The Korean Supreme Court sided with Canon in Patent Infringement Lawsuits
Canon brought many legal actions against several Korean companies. Recently the Korean Supreme Court affirmed lower court decisions for the patentee Canon in printer cartridges patents. In other hand, accused infringers challenged validities of Canon’s patents but the Korean Supreme Court affirmed validity of challenged claims, too. Canon has successfully enforced his patent against local competitors.
As for damages, the Seoul Central District awarded Canon about US$14 million to an infringer company among several other infringers. The court used an interesting method to calculate the amount of Canon's damage. The patentee used an official statistic number of the government; the tax authority of the Korean government published 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.
Remedy – Injunction and Damage Compensation
1. Permanent 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.
2. 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.
3. 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. It is same to all cases no matter how serious infringements are. No treble damage award is possible. And there is no willful infringement clause and thus intent or negligence is treated as being same. There are 3 ways to calculate damage.
a. Lost Profit
Where a patentee and an infringer compete, lost profits are an appropriate remedy. Lost profits are the sum of profits that a patentee would have gained if the patent was not infringed. According to Article 128, paragraph 1 of the Korean patent act, lost profits 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 the infringement.
Since lost profits are not presumed, a patentee has the burden of proof. A patentee must show reasonable probability that it would have made the infringer’s sale. Patent infringement can reduce the patent owner’s profits 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 profits 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 profits for convoyed sales but the functional relationship between a patented invention and convoyed sales must be established.
Especially, the total amount of damages is largely correlated with the profit per unit. When incremental profit (so called marginal profit or contributory profit) are 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 profits are measured as the difference between the profits the patent holder would have earned but for the infringing sales and the profits the patent holder 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. Stated differently, the lost profits equal the difference in revenue minus the difference in costs. 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. The Supreme Court recently awarded damages based on incremental profit.
b. Infringer’s Profits
Further a patentee may recover damages based on the infringer’s profits. According to Article 128, paragraph 2, it is possible for patentee to seek damages based on the profit of infringer. It is settled that the profit in the provision means the actual profit. There are 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. Unlike the profit in Article 128, paragraph 1, the actual profit in this clause means the amount of money in which all costs are subtracted from the sale price. This provision presumes the profit and hence the infringer may defend himself by proving the actual profit is small.
A patentee cannot 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.
c. Reasonable Royalty
This method of damage calculation treats 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 immaterial 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 (s)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 statute 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 are dependant 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.
d. Discretion of a Court in determining Damage
Under the Korean patent law, courts have discretion to decide 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.
e. Shift of Burden to Infringer
Under the old Korean patent law, a plaintiff had to prove the amount of damage, which was extremely difficult without discovery. But the current patent law makes it much easier for a patentee to prove the amount of damage. It is possible for a patentee to calculate damage because the other requirements can be met by his information when he knows the sale quantity of the infringer.
f. Apportionment
How to calculate the damages by apportionment is a controversial issue. An infringer only has to account for profits 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.
New Supreme Court Decision on Doctrine of Equivalents in Korea
The rationales of the doctrine of equivalents in Korea are basically similar to those of the U.S. Namely, when an accused product or process performs substantially the same function in substantially the same way to obtain the substantially same result of the patented invention, the accused product or process infringes the patent right.
In particular, the Korean Supreme Court held that the accused product or process infringes a patent where an element of the patented invention is substituted with another element and, if (i) the technical concepts or principle to solve the objective of the patented invention and the accused invention are the same or common; (ii) the substituted element in the accused invention performs substantially the same function in substantially the same way to obtain the substantially same result of the patented invention; (iii) such substitution is obvious to an ordinarily skilled person in the art. However, the doctrine of equivalents shall not be applicable to the circumstances that (iv) the accused substitution was already known to skilled persons in the art at the time of filing an application and (v) the accused element was excluded from the claimed invention during prosecution.
On July 24, 2014, the Supreme Court further clarified the scope and meaning of the above (1) requirement of DOE; the technical concepts or principle to solve the objective of the patented invention and the accused invention must be the same or common.
The patent claimed a cutter for dry seaweed. The seaweed cutter has cutting blades laid out in a grid pattern. Seaweed is placed on top of the cutting blades and pressed from top to down and then sliding down into a container through a grid-patterned box attached to the bottom of the cutting blades. The patented invention can achieve a cutting and storing of seaweed in a single process.
The accused cutter is different from the patented cutter in which the accused cutter has moving blades that move from top to down and cut seaweed. Instead, the patented invention does not have moving blades. Except the position of blades, other technical features of the two devices are the same. Two cutters perform the same function in the substantially same way and achieve the same result.
However, the Seoul High Court denied patent infringement under DOE because the accused cutter did not meet the (1) requirement of DOE. The accused cutter cut seaweed in a different way from the patent technology; there is no the same technical principle of resolving the technical problem.
The Supreme Court vacated the lower court decision. The Court held that the "essence or core of the technical idea" must be determined between two cutters in order to apply DOE and then found that two cutters used the same technical idea because it should be the incline of the grid patterned box that allowed seaweed to be automatically stored after being cut and it is found in two cutters although two cutters employed different embodiments. The Court found that the change to position of the cutting blades was obvious. The Supreme Court decision clarified (1) requirements of DOE under the Korean patent law. In practice, patentees may have higher chance to apply DOE under the recent decision.
In particular, the Korean Supreme Court held that the accused product or process infringes a patent where an element of the patented invention is substituted with another element and, if (i) the technical concepts or principle to solve the objective of the patented invention and the accused invention are the same or common; (ii) the substituted element in the accused invention performs substantially the same function in substantially the same way to obtain the substantially same result of the patented invention; (iii) such substitution is obvious to an ordinarily skilled person in the art. However, the doctrine of equivalents shall not be applicable to the circumstances that (iv) the accused substitution was already known to skilled persons in the art at the time of filing an application and (v) the accused element was excluded from the claimed invention during prosecution.
On July 24, 2014, the Supreme Court further clarified the scope and meaning of the above (1) requirement of DOE; the technical concepts or principle to solve the objective of the patented invention and the accused invention must be the same or common.
The patent claimed a cutter for dry seaweed. The seaweed cutter has cutting blades laid out in a grid pattern. Seaweed is placed on top of the cutting blades and pressed from top to down and then sliding down into a container through a grid-patterned box attached to the bottom of the cutting blades. The patented invention can achieve a cutting and storing of seaweed in a single process.
The accused cutter is different from the patented cutter in which the accused cutter has moving blades that move from top to down and cut seaweed. Instead, the patented invention does not have moving blades. Except the position of blades, other technical features of the two devices are the same. Two cutters perform the same function in the substantially same way and achieve the same result.
However, the Seoul High Court denied patent infringement under DOE because the accused cutter did not meet the (1) requirement of DOE. The accused cutter cut seaweed in a different way from the patent technology; there is no the same technical principle of resolving the technical problem.
The Supreme Court vacated the lower court decision. The Court held that the "essence or core of the technical idea" must be determined between two cutters in order to apply DOE and then found that two cutters used the same technical idea because it should be the incline of the grid patterned box that allowed seaweed to be automatically stored after being cut and it is found in two cutters although two cutters employed different embodiments. The Court found that the change to position of the cutting blades was obvious. The Supreme Court decision clarified (1) requirements of DOE under the Korean patent law. In practice, patentees may have higher chance to apply DOE under the recent decision.