Korea increases punitive damages cap and introduces new unfair competition measures

On February 20 2024, the South Korean Patent Act and the Unfair Competition Prevention and Trade Secret Protection Act (UCPA) were amended such that punitive damages are available up to five times the actual damages.

Furthermore, the UCPA was amended to ensure more effective protection for unfair competition; in particular, to allow the Korean Intellectual Property Office (KIPO) to make a corrective order when unfair competition has been determined. In addition, the amendment introduces measures to provide rights for the parties involved in administrative investigation of unfair competition to request perusal and a copy of the investigation records.

The amendments will take effect as of August 21 2024.

Under the amended acts, punitive damages of up to five times the actual damages may be awarded for:

• Wilful patent infringements;

• Wilful trade secret infringements; and

• Wilful acts determined to be idea theft, which is a type of unfair competition occurring during transactions such as business proposals and bidding processes.

The punitive damage system (treble damages) was introduced in Korea in 2019. Furthermore, from 2020, in the event that the sales volume of the infringer exceeds the right holder’s production capacity, the right holder has been able to claim damages by combining its lost profit with a reasonably expected royalty for the sales exceeding its production capacity. The outcome of the figures is based on a so-called mixed or hybrid calculation, which has been widely accepted in other jurisdictions, including the US, the UK, Germany, France, and Japan.

However, there has been wide criticism that judicially proving infringement in cases involving a patent, a trade secret, or idea theft was a substantial hurdle. In addition, even if infringement has been successfully proven, the calculation of damages was another task causing difficulties and thus compensation would be difficult, if not insufficient.

It is widely known that in addition to the strict standard of scrutiny for proving infringement, Korean courts end up rendering relatively less in damage awards compared with other major jurisdictions. For example, the average damages ‘claimed’ in a patent infringement in Korea from 2016 to 2020 was equivalent to $470,000. However, the median amount of an award was just about $80,000 in that period. In comparison, from 1998 until 2016, the median amount of damages awarded in the US was $5.9 million.

The new amendment is expected to provide victims with sufficient remedies for malicious infringements in Korea. The amendments will apply to infringement or unfair competition activities committed on or after August 21 2024.

Until the amendment to the UCPA, various government bodies in South Korea, including KIPO, were able to press investigations for certain types of unfair competition cases. Where unfair competition was detected, the government authorities could issue a ‘recommendation’ of corrective action. Such administrative investigations and recommendations constitute an administrative remedy system for unfair competition in Korea.

However, the recommendation had no legitimate compulsory force, and thus it was difficult to properly deal with potential non-compliance. According to KIPO’s statistics, among the cases in which an administrative investigation was conducted in 2017 to 2023, 15 resulted in a recommendation of corrective action, and a third of them were found to be in non-compliance with the recommendations.

Now, under the amended UCPA, KIPO has a new weapon in its arsenal. KIPO will have the authority to issue a ‘corrective order’ when unfair competition is found. Since this order has legitimate compulsory force, an administrative penalty of roughly $15,000 shall be imposed on parties that fail to comply with this corrective order without justifiable reasons. As for other government bodies, if any of the recommendations issued are not in compliance, a request can be made to KIPO to issue a corrective order.

This new corrective order system was introduced to remove the pitfalls of the previous system, thereby ensuring the effectiveness of administrative remedies.

It is expected that the amended UCPA soon to be in effect will benefit victim companies since investigation records, including KIPO’s corrective order, can become more easily used as effective persuasive evidence in civil lawsuits.

Under the amended UCPA, the parties involved in the administrative investigation of unfair competition have rights to request perusal and a copy of the investigation records. Unless the records fall into trade secrets or are found to be exempt from disclosure under other rules, the investigation authorities, such as KIPO, have an obligation to comply with the requests from the parties. Furthermore, the currently amended UCPA provides details of procedures for a court to request investigation authorities to submit the investigation records.

Previously, there was only a provision that a court in a civil lawsuit for unfair competition can request the investigation authorities to submit the investigation records, including all the evidence that was collected in the administrative investigation. However, not enough procedural details were provided. Furthermore, the parties involved in an administrative investigation were unable to directly peruse or copy the investigation records. The situation made it difficult for the victims to utilise the results of administrative investigations as evidence in civil lawsuits. The body of law will bring a change.

The Korean legal environment has continuously evolved to strengthen the protection for intellectual property rights. With the revised punitive damages system, the right holders may expect more sufficient compensation from malicious infringements.

In situations where it is not easy to collect evidence proving unfair competition, the right holders can utilise administrative remedies as a means to collect evidence through the power of the administrative authorities (KIPO) and use them for potential civil lawsuits, which can be more effectively and easily achieved under the amended UCPA.