Q&A: key IP issues affecting licensing agreements in South Korea

Intellectual property issues

Is your jurisdiction party to the Paris Convention for the Protection of Industrial Property? The Patent Cooperation Treaty (PCT)? The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs)?

Korea became a party to the Paris Convention in 1980. Korea joined the Patent Cooperation Treaty in 1984 and was designated as an International Searching Authority and International Preliminary Examining Authority in 1997. In 2007, the Korean language was selected as one of the languages that can be used in the publication of the international application. Also, Korea is a party to the Agreement on Trade-Related Aspects of Intellectual Property Rights.

Can the licensee be contractually prohibited from contesting the validity of a foreign licensor’s intellectual property rights or registrations in your jurisdiction?

Review Guidelines on Unfair Exercise of Intellectual Property Rights provides that a licensor shall not unfairly prohibit a licensee from contesting the validity of a patent to preserve the existence of the patent that is invalid. Accordingly, if a patent holder grants a licence of patent rights to a licensee when it is clear that the patent is invalid, and then contractually prohibits the licensee from filing a patent invalidation action, the agreement may be invalidated.

What is the effect of the invalidity or expiry of registration of an intellectual property right on a related licence agreement in your jurisdiction? If the licence remains in effect, can royalties continue to be levied? If the licence does not remain in effect, can the licensee freely compete?

Under Korean law, once the registration of an intellectual property right (IPR) becomes invalidated, the invalidation is retroactive. Yet, in a case involving a licence agreement signed before the invalidation of the licensed patent, the Supreme Court ruled that the licensor does not have the obligation to return to the licensee the portion of the royalty already paid under the valid licence agreement, as the payment did not amount to an unfair profit. To put it differently, the Supreme Court found it fair for a licensor (under a licence agreement) to receive royalties before its patent registration is invalidated, but would not recognise the right to receive royalties once the patent is invalidated. There are no decisions covering other types of IPR but the principle set forth in the above Supreme Court decision is likely to apply in those cases.

Is an original registration or evidence of use in the jurisdiction of origin, or any other requirements unique to foreigners, necessary prior to the registration of intellectual property in your jurisdiction?

Korea is a ‘first to file’ jurisdiction. Therefore, there is no need to submit documents related to prior use. That being said, in a case where a person files an application in Korea with a right of priority based on foreign application, the person would need to submit documents that prove that the application was filed in a foreign country.

Can unregistered trademarks, or other intellectual property rights that are not registered, be licensed in your jurisdiction?

Regarding trademark rights, the Korean Trademark Act adopts the ‘first to file’ and ‘registration’ rule, and accordingly, a person who registers his or her trademark with the Korea Intellectual Property Office (KIPO) will have an exclusive right to such trademark. Accordingly, an unregistered trademark, in principle, does not have an exclusive right and therefore, may not be licensable to third parties. That being said, even if trademarks are unregistered in accordance with the Trademark Act, if they are widely known in Korea, third parties may be prevented from registering or using identical or similar trademarks under the Unfair Competition Prevention and Trade Secret Protection Act. Thus, in such a case, licensing an unregistered but widely known trademark may be possible.

For patents, licensing would require completion of patent application and registration in Korea. Therefore, unregistered patents may not be licensed to third parties.

Copyrights are recognised although not registered. Trade secrets also do not require registration. Accordingly, even if copyrights and trade secrets are not registered, licensing these intellectual properties is possible.

Are there particular requirements in your jurisdiction to take a security interest in intellectual property?

According to the Patent Act of Korea, a security interest (pledge) in a patent right or an exclusive licence becomes effective only when it is registered with the KIPO and a security interest (pledge) in a non-exclusive licence does become effective even without registration with the KIPO but would have force and effect against a third party only when registered with the KIPO.

The details concerning the establishment of a security interest (pledge) in utility model rights and design rights and the effectiveness of the registration thereof are the same as those for patent rights. However, in the case of the establishment of a security interest (pledge) in an exclusive licence of trademark rights, unlike patent rights, the registration thereof to the KIPO is required to have force and effect against a third party. 

In the case of copyrights, it is possible to create a security interest (pledge) in the author’s property rights and exclusive rights of publication and, unless it is registered with the copyright register, it cannot have force and effect against a third party.

Can a foreign owner or licensor of intellectual property institute proceedings against a third party for infringement in your jurisdiction without joining the licensee from your jurisdiction as a party to the proceedings? Can an intellectual property licensee in your jurisdiction institute proceedings against an infringer of the licensed intellectual property without the consent of the owner or licensor? Can the licensee be contractually prohibited from doing so?

A licensor may file an injunctive action against a third-party infringer without the consent of the licensee.

Whether a licensee may bring such actions depends on whether the licensee is an exclusive licensee or a non-exclusive licensee. An exclusive licensee, in principle, may decide on his or her own to file an injunctive action against an infringer. That being said, the rights of an exclusive licensee may be restricted by the licence agreement. To restrict the rights of the exclusive licensee, the restrictions must be registered with the KIPO.

Unlike an exclusive licensee, a non-exclusive licensee only has a right to deploy an invention; a non-exclusive licensee does not have the right to seek an injunction against a third party in his or her name. Only the licensor will be allowed to file an infringement action.

Can a trademark or service mark licensee in your jurisdiction sub-license use of the mark to a third party? If so, does the right to sub-license exist statutorily or must it be granted contractually? If it exists statutorily, can the licensee validly waive its right to sub-license?

A trademark or service mark licensee can sub-license the use of the mark to a third party only if the licensee has obtained the licensor's consent to sub-license. The Korean Trademark Act provides that, unless there is the consent of a licensor, a licensee is not allowed to grant a sub-licence of its right to the relevant trademark or service mark under the licence agreement to a third party. In other words, a licensor's consent would be necessary to sub-license use of a trademark or service mark.

If intellectual property in your jurisdiction is jointly owned, is each co-owner free to deal with that intellectual property as it wishes without the consent of the other co-owners? Are co-owners of intellectual property rights able to change this position in a contract?

When a patent right or a trademark right is co-owned by two or more persons, a co-owner must obtain the consent of each of the other co-owners before he or she assigns his or her ownership interest to any third party or pledges the ownership interest to a third party as collateral. If a co-owner wishes to license his or her rights, whether exclusively or non-exclusively, he or she may do so only with the consent of each other co-owner. Unless specifically stipulated otherwise by contract, any co-owner of a patent right or trademark right may practise a patent invention or trademark related thereto without obtaining the consent of other co-owners.

In the case of a copyright, any work that was jointly created and owned by two or more persons and that cannot be used by separating the part that each creator has contributed, each creator or co-owner may not exercise his or her rights without obtaining a universal agreement from the other copyright holders. Furthermore, as with patents and trademarks, if a co-creator wishes to assign or pledge as collateral his or her ownership interest in the copyright, in order to do so, he or she must obtain the consent of each other co-owner. 

Is your jurisdiction a ‘first to file’ or ‘first to invent’ jurisdiction? Can a foreign licensor license the use of an invention subject to a patent application but in respect of which the patent has not been issued in your jurisdiction?

Korea is a ‘first to file’ jurisdiction. It is possible to enter into a licence agreement for the use of an invention subject to a patent application for which a patent has not yet been issued in Korea.

Can the following be protected by patents in your jurisdiction: software; business processes or methods; living organisms?

Before 1 July 2014, software inventions could be protected by claims for method, apparatus or recording medium. On and after 1 July 2014, the scope of protection has become wider as software inventions can also be protected by claims for a computer program (or application) stored in a medium.

Regarding business methods, they are in and of themselves not recognised as inventions as they do not use the principle of nature; however, if their connection to particular goods is recognised, they may qualify as an invention. In this regard, for an invention of business processes or methods to be patented, in addition to the general requirements for patent registration (eg, novelty, non-obviousness and industrial applicability (similar to utility)), their connection through bonding or coupling with hardware, including computers, must be recognised.

An invention involving living organisms is patentable if it involves microorganisms or animal organisms; however, any invention relating to human beings may be partly restricted. An invention in medical treatments (treatment on or medical diagnosis of human beings) is deemed to lack industrial applicability, and thus, is not eligible for patent. Methods of processing any substance generated by humans or collected from humans that has industrial use may be patented if they can be distinguished from medical treatment.

Is there specific legislation in your jurisdiction that governs trade secrets or know-how? If so, is there a legal definition of trade secrets or know-how? In either case, how are trade secrets and know-how treated by the courts?

In Korea, trade secrets and know-how are protected under a separate body of law known as Unfair Competition Prevention and Trade Secret Protection Act. According to this Act, the term ‘trade secrets’ means ‘information, including a production method, sale method, useful technical or business information for business activity, that is not known publicly, requires considerable efforts to maintain its secrecy, and has independent economic value’.

The Korean Civil Procedure Act provides that the court may limit the disclosure of information upon request of a party if the records of the trial include a trade secret. Also, the court may choose to review certain information that a party claims as trade secrets without disclosing to the other party by proactively exercising its discretionary power over the proceeding.

Does the law allow a licensor to restrict disclosure or use of trade secrets and know-how by the licensee or third parties in your jurisdiction, both during and after the term of the licence agreement? Is there any distinction to be made with respect to improvements to which the licensee may have contributed?

The licensor may prohibit the disclosure of trade secrets and know-how not only during the licence term but also after the expiry or termination of the term by agreement. However, regarding the confidentiality obligations after the expiry or termination of the term of the agreement, the courts may require reasonableness in the restriction. Accordingly, the disclosure may be prohibited for a shorter period than provided in the agreement. 

Concerning certain trade secrets, if a licensee makes improvements, and the improvements are recognised as falling within the purview of the trade secrets of the licensor, the licensee’s use of the improvements may also constitute a use of the original trade secrets. Similar to trade secrets and know-how discussed above, the licensor may also prohibit the disclosure of the improvements made by the licensee during the term or after the termination of the agreement.

What constitutes copyright in your jurisdiction and how can it be protected?

Copyright may be classified as follows:

• the author’s moral rights, including the right of publication, the right of attribution and the right to the integrity that cannot be transferred to a third party or waived; or
• the author’s proprietary rights, including the right of reproduction, public performance, public aerial transmission, exhibition, leasing and production of derivative works.

In addition, the Copyright Act prescribes neighbouring rights, including the right of a stage performer, record producer and broadcaster, and as technology develops, the number of newly recognised authors’ proprietary rights also increases, and therefore, the Copyright Act is continuously adopting new provisions to protect these ‘developing’ rights.

Law stated date

Give the date on which the information above is accurate.

6 January 2021