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.

Patent Infringement Litigation Procedure

1. Complaint and Answer

A patentee may initiate a lawsuit by filing a complaint that includes the parties’ information, prayer of remedy and grounds why the defendant is liable to the plaintiff. The plaintiff may seek a court granting an order of barring the opposing party’s infringing manufacturing, marketing and selling activities; the seizure or destruction of all finished or half-finished infringing products in the opposing party’s possession and compensation for damages.

The defendant may submit a written answer to deny or accept the complaint within 30 days of being served the complaint. Furthermore, the defendant may file a counterclaim. But, due to bifurcated system about independent invalidity action, the defendant may not file a counterclaim to invalidate the subject patent.

2. No Discovery like the US type is available.

3. Briefs and Evidence as Exhibits

After the court has served the answer to the plaintiff, the parties are required to exchange briefs and exhibits. Each party may object to those exhibits that are irrelevant or inappropriate. The plaintiff ordinarily files his briefs at first, and then the defendant files his briefs in turn. A court may allow the parties having another opportunity to exchange briefs before a preparatory oral hearing which is a kind of scheduling meeting. The court usually permits a 3~4 weeks period for each brief filing. The court usually rules on the admissibility of the objected exhibits in the oral hearing.

4. Oral Hearing

In the first oral hearing, the court will allow parties submitting their arguments and evidence and then will arrange the disputed facts and issues between parties. Through briefs, parties will provide the court with the nature of the controversy, evidence, legal contentions that the parties believe support their positions. The court will decide what issues are presented by both parties and how the case will proceed. It is likely for parties to have two or more oral hearings in patent infringement case.

5. Evidence

Korea does not have discovery procedures and jury trials. All lawsuits are tried by judges. Because judges are skilled in the rules of evidence, judges are usually lenient in allowing evidence to be introduced.

  A. Document Request

Each party can request the court to order the other party to submit relevant documents in issues. The party having the document must submit the document to the court. The court can enforce this order by monetary sanctions and evidentiary sanctions. Evidentiary sanctions include not allowing responding party’s submission of the evidence for his benefits, and more importantly may regard the requesting party’s assertion as true. The document request is not applicable to attorney client privilege documents, attorney work products and confidential information.

  B. Protective Order

In case a party insists the document is private, trade secret, or others, the court may order the party to submit the document and then examine without the other party’s participation. Hence it is not permitted for a respondent to refuse document submission for trade secret reasons. Only the party may seek court’s protective order on his information.

  C. Expert Opinion

The parties can retain experts to testify on their behalf. The party applying for expert opinion should submit expert candidates and manner of expert opinion, and further should pre-pay the cost. If the party applying for expert opinion wins the case, the prevailing party will recover the cost from the losing party. Patent cases need prudent expert opinions that usually need considerable time and cost.

  D. Court Inspection

Court inspection is adopted for judges to examine and analyze actual objects using the five senses of judges. The court inspection can be the most powerful means for proof if judges recognize the nature and contents of the subject evidence adequately. For example, judges may compare patent’s product with infringer’s product through watching experimentations or seeing or touching by themselves. Though ordinarily it is not easy for judges to comprehend the technical peculiarity through court inspection, the court often allows parties court inspection.

  E. Special Hearing for Technical Issues (Markman Hearing)

A court usually set an oral hearing for examining technical features. Both parties may present technical issues including background technology, claimed inventions, elements of the invention and comparison of elements between the patented invention and the accused product or process. Parties are permitted to use drawings, documents, power point presentations, models, real products, demonstrations, and others. It is one of the most important proceedings for parties to be able to have an influence on judge’s decision.

  F. Witness Examination

The party who calls a witness will conduct the first examination of the witness. The direct examination shall be done by using open-ended questions. For instance, any leading questions, which allow only for a “yes” or “no” answer, are not allowed. The opposing attorney has a chance to cross examine the witness and he is allowed to use leading questions: cross examination. But the cross examination shall be limited to the subject matter raised during the direct examination. When the opposing attorney has finished his cross examination, the attorney who did direct examination has an opportunity to conduct redirect examination. The attorney again cannot use leading questions.

Parties may submit an affidavit as documentary evidence for direct examination of a witness. In the oral hearing, only crucial points of the affidavit are examined and other details can be omitted in that direct examination. Accordingly, sufficient time is allotted for cross-examination. When a witness is hostile and is not under the influence of the requesting party, the party may file a motion that the witness must be summoned and when the motion is accepted the party must submit main contents for direct examination in advance.

Basics on Claims under Korean Patent Law

1. Description requirement

Article 42, paragraph 4 of the Patent Act stipulates: "claims shall be supported by the detailed description of the invention and shall define the invention clearly and concisely." Claims must be supported by the detailed description of the invention. That means that the scope of each claim must be identical or equivalent to the subject matter described in the detailed description. Thus, an applicant should draft a specification to include a wide variety of examples with respect to the claimed invention.

KIPO maintains a rather strict attitude towards the support requirement through its narrow interpretation of the scope to be supported. As a practical strategy, a divisional application rather than an amendment of claims may be used to secure the broader scope of the protection and avoid prosecution estoppel. But, because it is required that the scope of a divisional application be within the scope of the original specification, in order to secure a broad scope of protection the original specification should include sufficient examples and the descriptions of its equivalents to support the claimed subject matter.

2. Claim Interpretation

  All Elements Rule

The scope of a patent is defined by the elements of a claim. It is well settled that each element in a claim is deemed material to defining the scope of the patented invention. Therefore, only when every element defined in a claim is found in an accused product or process, the accused product or process literally infringes the patent right.

  Doctrine of Equivalents

It has been long time for the Patent Court and the Supreme Court to adopt the doctrine of equivalents as a part of Korean patent law for interpreting claims.

The rationales of the doctrine of equivalents in Korea are similar to those of the U.S. Thus, it is true that if the 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 infringes the patent in Korea.

In particular, the 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.

  Prosecution History Estoppel

Based on the doctrine of equivalents, a patentee cannot regain his rights to any elements that were abandoned through an amendment or a response during prosecution. For example, when an element is excluded through an amendment in order to secure novelty and non-obviousness in response to the examiner’s rejection, an invention with an equivalent element is outside the scope of the patent.

The Supreme Court held that prosecution history estoppel should be applied in view of specification, opinions of an examiner from filing of the application to issuance of a patent and the intent of an applicant as indicated in the amendments and arguments during prosecution. Furthermore, in a patent containing more than one claim, the prosecution history of each claim should be independently reviewed to decide whether certain subject matter was intentionally excluded from the scope of the claim.