt date of the high court decision, which is not extendible. Again, the court of appeal will send the documents of the case to the Supreme Court.

The court dockets the case and order the petitioner to submit a final appeal brief within 20 days from the receiving date of the court order. The period cannot be extended and the case will be dismissed if the final brief has not been filed within the period. The opposing party will be served the final brief the Supreme Court, and then can submit a rebuttal brief within 10 days of the date of the service. Exempting extraordinary circumstances, there is no oral hearing in the Supreme Court.

After briefs, the Supreme Court will review the final brief of the petitioner and the opposing brief of the respondent, and will decide whether the case will be fully reviewed by a panel of 3 or 4 justices.

The Supreme Court reviews only matters of law and therefore a matter of fact cannot be appealed to the Supreme Court. In case the appeal is based on factual errors of the low courts, the case will be dismissed within 4 months. Even though the appeal is directed to legal errors of the low courts, due to the excessive number of appeals to the Supreme Court, the Supreme Court can dismiss the appeals if the decision follows the statutes and precedents. It is called a refusal of further consideration in the Supreme Court.

The Supreme Court has given deference to the decisions of the Patent Court, and the Korean patent court plays the final decision maker as a matter of practice like the CAFC in the U.S.

Defenses of Defendant

Invalidity Defense

It is well settled that in case the patented invention lacks novelty over the prior art, the patent is unenforceable. Even before the patent has been invalidated through the separate invalidity proceeding, the patent shall be regarded as being void.

As for non-obviousness challenge within an infringement lawsuit under bifurcated system, the Supreme Court has maintained their firm position for a long time that the patent is enforceable before the invalidity based on the ground of being obvious over the prior art. However, the Supreme Court changed their position through en banc decision in 2012. Therefore, a defendant raise an affirmative defense based on obviousness of the patented invention.

The Korean Supreme Court en banc decision in 2012 is that in principle, (1) an issued patent is presumed to be valid; (2) an infringement court may not decide the validity of a patent; (3) arguing invalidity of a patent in suit shall not be a defense in an infringement action; but, as detour as a practical solution, (4) in case the patent in suit is clearly to be invalid due to lack of inventive step as well as lack of novelty, it is an abuse of patent right to seek the injunction and damages based on the patent. Therefore, in order to determine such abuse of a patent right, the infringement court may examine the validity of a patent due to lack of inventive step as well as lack of novelty.

As for standard of proof, presumption of validity is not strong. The challenger can meet his burden by preponderance of evidence, not by clear and convincing. For example, obviousness arguments will be in favor of invalidity where there is inevitable combination, no synergistic effect from combination, no unexpected result.

Other Affirmative Defense

An accused infringer may assert that his practice falls in the scope of publicly known technology in which he is entitled to freely use it. Under the Korean patent law, it might be a mirror image of obviousness arguments.

Further, prosecution history estoppel, experimental use, pharmaceutical clinical test, prior user right, intervening right can be used as defense. For instance, the patent right does not extend to acts done for experimental purposes relating to the subject matter of the patented invention. Further, clinical tests for the purpose of KFDA approval of generics does not infringe a patent right. Unlike the U.S. patent law, a declaratory judgment or inequitable conduct before the PTO defense is not available.

Defendant’s Motion Practice: Deposit Cost in Advance

When a plaintiff is a foreigner having neither a residence nor a business office in Korea, a defendant can file a motion that the plaintiff has to deposit the cost of suit in advance. In this situation, a defendant is not required to respond to a plaintiff’s complaint until a plaintiff deposits the estimated cost of the lawsuit. If the foreign party does not deposit by the date the court specifies, the court may dismiss the suit. In the case where the plaintiff is a foreigner and the defendant is a Korean, the Korean defendant usually file this motion to obtain enough time for considering defense and counterclaim. The foreign party may deposit a bond.

Cease and Desist Letter – Warning Letter

When a patentee finds his patent right being infringed by a third party, he may send an alleged infringer a cease and desist letter. It is to warn the infringer of legal responsibilities and demand the cessation of infringement activities. Furthermore, the accused infringer, at least from the day of receiving the warning letter, will not be able to deny his intent or negligence in the infringement activities.

This warning letter plays an important role in proving the claim of damage compensation as well as the criminal liability for infringement. For criminal action, it is required to prove the intent of an infringer regarding infringing acts of a patent without doubt. In particularly, infringer’s intent in the infringement shall not be presumed even if a patent marking is present on the patented product. With a warning letter, it is easy and convenient to prove the infringer’s intent beyond reasonable doubt. Therefore, a patentee has often sent warning letters to infringers to point out the ownership of the patent and their infringing activities.

Patent Marking

A patentee may obtain a preliminary or permanent injunction against infringers without patent marking. Unlike the injunction remedy, however, the patentee must prove the intent or negligence of infringers in order to obtain damage compensation from the infringers. There are several ways to prove intent or negligence of an infringer. Patent Marking is not required but really effective and convenient in proving the intent or negligence of infringers. The Korean Patent Act allows patent marking on a container or packages, and there is no specific format required. For a process-patent marking, the patentee should specifically indicate that the patent is a process patent, e.g., "Korean Process Patent No. xxx."

Indirect Infringement - Contributory Infringement

Korea does not have inducement clause within the Korean Patent Act. Thus, an inducement is outside the indirect infringement stipulations under the patent law. However, if one actively induced someone to infringe the third party patent, the active inducer might assume responsibilities for torts under civil law.

There is a specific provision regarding contributory infringement in the Korean Patent Act. Section 127 of the Patent Act stipulates that the act to make or use a non-staple part to construct a patented invention can amount to infringement of a patent right. According to the Supreme Court, a patentee assumes burden to prove that an alleged product is only for practicing the patented invention and is non-staple. In case the accused person is found to have knowledge of infringing behavior; commits a contributory act for direct infringement; and the accused product has no substantial non-infringing uses of the accused products, the accused person is liable for contributory infringement. The liability is the same as a direct infringement.

Criminal Sanction on IPR Infringer

Criminal Sanction on IPR Infringer

Infringement of IP is a crime of trespass of personal property. An infringer may be punished up to 7 years in imprison and/or about US$100,000 fine. It is not uncommon that infringers of IP rights, especially trademarks and trade secrets, have been punished under the Korean criminal law.

To prosecute an infringer of IPR as criminal, an accusation by a proprietor is required. According to the Criminal Procedure Act, the proprietor must accuse an infringer within six months of the date of knowing the infringement and the criminal. The beginning point of the limitation starts from the moment of infringement. Also, the accusation to an infringer will be effective to a corporation as a vicarious liability. An infringer of IPR has been often prosecuted in Korea.

Vicarious Liability on Company

The Patent Act stipulates that the court can punish not only a person who committed an infringement but also a legal entity by imposing fines. The separate accusation against a legal entity is not required because it is not a separate crime from the personal infringer’s. The Supreme Court held that even if the patentee’s request applies only to a person, not to the legal entity, the legal entity may be punished without the expressed accusation of the patentee. This is because the legal entity is liable for the infringement done by its employee.

The Korea Trade Commission

Like the ITC in the U.S., the Korea Trade Commission ("KTC") has authority to take border measures against unfair trade. The KTC can stop products infringing IP from being imported and exported. Anyone can request the KTC to survey. And the KTC may investigate on its authority. The KTC can decide to investigate within 30 days of being commissioned. The KTC may stop export and import of infringement products and further destroy the infringing products in the possession of Customs. If an infringer violates the KTC’s decision, the KTC can sanction the infringer by imprison up to 3 years and/or fine. If the losing party wants to appeal against the KTC’s decision, he can bring an action to appeal before to the Seoul Administrative Court or a District Court within 30 days of receiving the KTC decision. The action is an administrative lawsuit and reviewed by a panel of 3 judges.

Damage Compensation

It is tort to infringe an IP right in Korea, too. As a civil law principle, damage of torts will be awarded for those which have been the direct and natural consequence of the defendant’s infringing activities.

Unlike U.S. courts, Korea courts never award "punitive," "exemplary" or "aggravated" damages for infringement of IP rights. No treble damage award is possible. It is same to all cases no matter how serious infringements are. And there is no willful infringement clause and thus intent or negligence is treated as being same. There are 3 ways to calculate damage.

1. Lost Profit

Where a patentee and an infringer compete, lost profit award is an appropriate remedy. Lost profit is the sum of profit that a patentee would have gained if the patent had been not infringed. According to the Korean patent act, lost profit of a patentee can be calculated by multiplying the patentee’s profit per product unit by total numbers of product that could be sold but for infringement.

Lost profit is not presumed and a patentee has the burden of proof. A patentee must show reasonable probability that it would have made infringer’s sale. Patent infringement can reduce patent owner’s profit in a number of ways. First, the infringer may divert sales from the patent owner. Second, competition from the infringer may cause the patent owner to reduce his price, and thus earn lower profit on those goods he continues to sell. A third possible effect is that the infringement causes the patentee to suffer additional costs, such as increased advertising and marketing expenditures.

Courts have considered awarding damages for such asserted harms as lost future profits, injury to the patent owner’s reputation resulting from the sale of poor-quality infringing goods, and the infringer’s accelerated entry into the marketplace once the patent expires. For diverted sales, a patent owner must show demand for the patented products, absence of acceptable non-infringing substitutes, manufacturing capability to exploit demand, and profit.

A patentee may seek lost profit for convoyed sales but the functional relationship between a patented invention and convoyed sales must be established.
The total amount of damage is largely correlated with the profit per unit. When incremental profit (so called marginal profit or contributory profit) is used for the computation of damages, the total amount will be large. Incremental profit is the profit that the patentee could have made when he sold just one more patented product, and is the amount excluding only the variable cost from the sale price of a product. Based on the incremental profit, the patentee may receive the greatest amount of monetary remedy that he could have gained through the use of a patent.

The Korean Patent Act added another manner of presumption. When the patentee is capable of supplying products competing with the infringing product, he may presume that his lost profit is equal to the amount calculated by multiplying his profit per unit by the number of units sold by the infringer. As a rule, lost profit is measured as the difference between the profit that the patentee would have earned but for the infringing sales and the profits the patentee actually earned. Profitability should be calculated using incremental cost, which excludes the costs that would be incurred in both the actual and but-for markets. The difference in costs, whether expressed on a total or per unit basis, is the incremental-cost concept.

The major pitfall when measuring incremental cost is that many firms allocate both fixed costs, e.g., depreciation, and common costs, e.g., marketing and administration, to their internal accounts that might be used to calculate incremental costs. Accounting and statistical analysis are often required to remove these allocations to calculate profits properly.

2. Infringer’s Profit

A patentee may recover damage based on the infringer’s profits. Under Korean practice, it is the most common for a patentee to seek damage compensation based on the profit of infringer. It is well settled that the meaning of profit for this purpose means the actual profit. In principle, there might be three ways to compute the profit of the infringer in case of the presumption of the profit of the infringer to be the damage: (1) total sales minus the cost of production (2) total sales minus the cost of production, the distribution cost, general management expenses, and taxes, and (3) total sales of the infringer minus the variable cost according to the increase of production. The actual profit here means the amount of money in which all costs are subtracted from the sale price.

Courts have often used statistic data published by the Korean Customs. The data is used for levying income tax through calculating profit by sales x standard profit ratio in a specific business. The data are published every year and accessible on the website.

Usually the infringer defends himself by proving the actual profit is small. A patentee may not complain that the infringer operates his process inefficiently or unprofitably and should have generated greater profits by taking an alternative course. The patentee must take the infringer and actual profits made as he finds them. The maximum payment is the total profit made by the infringer. Thus, if different patentees seek accounts of profits for different infringing activities within the single business of the infringer, the total amount payable cannot exceed the total profits made.

3. Reasonable Royalty

This is based on a hypothetical method treating the patentee and the infringer of the patent as if they had signed a license agreement. The licensee, i.e., that infringer, has to pay the license fee that would have been agreed for such a license by reasonable contractual partners. The position of the infringing party is fundamentally no worse than that of a contractual licensee. He does not have to pay a particularly high license fee as punishment for the infringement, but instead is treated not as though he had infringed the patent but as if he had signed a license agreement with the patentee for the use of the invention.

Legal rulings have always turned away from adding "penalty surcharges" to the license fee as a sanction in response to the infringement of the patent. For this reason it is not material whether the party committing the infringement has done so willfully or only by negligence. This meant that the infringement of a patent represented only a minimal risk for the party committing the infringement. The least fortunate infringer, judged guilty of infringing a patent, would pay the license fee that he would have had to pay if he had initially sought to obtain the approval of the patentee for the use of the invention. However, the royalty rate applied to the infringer is lower than or the same as the ones agreed upon without litigation and there is little incentive to be an honest licensee. Therefore, the conservative approach taken by the courts has been the target of severe criticism.

The reasonable royalty functions as a minimum compensation for infringement, although the Korea law does not expressly provide for this. The formula concerning the calculation of reasonable royalty is the total sales of defendant with respect to the infringing product multiplied by the reasonable royalty rate. Factors to be considered when determining a reasonable royalty rate depends upon whether plaintiff has granted similar license to third parties and at which specified rate of royalty.

If the plaintiff has not provided license to third parties, then the reasonable royalty rate will be determined by the court based on assertions and evidence provided by the parties, including the official industry statistics. In sum, reasonable royalty will be determined based on the rate of other existing license contracts, the established customs of the field of commerce field that the patent pertains to, and others.

4. Court’ Discretion

In practice, it is really hard to prove an exact amount of manage caused by infringing a patent. Considering such difficulty, the Korean patent law allows that courts have discretion to decide a moderate and adequate amount of damage when the infringement has been found. In theory, it is possible not to award damage compensation to a patentee in case there is no sufficient evidence to prove an amount of damage, even though infringement has been found. Court desertion may prevent such unreasonable results. It eases the patentee’s burden of proof.

5. Apportionment

Apportionment is one of controversial issues. An infringer only has to account for profit from the infringing products or processes. Where only part of a product infringes, profits are apportioned between those which were caused by or attributable to the use of the patented invention and those which were not. However, where the invention is the essential ingredient in the creation of the infringer’s whole product or process, it may be appropriate not to apportion.

Before apportionment the infringer may deduct from revenues allowable costs. The following costs may be deducted: relevant research and development costs; costs of construction or operating the plant or process; and for direct costs such as manufacturing and distribution costs. Income from the exploitation of any other technology results from the research and development must be deducted from the overheads.

Injunction

Permanent Injunction

An IP right owner will seek to enjoin an infringer at the beginning of a lawsuit through preliminary injunction. The nature of a patent right is the right to exclude others. Once the patent has been held valid and infringed, the patentee is entitled to the full enjoyment and protection of the patent right. The infringer shall not be allowed to continue his infringement.

Under Korean patent law, when the infringement of a patent is found, a permanent injunction shall be automatically granted. Only in extraordinary circumstances like patent misuse or substantial injury to the public interest may a court deny a permanent injunction.

Preliminary Injunction (PI)

Preliminary injunction is drastic and extraordinary remedy. Thus, a court allows preliminary injunction only in extraordinary circumstances. PI may be allowed when the circumstances are met by showing a reasonable likelihood of success on the merits, the existence of irreparable harm to the patent owner if a PI is not granted; the balance of hardship between the patent owner and the infringer. Further, a PI should not be against the public interest.

PI is often granted to a patentee in Korea. Under Korean patent law, the validity of a patent and its enforceability are presumed and further irreparable harm is presumed where there is reasonable likelihood of success. Therefore, preliminary injunction shall be granted when the accuser’s infringement is proved.

In contrast, in case a patentee has not practiced the patented invention within Korea, preliminary injunction will not be allowed because no irreparable harm is presumed. Further, in case it is probable that the subject patent will be invalid through invalidation proceeding, it will be hard for the patentee to obtain PI. Preliminary injunction may give full and final satisfactory remedy in advance before a main lawsuit, and can cause significant suffering to the other party. Accordingly, a PI case shall be carefully decided by a panel of three judges.