Revised “Review Guidelines on Unfair Exercise of Intellectual Property Rights” by the Korea Fair Trade Commission (Effective as of December 24, 2014)

The Korea Fair Trade Commission (“KFTC”) announced on December 23, 2014 that it would implement revised guidelines for its “Review Guidelines on the Unfair Exercise of Intellectual Property Rights” from December 24, 2014.   

 

This revision amended general review principles and types of abusive activities in exercising intellectual property rights, and enacted guidance on potential intellectual property right abuses by Non-Practicing Entities (“NPEs”) and Standard-Essential Patentees. 

 

Of the changes made in this revision, the primary changes are introduced as follows:

 

1.    Amendment/Supplement of General Review Principles in Exercising Intellectual Property Rights

 

①   Standards for determining a just exercise of intellectual property rights excluded from application of the Fair Trade Act

 

Even in case that an exercise of intellectual property rights seems just, it cannot actually be deemed just if it substantively goes against the fundamental objectives of the intellectual property right system.  Whether an exercise of intellectual property rights is just or not is determined by comprehensive consideration of patent laws, any relevant laws, the subject intellectual property rights, and the effects on the relevant market by the subject activities, etc.  This provision seems to have been enacted incorporating the reasoning of the Korean Supreme Court case (Case No. 2012 DU 24498, decision rendered on February 27, 2014).

 

②   Switch of the guidelines primarily focusing on the current unfair trade practices into those focusing on abusive practices utilizing a market-dominant position

 

When an entrepreneur independently exercises his/her intellectual property rights, these guidelines apply as far as he/she holds a market-dominant position.  Whether an exercise of intellectual property rights is considered as unfair trade practices or not is determined by application of “Review Guidelines for Unfair Trade Practices.”

 

③   Relationship between intellectual property rights and market dominating power, and pro-competition effects expected from an exercise of intellectual property rights

 

Intellectual property right owners cannot automatically assume their market dominating power merely from possession of such rights.  Rather, a market dominating power can be determined by comprehensive consideration of a technical leverage of the subject technology, existence of replacing technologies, competition in the relevant market, etc.  In addition, an exercise of intellectual property rights can create pro-competition effects, such as reduction in manufacturing costs, development of new products, improvement in technical innovation, and increase in research and development (“R&D”) investment, etc.  

 

④   Introduction of an innovative market into the relevant market of exercising intellectual property rights

 

An innovative market can be considered, separately from markets for products and technologies, when an exercise of intellectual property rights influences on the competition for development of new or improved products, or processes.  An “innovative market” means a market related to R&D for development of completely new products or processes, or for improvement of existing products or processes. 

 

2.    Amendment/Complement of the Types of Abusive Activities in Exercising Intellectual Property Rights

 

①   Types of illegal activities in exercising intellectual property rights

 

“Grant-back” means a license under which a party grants another the right to use a patent under the condition that the licensee agrees to grant the licensor a license with respect to any improvements to the patent made by the licensee.  In this case, any illegality of such a grant-back is determined by consideration whether the grant-back is exclusive or non-exclusive, how long a term of the grant-back is, and whether a royalty for the grant-back is free or not, etc.

 

With regard to an exercise of the patent rights through patent litigation, it is more likely to be deemed one of the abusive activities when a patent infringement lawsuit is brought based upon the fraudulently obtained patents or with an intention in bad faith to impede businesses of other entrepreneurs.

 

②   Forcing the purchase of products or technologies not directly necessary for the package licensing of the patented invention is deemed “tying”

 

In other words, in granting a license for a patented invention, it can be illegal to grant licenses on other patents that are unrelated to the subject patent.

 

3.    Enactment of the guidelines for Non-Practicing Entities (NPEs)

 

These guidelines termed patent trolls “NPEs” and defined them as “persons or companies who enforce patent rights against accused infringers, but do not manufacture products or provide services using the patent technologies.”  These guidelines stipulated the following five (5) types of abuse that NPEs perpetrate using their dominant positions in the market:

 

①   Excessive royalty demands

 

Whether the patent royalty is reasonable or not is determined by consideration of the objective technical value of the patent, the amount of the royalty the patent owner receives from other licensees, the amount of the royalty the licensee pays for the similar patents, the nature and scope of the license agreement, duration of the license, and profitability of the products utilizing the subject patent, etc.

 

②   Denial of application of Fair, Reasonable and Non-Discriminatory (“FRAND”) principles

 

If an NPE imposes unreasonable royalty on the patent rights obtained from a third party with denial of application of FRAND principles previously applied to the patent owner, this is deemed one of the abuses.

 

③   Unfair agreement

 

If an NPE, in concert with other entrepreneurs who established NPEs through a consortium, enters into license agreement on discriminatory conditions or refuses to enter into license agreement with the entrepreneurs who did not participate in the consortium, this is deemed one of the abuses.

 

④   Filing unfair patent lawsuits and threat to bring lawsuits

 

If an NPE brings a patent infringement lawsuit or sends out a cease and desist letter for the patent infringement through a fraudulent method of intentionally concealing, omitting, or misleading important information that the opposing party may need in response to the NPE’s exercise of patent rights, this is deemed one of the abuses.

 

⑤   Patent privateering

 

If a patent owner transfers his/her patent rights to an NPE and makes the NPE perpetrate any of the aforementioned abuses to other entrepreneurs, this is deemed one of the abuses.

 

4.    Enactment of the guidelines for Standard-Essential Patents (“SEPs”)

 

①   Definition set out for “Standard-Essential Patents”

 

These guidelines set out the definition of “Standard-Essential Patents” as “patents designed for technical realization of standard technologies, requiring the patent owners’ license in order to manufacture products or provide services in need of using the standard technologies.”

 

②   Injunctive relief sought by the Standard-Essential Patentees

 

If a Standard-Essential Patentee who confirms a license in compliance with the FRAND principles seeks an injunctive relief against any other willing licensees intending to enter into the license, this is deemed one of the abuses.  If a Standard-Essential Patentee does not genuinely participate in the negotiation for a license with a willing licensee, but seeks an injunctive relief, this is more likely to be determined as one of the abuses.

 

A Standard-Essential Patentee’s genuine participation in the negotiation is determined by comprehensive consideration whether there was an official proposal to the negotiation, the negotiation period was reasonable, the licensing conditions were reasonable or non-discriminatory, or any arbitration is possible if the negotiation does not go well, etc.

 

If a Standard-Essential Patentee seeks an injunctive relief in the following cases, it is less likely to be determined as one of the abuses: (1) if a willing licensee refuses to comply with the decision by the Court or arbitral institutions, he/she is deemed lack of intention to enter into the license agreement; and (2) if a willing licensee went into bankruptcy and it became impossible for a Standard-Essential Patentee to seek compensation damages against such a willing licensee.  

 

③   New types of abuses by Standard-Essential Patentees

 

It is considered as one of the abuses if the Standard-Essential Patentee evades or avoids to enter into a license agreement on the FRAND principles, or unfairly restricts the licensee’s exercise of patent rights.