Korea strengthens protection against IP infringement and unfair competition

(Amendment of the Patent Act and the Unfair Competition Prevention Act)

On December 7, 2018 the Korea National Assembly approved a bill to amend the Patent Act and the Unfair Competition Prevention and Trade Secret Protection Act (“UCPA”). Highlights of the proposed amendments include stronger penalties for patent infringements and further relaxation of the burden of proof for patent holders. The amendments are to be effective on July 9, 2019.

1. Willful infringers to face treble damages

The latest amendment to the Patent Act and the UCPA adopts a punitive damages system whereby compensation for damages arising from willful infringement of a patent may be awarded to a prevailing patentee in amounts up to three times the compensatory damages.

In determining the actual amount of damages, the amendment requires the court to consider factors that closely relate to the infringer’s intent. For example, the court will not only be actively considering the economic gains achieved through infringement, the extent of damages, the period over which the infringing act occurred, the frequency of the infringing act, and the infringer’s effort in remedying the patent holder’s damages, but also the infringer’s superior bargaining power, financial condition, and degree of awareness regarding culpability and risk of damage.

This amendment seeks to enhance protection for patentees and prevent misappropriation and theft of inventions owned by small and mid-sized businesses. Under the newly adopted amendment, therefore, companies using and practicing patented technology would need to pay closer attention to statutory compliance by carrying out internal compliance checks (e.g., obtaining outside counsel’s opinion on the possibility of infringement, etc.) and maintaining a clear record of company-developed technologies.

This amendment will apply to any infringing acts that occur after the amendment comes into effect on July 9, 2019.

2. Patent Act to relax of burden of proof of infringement

Another important amendment to the Patent Act includes further alleviating the patent holder’s burden of proof when claiming infringement. Traditionally, patentees in Korea have often faced difficulties in proving infringement, especially if the accused product or process is not publicly available (and in most cases, infringers hold key evidence of infringement). The lack of a US-style discovery process exacerbates patentees’ difficulty in proving infringement in Korea. The Korean Civil Procedure Act allows a patentee to request a court to order the alleged infringer to produce relevant documents, but in practice, the alleged infringers are able to avoid production by asserting that the requested documents contain trade secrets and simply refusing to produce them. Thus, patentees have often been unable to gather sufficient information about the accused product or process that can prove infringement or damages.

To address this difficulty, the Patent Act was amended in 2016 to allow the court, upon the patentee’s request, to compel the alleged infringer to produce documents, including materials, necessary to prove infringement or damages. However, due to the trade secrets defense, which is often asserted by the alleged infringer to resist production, the court has not actively relied on this amendment in practice. Consequently, if the alleged infringer simply denies a patentee’s allegation and refuses to produce the documents or materials requested by the patentee, then the patentee would continue facing significant difficulties in establishing infringement arising from the alleged infringer’s infringing activities.

In light of such difficulties, the National Assembly approved the amendment to alleviate the patentee’s burden of proof further. Under the amendment, the patentee can demand the alleged infringer to show “specific acts of non-infringement” to demonstrate that the alleged infringer has not engaged in activities that the patentee has reasonably substantiated as the act of infringement carried out by the alleged infringer.

The alleged infringer may cite a valid reason for resisting production, and under such circumstances, the court may order the alleged infringer to submit relevant documents and materials to determine whether the alleged infringer has a valid cause for non-production. The amendment allows the court to deem the patentee’s allegations as true if the alleged infringer does not provide a valid cause for failing to produce the relevant documents and materials to show “specific acts of non-infringement.”

For the present the practical meaning of this amendment is not yet clear, and naturally, the judicial development surrounding the practical implementation of this amendment in a court-room setting should be closely monitored.

This amendment becomes applicable from the first infringement lawsuit filed after the amendment takes effect on July 9, 2019.

3. UCPA to relax standard for defining trade secrets

The latest amendments to the UCPA include further relaxation of the standard for defining trade secrets. Under the current UCPA, the term “trade secret” includes production methods, sales methods or other useful technical or business information, which information is not known publicly, has independent economic value and has been maintained confidential through “reasonable efforts”. The amendment deletes the “reasonable efforts” standard and recognizes production methods, sales methods and other useful technical or business information as trade secrets as long as the confidentiality of such information has been maintained. This amendment lowers the threshold for information to become a trade secret and is expected to provide more protection for small and mid-sized businesses that were unable to meet the “reasonable” maintenance standard required under the current UCPA.

Although small and mid-sized businesses are now more likely to receive statutory protection for their trade secrets, it remains unclear as to the extent in which the standard for defining trade secrets would, in practice, be relaxed.

4. UCPA to impose harsher criminal punishment

The UCPA’s penal provisions have also been amended; for example, the amendment expands the types of acts that would constitute a misappropriation of trade secrets from including not only “the acquisition, use, or disclosure to a third party, of trade secrets,” but also “disclosure of trade secrets beyond the permitted scope” and “refusal or avoidance of a trade secret holder’s request to delete or return such trade secrets, or retention of copies of trade secrets even after the permission to use or maintain such trade secrets has expired”.

Further, under the latest amendment to the UCPA, harsher criminal penalties will be imposed by increasing prison terms and fines (e.g., using trade secrets outside of Korea or using them knowing that they will be used outside of Korea will now be subject to up to 15 years of imprisonment or a fine of 1.5 billion won, whereas pre-amendment penalties were not more than 10 years of imprisonment or a fine of 100 million won).

Compliance with the UCPA will become more important, and the need for responding to infringement claims efficiently would be critical for businesses operating in Korea.

In light of these new amendments to the Patent Act and the UCPA, stronger sanctions against technology extortion are expected, providing wider protection to patent holders and trade secret holders in Korea.

If you have any questions regarding this article, please contact below:

Un Ho KIM, Partner ([email protected])

Sun CHANG, Partner ([email protected])

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