Comparison of calculation methods
Reason for amendments and expected effects
Comment
Mirroring a recent amendment to the Patent Act that took effect on 10 December 2020 (for further details please see "Patentee protection strengthened in series of revisions to patent law"), the Trademark Act, the Design Protection Act and the Unfair Competition Prevention and Trade Secret Protection Act have also been amended to include an improved method for calculating damages in trademark, design and unfair competition infringement cases. The new amendments took effect on 23 June 2021.
Comparison of calculation methods
Damages may be calculated by the following methods:
- profits lost by the IP rights holder due to the infringement;
- profits obtained by the infringer from the infringement;
- "reasonably expected" royalties; or
- statutory damages.
When calculating damages based on the first method, which may be preferred, particularly if the infringing items undercut the price of the genuine goods, the upper ceiling used to be restricted by the IP owner's own sales capacity.
For example, if the IP owner had the potential to sell a total of 1,000 items in the period during which the infringement took place but actually sold only 100 items, the maximum number of additional items that they could have theoretically sold had it not been for the infringement would be 900. Even if the infringer sold more items than this, the final damages calculation would have been based on this figure.
However, the new calculation method includes the addition of a reasonable licence fee per infringing item sold in excess of the IP owner's sales capacity.
A comparison of the previous and updated calculation methods is shown in Figure 1.
Figure 1: comparison of calculation methods
Reason for amendments and expected effects
The previous calculation method was particularly disadvantageous when the IP rights of small companies without access to large-scale production facilities were infringed. In such cases, despite having IP rights in their technology, idea or brand, small or medium-sized companies could lose out to infringers with large-scale production capacity as the damages available, even if infringement was acknowledged, would be severely limited.
This situation is addressed in the revised calculation method; IP owners will now be able to receive compensation commensurate with the scale of the infringement, even if they could not have achieved such sales themselves. It is expected that these changes will reduce the incentive to steal or copy intellectual property and instead encourage a greater uptake in licence agreements, ultimately promoting the growth of small and medium-sized companies.
These revisions, when combined with the recently introduced treble damages system available in infringement suits (for further details please see "Treble damages now available for trademark and design infringement"), mean that the protection available to IP owners against intentional infringement is now stronger than ever in South Korea. Claiming damages from infringers should now be a more approachable solution where it might not have been practical or financially advantageous to do so in the past.
The one remaining weakness in this system is the difficulty in proving intentional infringement (for further details please see "Patentee protection strengthened in series of revisions to patent law"). In the press release concerning the subject revisions, a Korea Intellectual Property Office spokesperson was quoted as saying that they plan to introduce an improved evidence collection system as soon as possible to address this deficiency.
For further information on this topic please contact Jonathan Masters or Ben Yuu at NAM & NAM by telephone (+82 2 753 5477) or email ([email protected] or [email protected]). The NAM & NAM website can be accessed at www.nampat.co.kr.