New provisions on punitive damages for willful patent infringement in South Korea

The biggest IP news of 2019, as selected by IP experts in South Korea, is the introduction of new provisions in relation to punitive damages, which took effect in July 2019.¹ According to these provisions, a court can award up to triple the amount of compensatory damages in the case of a patent and utility model infringement², where ‘willfulness’ is confirmed. The new legislation on punitive damages is expected to prevent defendants and others from exploiting any patented item without the permission of the patent holder beforehand, by imposing harsher punishments for alleged infringers. The newly-added provisions can be found in article 128 (claim for compensation for damages) of the Korean Patent Act, new paragraphs 8 and 9 which state the following:

• 8) Notwithstanding paragraph 1, the court may award damages up to three times the amount of damages determined pursuant to paragraphs 2 to 7, if the activity infringing the patent right or the exclusive license right is found to be willful.
• 9) The court shall consider each of the following factors in considering the damages pursuant to paragraph 8:
  1. i) whether the infringer has a dominant position;
  2. ii) whether the infringer knew the act of infringement would cause harm to a patent owner;
  3. iii) the significance of any such damages;
  4. iv) the economic benefits to the infringer from the infringement;
  5. v) how frequently and how long the infringing activity was committed;
  6. vi) the criminal penalty for the infringing activity;
  7. vii) the infringer’s financial status; and
  8. viii) what efforts the infringer has made to reduce the harm to the patent owner.

In the past, patent owners had a heavier burden of proof than an accused infringer in infringement litigation. The lawsuit would be filed with evidence such as a scope of infringement and infringing products, which was considered impossible to prove when the infringer refused to submit this data. Furthermore, even if proven to be a patent violation, the amount of compensation from the act of infringement is, in most cases, ironically smaller than the profits gained by the infringer during their illegal conduct.

In the United States, where punitive damages have been enforced for a long period of time, judges impose a more significant amount of compensation for damages in patent infringement than in South Korea. As a matter of fact, according to data sourced from Darts-ip, the number of cases involving damages of more than $10,000 USD in patent infringement actions is approximately five times higher in the United States than in South Korea.³ Thus, the damage compensation laws prior to the reform did not have any particular influence in discouraging potential infringers in South Korea.

The newly-added provision is also meaningful in terms of supporting small and medium-sized enterprises (SMEs). The Korean Intellectual Property Office (KIPO) enforces many policies for the sake of SMEs, for example, the reduction of patent application and/or registration fees. In this regard, the introduction of the new provisions can be interpreted as being favorable to SMEs, protecting against the ‘intentional’ patent violations by large multinational corporations. Consequently, a guideline⁴ has been published by the KIPO, primarily for SMEs, to provide instructions for preventing infringement as well as informing how to confront large companies, as SMEs usually lack the resources to do so on their own. Furthermore, it is noteworthy that stronger penalties can be imposed in the context of malicious, willful infringement where large corporations abuse their dominant position on patents held by SMEs or private patentees.

However, this new legislation does give rise to an important question: how can ‘willfulness’ be defined?

Most of the cases to date cite a Supreme Court decision on May 27, 2005 (2004다60584), stating that “the damages can be calculated by comprehensively considering the circumstances and background of the infringement of the patent rights, the nature and market conditions of the operation, the duration in which the infringement of the patent rights was sustained, the attitude or the willfulness of infringers during the infringement dispute and other circumstances shown in the records and arguments” (darts-793-587-B-ko). This is clearly insufficient for determining the ‘intention’ as multiple factors are involved in a broad concept.

Nevertheless, it should be pointed out that an infringement trial usually becomes divided into two parts in South Korea. On one hand, a patent infringement is a criminal proceeding that entails certain penalties, such as imprisonment or fines to an accused infringer. On the other hand, the compensation comes as a result of a civil proceeding and must be filed separately by a patentee in order to get compensated up to triple the amount.⁵ For this reason, there has been some opposition to the new damage provision, as it could lead to confusion between civil and criminal laws resulting in potential double punishment of the infringers.

In conclusion, the guidebook⁶ addresses several cases⁷ that may be identified as acts of infringement committed ‘knowingly and purposely’; however, the judgment may vary depending on experts’ views and judges’ discretion. Opponents of this new measure claim that the punitive damage implementation may create abuse by patentees, and the divided proceedings between civil and criminal trials might put an additional burden on both patent holders and infringers. Therefore, the introduction of these provisions seems to favor small patent holders and SMEs; however, it may be different in practice. As we proceed through 2020 with this change, it will be important to develop concrete cases in order to promote mutual growth and fair judgement in the field of patent infringement.

 

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References

1. The system is defined by about 16 other provisions, including the Patent Act, the Unfair Competition Prevention and Trade Secret Protection Act, etc., but this article focuses on patent and utility model infringement.
2. The patent infringement mentioned throughout this article includes utility model infringement.
3. Source: app.darts-ip.com, The cases ruled more than 10,000 USD of the compensation for damages between 2010 and 2019.
4. “A preventive guideline for SMEs of the introduction of punitive damages resulted from willful patent infringement”, KIPO, Jan.2020.
5. http://www.junggi.co.kr/article/articleView.html?no=24597
6. Referenced in footnote 29.
7. 1) an act of Infringement after receiving a warning letter or a lawsuit has been filed
   2) an act of infringement after the termination of the license contract
   3) an act of infringement in cases to believe that he was well aware of the patent.