The Korean courts recently engaged in active dialogue to establish a system that awards a fair and reasonable amount of damages for patent infringement. On May 29, 2017, a seminar titled "Calculation of Damages Awards in Patent Infringement Cases" ("Damages Seminar") was held for judges of the Patent Court (court of second instance) and the Seoul Central District Court (court of first instance) and lawyers specializing in patent litigation. The Damages Seminar included presentations on (i) the current system for assessing damages in Korea and (ii) a comparison of damages calculations between Korea and other foreign countries. After these presentations, the participants of the Damages Seminar held a serious discussion on changes necessary to establish a system for awarding reasonable and meaningful damages amounts. We present below a summary of these sessions.
The first session introduced the current damages assessment system adopted by the Korean courts. A court of first instance typically awards about half of the amount of damages being sought by a plaintiff ("Awarded Damages"), where the median of the amount of damages being sought and accepted by courts is 47.98%. In particular, when a plaintiff is represented by a relatively large law firm, the median of the Awarded Damages increases to 77.98%. Moreover, while most plaintiffs (54.4%) seek damages based mostly on Article 128(4) of the Korean Patent Act, i.e., the profits gained by an infringer as a result of the infringement, most courts of first instance (64.6%) assess damages based on Article 128(7) of the Korean Patent Act, i.e., a reasonable amount of damages based on the evidence and arguments of the parties. This is different from the United States, where, in about 80% of the patent infringement suits, damages are assessed based on reasonable royalties. In addition, the largest Awarded Damages, of course, are the damages recognized under Article 128(5), i.e., the pecuniary amount normally received by a patent owner for the practicing of the patent-in-suit.
An appellate court, on the other hand, generally does not reduce the amount of damages awarded by a court of first instance. Rather, according to the research done by one of the judges from the Patent Court, in 13 out of 25 appeals, the appellate courts awarded larger damages than the Awarded Damages determined by the courts of first instance. As a result, the overall average of damages in the appellate courts is higher than that of the courts of first instance.
The second session presented on how damages were assessed in foreign courts, including the courts of the United States, Europe, and Japan. The most hotly debated and discussed issue was the system of assessing damages under the United States Patent Laws, including the following issues: (i) extensive production of damages evidence through discovery; (ii) expert reports and testimony prepared by damages experts, such as economists; and (iii) jury verdicts specifying the total amount of the damages without providing the reasoning for the assessment of such damages.
The third session involved a discussion on how to effectively utilize damages experts in Korea. While use of opinions from damages experts is common in the United States, such opinions were only recently introduced to Korea in March 2016 through an amendment to the Korean Patent Act. The third session of the Damages Seminar recommended (i) drafting a service manual for damages experts, (ii) providing appropriate training for damages experts, and (iii) developing a certification process for damages experts based on (i) and (ii), e.g., like public accountants.
In addition to this Damages Seminar, the "2017 Bench Bar Conference", which was jointly hosted by the Korean Patent Court and the Korean Intellectual Property Lawyers Association, was held on June 26, 2017. The 2017 Bench Bar Conference primarily discussed how to effectively use Court Orders to submit damages related documents and to improve the damages assessment methods.
The efforts of the Korean courts to improve the system for assessing damages are expected to bring practical changes for damages assessed in individual patent cases. Although the Korean courts have long been discussing various measures to improve the damages assessment system in patent infringement cases, those measures placed more emphasis on collateral issues, such as lowering a patent owner's burden of proof and introducing punitive damages into the Korean legal system.
Recent court discussions, however, deserve more attention, because they are focused on understanding the fundamental problems, providing solutions for such problems, and attempting to bring actual and practical change. In particular, as the Damages Seminar confirmed a growing consensus that damages awarded by a court of first instance are unreasonably low, both the courts of first instance and the appellate courts are expected to substantially increase the Awarded Damages.
Accordingly, both parties in patent infringement litigations filed with Korean courts should be mindful of such potential changes when preparing their strategy for the damages portion of the litigation.