South Korea strengthens IP protection through legislative measures
Hyun-Sil Lee and Minji Ryan Kim of FirstLaw analyse changes to South Korean IP legislation and examine KIPO’s plan to introduce K-discovery
Early this year, the Korean Intellectual Property Office (KIPO) announced its primary objectives to accomplish in 2020. The most notable was its continued resolution to reform Korean IP law and the country's IP system with a view to reinforcing IP protection.
This article provides a brief introduction to the legal instruments that have been implemented for more effective IP protection in Korea, along with KIPO's plan for introducing the so-called "K-discovery" system into the Korean IP regime.
Devices for reinforcing IP protection in Korea
Punitive damages for patent infringement
Until recently, the amount of damages assessable against a patent infringer was limited to actual damages, even in cases of wilful infringement. However, there was criticism that the amount of damages that can be awarded under the law was inadequate in cases of wilful infringement, making Korea a less favourable venue for infringement litigation.
In December 2018, KIPO announced revisions to the Korean Patent Act (KPA), effective from July 9 2019, that included the introduction of punitive damages for wilful infringement. Seen as a response to the criticism calling for stronger IP protection for patentees in Korea, a maximum of up to three times the amount of actual damages may now be awarded for a finding of wilful infringement.
Under the revised law, the following factors shall be taken into consideration in determining the amount of punitive damages in a patent infringement action: (i) whether the infringer holds a dominant market position over the patentee; (ii) the infringer's wilfulness or awareness of the severity of harm caused by its act of infringement; (iii) the extent of damages; (iv) the infringer's profits gained as a result of the infringement; (v) the duration and frequency of infringement activities; (vi) penalties imposed for the infringement (e.g. a parallel criminal prosecution); (vii) financial status of the infringer; and (viii) the infringer's efforts to mitigate damages.
The provision of punitive damages applies to patent infringement cases where the first violating activity by the accused party has taken place after the effective date of the revised KPA, i.e. July 9 2019.
Damages for patent infringement awarded for infringing articles exceeding patentee's production capability
An additional amendment to the KPA addresses the method of calculating the amount of damages that may be awarded in a patent infringement suit. In the past, the amount of damages was calculated by multiplying the number of infringing articles transferred by the infringer by the profit per unit of articles that could have been sold by the patentee but for the infringement. However, the amount of damages was capped by the production capacity of the patentee, and could not exceed the amount calculated by multiplying the profit per unit by the number of articles that the patentee could have produced. For example, if the number of articles that the patentee could have produced was 300 units and the number of infringing articles transferred by the infringer was 1,000 units, the patentee could not receive damages for the 700 infringing articles exceeding the patentee's production capacity.
To redress the inequity, KIPO revised the KPA so as to allow the patentee to receive, in addition to the damages within the patentee's production capability that had been awarded under the previous KPA (i.e. 300 units x profit per unit), damages calculated by multiplying a reasonable royalty with the number of infringing articles exceeding the patentee's production capacity (i.e. 700 units x reasonable royalty). This revision becomes applicable to infringement actions filed on or after December 10 2020.
KIPO's plan to introduce K-discovery
The case that served as the catalyst for KIPO to implement a discovery procedure in Korea began in April 2019, when LG Chem filed a lawsuit with the US International Trade Commission (ITC) for trade secret misappropriation against SK Innovation. The case concerned the two arch-rivals in Korea in the field of batteries for electric vehicles. After a year-long investigation, the ITC made a preliminary ruling in favour of LG Chem in February this year, based on the finding that SK Innovation intentionally tampered with evidence and violated the ITC's forensics order. After it became known that one of the reasons why LG Chem brought the lawsuit against the domestic competitor in the United States, and not in Korea, was due to the lack of a discovery system in Korea, discussions for adopting a discovery procedure became enlivened.
Evidence-gathering procedures in Korea and their limits
In Korea, unlike in US trial practice, the court is both the finder and trier of facts, and the entire discovery in accordance with the current Korean Civil Procedure Act (KCPA) is conducted by, and in the presence of, the judge appointed by the court. The parties involved may file a request or motion with the court, before or after the initiation of the civil action, to have the court conduct the discovery. In a patent infringement lawsuit, facts can be discovered mainly through requests for document production, examination of witnesses, raids of the defendants' premises, seizure of infringing goods, and appointment of expert witness to, for example, assay an alleged infringing article.
Typically, in a patent infringement action, most of the evidence necessary to prove infringement or assess damages caused by the infringement tends to be in the possession of the accused infringer, making it difficult for the patentee to meet the burden of proof. In such a case, the patentee may rely on a motion for preservation of evidence or a motion for production of documents for obtaining evidence in Korea.
Preservation of evidence may be requested of the court even before the institution of a court action or at an early stage of a court action by showing that evidence is likely to be destroyed or altered if the discovery is conducted in a normal court proceeding. Upon the motion by a party (typically, the patentee), the court may gather evidence ahead of the court action, and preserve the gathered evidence (see Articles 375 and 376 of the KCPA). However, in practice, the usefulness of the procedure of preservation of evidence is restrictive, in particular, in a lawsuit for infringement of a process patent, since it is quite difficult to show a substantial probability of infringement, which is a requirement for such a motion to be granted.
Document production may be ordered upon either a party or a non-party, unless the holder of the requested document has a justifiable reason for refusing to submit it (see Articles 343 and 344 of the KCPA).
As a special provision in the KCPA, the KPA has its own discovery device for document production. Under the statutory provision, in the course of a patent infringement action, the court may, upon the request of one party, order the other party (but, not a third party) to submit materials (not limited to documents) necessary to prove infringement or assess damages caused by the infringement. Even if the materials involve a trade secret that is otherwise protectable under the Korean Unfair Competition Prevention and Trade Secret Protection Act, the other party cannot refuse the order to submit the materials if they are indispensable for proof of infringement or assessment of damages (see Articles 132(1) to (3) of the KPA). In such a case, the court should specify the person(s) who may gain access to the materials in the submission order. If the holder of the requested material does not obey the submission order without a good cause, the court may, at its discretion, deem the requesting party's claim about the contents of the material to be true (see Article 132(4) of the KPA). However, due to the lack of adequate measures for imposing sanctions when the holder of the materials fails to comply with the court's order or for alleviating concerns or lack of confidence in the protection of the requested party's submitted trade secrets, the procedure is not regarded as an effective device for collecting evidence.
To help ease the patentee's burden of proof and achieve early resolution of a dispute, KIPO has initiated steps for statutory revision to introduce a discovery system adapted to the judicial regime of Korea. The discovery system is geared to help patentees effectively obtain evidence for proof of patent infringement and facilitate the assessment of damages.
KIPO, however, is well aware that an overly extensive discovery process may lead to increased legal costs and a prolonged lifespan for disputes. Bearing in mind the goal of attaining a K-discovery system that is effective and efficient in terms of cost and time, KIPO is contemplating improving the effectiveness of current evidence-gathering procedures. For example, it is considering a duty to preserve evidence, while also considering adopting new legal instruments for discovery by looking at systems in foreign jurisdictions such as Germany and the United Kingdom. For instance, it could introduce a system in which an expert appointed by the court may examine evidence on the opposing party's premises, and/or the parties may be required to prepare a list of documents relevant to the case and exchange the lists with each other even before or during the early stages of a lawsuit as a simplified evidence disclosure procedure.
According to the proposed timeline, KIPO plans to complete the revisions to the KPA by the end of this year, with implementation of the new discovery system by next year (FirstLaw will provide updates via FirstLaw IP News as further developments occur: http://www.firstlaw.co.kr/eng/sub/news/letter.asp).
Mutatis mutandis expansion of patent protection schemes to encompass other forms of IP
Further, KIPO plans to expand the punitive damages regime currently applicable only to patent infringement and trade secret misappropriation to infringement of trademarks and designs in the future. In order to effectively implement the punitive damages system and the statutory change for calculating the amount of damages as discussed above, it is a requirement to establish an effective measure for gathering the evidence necessary to determine infringement, wilfulness and damages. For these reasons, hopes run high for K-discovery coming into effect.
Hyun-Sil Lee is a Korean patent attorney and partner at FirstLaw. She graduated from Seoul National University, College of Pharmacy and received a JD degree (cum laude) from Seattle University School of Law.
In her 22 years of experience in patents, she has actively been involved in patent prosecution, patent infringement actions, invalidation trials, scope confirmation trials and opinion work on behalf of major foreign/domestic clients in the fields of pharmaceuticals, chemicals and biotechnology. She served as director for the Korea Patent Attorneys Association and the Central Pharmaceutical Affairs Council of the Ministry of Food and Drug Safety.
Minji Ryan Kim
Ryan Kim is a US attorney and foreign legal counsel at FirstLaw. He graduated from the Johns Hopkins University and the University of Southern California and received his JD degree from Georgetown University Law Center.
In his role as international client liaison and head of US marketing operations for FirstLaw, Ryan has been actively involved in advising and assisting clients in North America, Europe and Asia on IP matters. He has expertise in prosecutions involving electrical and mechanical technology. Prior to joining FirstLaw, Ryan gained experience in several firms in the United States, including prosecution, litigation, licensing and portfolio analysis/management experience.