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Practice Notes

Supreme Court clarifies the exclusive jurisdiction of the IP High Court in hearing IP-related civil cases (Ruling 2024Da228906 | October 31, 2024)

Introduction Civil cases concerning IP rights including patent rights, utility model rights, design rights, trademark rights, and plant variety protection rights fall under exclusive jurisdiction of specific courts. The first trial is under the exclusive jurisdiction of the Seoul Central District Court, Suwon District Court, Daejeon District Court, Daegu District Court, Busan District Court, or Gwangju District Court, while the second trial falls under the exclusive jurisdiction of the IP High Court. In this regard, the question arises as to what cases are encompassed within “civil cases concerning IP rights”. Supreme Court ruling 2024Da228906 (October 31, 2024) According to the Supreme Court, the reason for stipulating a separate rule on jurisdiction for cases concerning IP rights is that, generally, the hearing and judgment of disputes concerning such rights require specialized knowledge and an understanding of relevant technology; concentrating these cases in specialized courts contributes to the appropriate protection of IP rights. Last year, in ruling 2023Da277260 (December 28, 2023) pertaining to a damages claim, the Supreme Court confirmed that, even when the first trial is judged by a single judge of a district court (including small claims cases), the appeal still falls under the exclusive jurisdiction of the IP High Court. This latest Supreme Court ruling we are discussing (2024Da228906 | October 31, 2024) pertains to a case on liquidated damages. Specifically, the plaintiff, Defendant 1, and Defendant 2 entered into a settlement agreement to resolve a patent-related dispute and concluded the dispute by withdrawing ongoing invalidation trials or lawsuits. Later, the plaintiff filed a main action seeking payment of liquidated damages, claiming the defendants breached the agreement, while Defendant 1 filed a counterclaim, asserting that the plaintiff breached the agreement and also sought payment of liquidated damages. The first trial decision was rendered by a single judge of the district court, and the second trial decision was rendered by the district court’s panel division. In this regard, the Supreme Court held that the main and counterclaims in this case involve issues requiring an understanding of specialized knowledge or technology related to IP rights. Therefore, these claims fall within the scope of IP cases, and the second trial falls under the exclusive jurisdiction of the IP High Court. Consequently, the Supreme Court overturned the appellate court decision and transferred the case to the IP High Court. The Supreme Court particularly ruled as follows on the issue of whether an understanding of specialized knowledge or technology related to IP rights is necessary: Regarding the main action, it is necessary to examine and judge whether specific acts of the defendants fall under prohibited acts specified in the settlement agreement. This requires a comprehensive review of the details and outcomes of the patent-related invalidation trial, trial decision cancellation lawsuit, and scope confirmation trial,     as well as the identity between the technology for which the plaintiff applied and the plaintiff’s patented invention technology. Regarding the counterclaim, it is necessary to examine and judge whether specific acts of the plaintiff fall under prohibited acts specified in the settlement agreement. This requires a comprehensive review of the details of the defendants’ patented invention technology and whether the plaintiff included false information regarding the defendants’ patented invention in an application for designation as a new construction technology.   Comment This Supreme Court ruling is significant in clarifying that if the substantive nature of a dispute requires an understanding of specialized knowledge or technology related to IP rights, such cases are regarded as “civil cases concerning IP rights” and thus fall under the exclusive jurisdiction of the IP High Court.

2024-12-06
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Practice Notes

What Happens to Patent Licensing Agreements and Patent Non-Implementation Agreements When a Patent is Invalidated?

When a patent is invalidated after a Patent Non-Implementation Agreement is executed, what becomes of the legal relationship surrounding the agreement? Under the Korean Patent Act, if a patent is invalidated, it is considered to have never existed from the outset. Does this mean that if the other party used the patented invention, it is no longer considered a breach of contract? Additionally, if the other party proves that the invention they used falls under the category of free-to-use technology, would this eliminate their liability under the agreement? This article will first review relevant Supreme Court decisions regarding Patent Licensing Agreements and the invalidation of the related patent and then introduce the latest Supreme Court ruling delivered on November 20, 2024, which addresses these issues.    ______________________________________________________________________________________________________________________________________________________ Patent Licensing Agreements and the Invalidation of the Related Patent (Supreme Court Decision 2012Da42666, 42673 | November 13, 2014)    1.    Does a Patent Licensing Agreement Become Void If the Underlying Patent is Invalidated?    When a patent is invalidated after the execution of a licensing agreement, the patent is deemed to have never existed, except in specific circumstances. However, unless the patented invention that is the subject of the contract was impossible to implement, the Patent Licensing Agreement cannot be deemed to have been in a state of initial impossibility at the time of its execution. It is only upon the invalidation of the patent that the agreement is considered to enter a state of non-performance.    2.    Is the Patentee Obligated to Refund Royalties for the Period the Agreement Was Valid?    Even if the patent is invalidated, the patentee is not required to refund royalties received for the period when the licensing agreement was valid, unless the agreement was initially void or there were separate grounds for invalidity of the agreement.     A subsequent Supreme Court ruling (2018Da287362, April 25, 2019) reinforced this view, stating that patentees can claim royalties for the valid period of the agreement.    3.    Can a Licensing Agreement Be Voided Due to a Mistake About Patent Validity?    Given the inherent possibility of a patent being invalidated after registration, a licensing agreement cannot be voided for mistake unless the validity of the patent was explicitly agreed upon as a fundamental term of the contract. ______________________________________________________________________________________________________________________________________________________ Patent Non-Implementation Agreements and the Invalidation of the Related Patent (Supreme Court Decision 2024Da270105 | November 20, 2024)    1.    Does a Non-Implementation Agreement Lose Effect Upon Patent Invalidation?    Even if a patent is invalidated after the execution of a Non-Implementation Agreement, the agreement is not void from the outset. Instead, it becomes unenforceable only after the patent’s invalidation. Thus, unless there are separate grounds for invalidity of the agreement, the patentee can claim damages for breach of the agreement during the valid period    2.    Can the Defendant Argue Freedom-to-Use Technology as a Defense Against Breach    The fact that the defendant’s use of the invention constitutes freedom-to-use technology (i.e., technology that can be easily derived from public knowledge) does not exempt them from the obligations under the Non-Implementation Agreement, which remains binding as per the parties’ mutual understanding. ______________________________________________________________________________________________________________________________________________________ Conclusion The Supreme Court has clarified that neither licensing agreements nor non-implementation agreements are automatically void when the associated patent is invalidated. In licensing agreements, patentees can claim royalties for the period before invalidation, and refunds are not owed for royalties already received during that time. In non-implementation agreements, patentees can claim damages for breach of contract during the period before the patent’s invalidation, and defendants cannot evade liability by arguing freedom-to-use technology.

2024-12-05
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Practice Notes

Korean IP High Court upholds “upcycling” trademark infringement decision

 ▒  ORIGINAL DECISION (Seoul Central District Court - Case 2022GaHab513476) One of the most interesting recent developments in Korea for brand owners was the 12 October 2023 decision by Seoul Central District Court dealing with the issue of whether “reforming” genuine goods into different goods constitutes an infringement of the brand owner’s trademark rights, and if the doctrine of exhaustion (AKA first sale doctrine) applies to such goods. We previously wrote an article on this topic (see here), but in summary: The dispute involved a defendant who provided a service of altering branded bags (including those offered by the plaintiff) by using fabric and materials displaying the brand’s registered trademarks. Customers would submit original/genuine branded items, which the defendant would deconstruct and reassemble into modified products. The reformed items bore the original brand’s logo and design elements. See image below, taken from the first instance decision, showing how bags were transformed into wallets, card cases, smaller bags etc.: The court addressed whether transforming genuine products into new forms, e.g., bags to wallets, infringes on trademark rights. While the first sale doctrine limits the original trademark owner's control post-sale, issues arise when altered products are resold. Plaintiff claimed the transformations constituted infringement of their trademark rights and harmed their brand’s distinctiveness. Defendant argued that the modifications were for the owner’s use only, not resale, and did not damage the identity of the original product, and that there would be no source confusion as products were only distributed to the customer who provided the original item. The court ruled the transformations went beyond the scope of simple processing/repair and constituted an act of production, damaging the original product’s identity, and also commented that while the recipient of the products would not be confused as to their source, general consumers could still be confused if the reformed products are viewed by or transferred to a third party. Ultimately, the court ruled that the brand owner’s trademark rights were not exhausted and awarded damages in favor of the plaintiff.    ▒  APPEAL DECISION (IP High Court - Case 2023Na11283) The original decision was appealed to the IP High Court, which handed down a ruling on 28 October 2024 upholding the decision of the first instance court. Damages of 15 million KRW (approx. $10,750 USD) were awarded, together with an injunction barring the appellant from using materials bearing Louis Vuitton’s trademarks in the production of bags and wallets. While largely affirming the lower court’s stance, the IP High Court offered clarifications on several points: Commercial Value of Reformed Products: In terms of trademark usage, a “product” refers to an item that, in itself, has exchange value and is capable of being an independent object of commercial transaction. Reformed products such as wallets and bags hold exchange value in themselves. Furthermore, given that the Louis Vuitton trademark is widely known as indicating the origin of the plaintiff’s bags or wallets, the reformed products carry considerable exchange value. Additionally, considering the active resale market for luxury products, reformed products are also likely to be circulated in the second-hand market. Repair vs Reform:  The owner of an item, when it becomes worn or damaged, may utilize a repair service to restore the item to its original appearance or function. For items that have undergone simple repairs, the trademark on the repaired item is not generally perceived as identifying the repair service provider, except in special cases. However, if an old or damaged item is used as a raw material to produce a new item different from the original, the trademark on the new item could be perceived as representing the manufacturer of the new product, rather than the original manufacturer. Considering the products in question, it is reasonable to deduce that the defendant completely dismantled the original product, cut its parts, and recycled the parts as raw materials through processes involving physical/chemical treatment, stitching, attachment of components, and application of trademarks. In comparison to the original item, the reformed product differs significantly in terms of quantity (e.g., two or more new items manufactured from one original item), size, volume, shape, appearance, and function. Therefore, the reformed product is considered a new product, and can be distinguished from a repaired/decorated product where restoring to its former state is feasible. Consumer Confusion & Brand Dilution:  The court emphasized that even in cases where the reformed products are returned to the original owners rather than sold to third parties, the presence of the brand’s trademark on significantly altered items can still lead to consumer confusion. The court highlighted that even if the modifications are requested by the owners, reformed goods bearing the original trademark risk damaging the brand’s reputation by diluting its association with quality and consistency. This underscores that consumer perception remains a critical factor in determining infringement, focusing on the “general consumer” who may encounter the modified goods in secondary or social contexts, potentially mistaking them as authentic brand products. Exhaustion Doctrine:  The court also reiterated and clarified the limitations of the exhaustion doctrine. While brand owners cannot restrict the resale of their products post-purchase, the exhaustion doctrine does not apply when the modifications transform the product’s core characteristics. Given that the defendant’s alterations affected the products' structure and presentation — resulting in entirely new forms like wallets from handbags — the court found these alterations to exceed permissible "repair" and to encroach upon the brand owner’s rights. The appellant criticized the ruling, stating that the legal judgement lacked common sense (Source: News1), and has further appealed the matter to the Supreme Court.   ▒  COMMENTS We will keep a close eye on this issue and report any further updates if and when the case is heard by the Supreme Court. In the meantime, the IP High Court’s decision signals a strong stance against unauthorized brand modification, especially in cases where significant alterations may harm brand integrity or confuse consumers.  Brand owners may find this ruling advantageous for enforcing their rights over products in secondary markets. The decision also serves as a warning to businesses engaged in reformation/upcycling services, indicating that they must consider the degree of alteration and the potential for consumer confusion when handling branded items.   Written by Jonathan MASTERS and Sang-eun SHIN

2024-11-26
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Practice Notes

IP High Court Upholds First Award of Punitive Damages for Willful Patent Infringement

In a late October 2024 ruling, the IP High Court of South Korea upheld the main legal findings of a Busan District Court decision to award punitive damages for willful patent infringement. The case involved alleged infringement of the plaintiff’s patent on a lid for a vacuum cooking pot. The Busan District Court’s decision was noteworthy as it marked the first application of punitive damages since their introduction in a 2019 amendment to Article 128(8) of the Patent Act, which allowed courts to award punitive damages of up to three times the actual damages.   A subsequent amendment, which came into effect in August 2024, has since increased the possible punitive damages cap to five times the actual damages.  Against this backdrop of a pro-patentee legislative push, attention has turned to the courts, which have previously been cautious in awarding punitive damages. The IP High Court’s ruling in this case (no. 2023na11276) may signal a shift to a more assertive approach, aligning with legislative efforts to strengthen patent enforcement in Korea.  ▒  Timing of Infringing Acts  A key question in the case concerned timing: the defendant’s infringing acts spanned both before and after the 2019 amendment, raising the question of whether any of the acts were subject to punitive damages. Supplementary Provisions to the amendment state that the new provision “shall apply from the first violation occurring after this Act takes effect.” Relying on this, the defendant argued that the new punitive damages provisions should not apply because their infringing acts began prior to the amendment, and are thus not a first infringement occurring after the act took effect. The IP High Court upheld the lower court’s decision in rejecting this argument, holding that punitive damages apply to any infringing acts that continued after the amendment took effect on July 9, 2019, regardless of when the infringement first began. The court emphasized that allowing infringers to evade the heightened damages simply because their actions initially began before the law was amended would contradict the legislative intent behind introducing punitive damages, which was to deter infringement and strengthen relief for victims.   ▒  The Willfulness Determination The threshold for applying the punitive damages provision is whether the infringement was willful. In addressing whether the defendant’s infringement was willful, the court conducted a comprehensive assessment of the facts, including the history of the parties' relationship:                                                                                                                                                                                                    ●  The plaintiff and the defendant had initially attempted to negotiate a non-exclusive license for the plaintiff’s patent, but after negotiations broke down, the defendant nonetheless proceeded with sales.   ●  The plaintiff repeatedly contacted the defendant regarding the matter, including issuing a cease-and-desist letter, which the defendant ignored.   ●  The parties had also unsuccessfully attempted mediation through the Korea Fair Trade Mediation Agency.   ●  The defendant filed both an invalidity trial and a scope confirmation trial concerning the plaintiff’s patent, but lost in both cases, including on appeal.                                                               The court concluded that the defendant was plainly aware of the patent and that its ongoing sales, despite explicit warnings and legal defeats, showed clear willfulness. The court also dismissed the defendant’s defense that it was genuinely uncertain about the patent’s validity, noting that this defense was contradicted by the defendant’s own prior conduct. The IP High Court’s analysis on this question brings further clarity on how courts will approach willfulness going forward, and highlights the types of evidence patentees should gather and present to demonstrate willfulness.  ▒  Increased Punitive Damages The court of first instance had awarded punitive damages of 0.5 times the actual damages for the willful infringement that occurred after the amendment. While the IP High Court reduced the overall amount of actual damages, it increased the proportion of punitive damages, awarding damages for the post-amendment period totaling double the actual damages (i.e., actual damages + punitive damages equivalent to 1X the actual damages). Under Article 128(9), courts must consider eight factors in determining punitive damages:   1.  Whether the infringer holds a dominant position;   2.  Whether the infringer was aware the act would cause harm to the patentee;   3.  The scale of such harm to the patentee;   4.  The resulting economic benefits to the infringer;   5.  The frequency and length of the infringing acts;   6.  The criminal sanction for the infringing acts;   7.  The infringer’s financial status; and   8.  The efforts the infringer has made to reduce the harm to the patentee. Applying these factors, the court found:   ●  The defendant, being significantly larger than the plaintiff, held a dominant position (factor 1).   ●  The defendant was on notice of the infringement and failed to take steps to reduce the harm to the plaintiff (factors 2 and 8).    ●  The defendant gained substantial economic benefits and maintained a strong financial position (factors 4 and 7).    ●  The infringement was prolonged, lasting over three years and involving substantial sales during the punitive damages period (factor 5).                                                                                               Although the court did not explicitly weigh the factors or indicate exactly how they influenced the final calculation, it did note that no specific evidence was provided regarding factors such as the exact scale of harm (factor 3) and related criminal penalties (factor 6), which may have weighed against a higher punitive award.  ▒  Toward Strengthened Patent Enforcement  The IP High Court thus not only affirmed the lower court’s main findings on the applicability of punitive damages, but also increased the punitive damages multiplier. Further, throughout its judgment, the court repeatedly emphasized the legislative intent of deterring willful infringement. This judgment may open the door to more frequent and more expansive punitive damage awards from other courts, and suggests that the judiciary is ready to shift away from its passive stance and begin to more actively follow the efforts of the legislature. With the newer amendment now also allowing for quintuple damages for infringing acts occurring after August 24, 2024, this trend bodes well for patentees in Korea.

2024-11-12
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Practice Notes

Statistics on Patent Applications in Korea Related to Fourth Industrial Revolution Inventions

The Korean Intellectual Property Office (hereinafter, KIPO) has released statistical data on the trends of patent applications in Korea related to inventions associated with the Fourth Industrial Revolution (hereinafter, 4IR), such as artificial intelligence. This data was prepared by the Artificial Intelligence & Big Data Examination Division of KIPO and was last updated on 23 May 2024  ▒   Fourth Industrial Revolution related Inventions The KIPO classifies the 4IR related inventions into eight major technology fields: Artificial Intelligence (AI), Big Data, Internet of Things (IoT), Digital Health Care, Bio Markers, Intelligent Robots, Autonomous Driving, and 3D Printing. Patent applications filed in the 8 major technologies fields have continuously increased (7,057 appl. in 2013 → 24,341 appl. in 2022).                                    Especially, patent applications filed in the AI field have accounted for the largest (36.8%) among the ones filed in the 4IR technologies fields in 2022. The patent applications filed in the AI field sharply increased by 39.6 % on annual average basis (444 appl. in 2013 → 8,960 appl. 2022).                                                                         ▒  Korean Patent Applications Trend in the Digital Convergence Field The KIPO considers inventions that combine two of the eight major technology fields related to the 4IR as belonging to the Digital Convergence Field. Specifically, combinations such as Artificial Intelligence (AI) + Digital Health Care, AI + Big Data, Internet of Things (IoT) + Big Data, Digital Health Care + IoT, AI + IoT, AI + Autonomous Driving, Digital Health Care + Intelligent Robot, Digital Health Care + Big Data, AI + Intelligent Robot, Autonomous Driving + Intelligent Robot, and IoT + Autonomous Driving are categorized under the Digital Convergence Field. Patent applications filed in the digital convergence field increased by twentyfold between 2013 and 2022 (128 appl. in 2013 → 2,294 appl. in 2022).                                 In particular, the trend of AI technology converging with other technologies has become especially pronounced. Among the 11 convergence technologies, those combined with AI have all shown an average annual growth rate of over 40%. Over the past 10 years, patent applications involving AI convergence have grown by a factor of 41.                                                                                      

2024-10-31
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