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Are there any restrictions on the establishment of a business entity by a foreign licensor or a joint venture involving a foreign licensor and are there any restrictions against a foreign licensor entering into a licence agreement without establishing a subsidiary or branch office? Whether or not any such restrictions exist, is there any filing or regulatory review process required before a foreign licensor can establish a business entity or joint venture in your jurisdiction?
In general, there are no restrictions on the establishment of a business entity by a foreign licensor or a joint venture involving a foreign licensor. Also, there is no filing or regulatory review process required before a foreign licensor can establish a business entity or joint venture in Korea, except in certain industries (eg, the defence industry) where participation of foreign entities is limited or prohibited.
Also, a foreign licensor is not required to establish a subsidiary or branch office in Korea in order to enter into a licence agreement in Korea. Accordingly, a foreign licensor may enter into a licence agreement without establishing a business entity or a joint venture in Korea.
Kinds of licences
Forms of licence arrangement
Identify the different forms of licence arrangements that exist in your jurisdiction.
Korean law provides for licensing rights with respect to patents, utility models, trademarks and designs. Other forms of licensing, such as unpatented know-how, software, celebrity, character or franchise licensing are possible but are not governed by specific statutes. The forms of licensing arrangements are classified based on the terms and grounds that give rise to the licence.
In general, a licence is classified as either an exclusive licence or a non-exclusive licence. In an exclusive licence, the licensee may exercise the relevant rights exclusively and in a non-exclusive licence, the licensee may exercise a certain range of rights non-exclusively. Because Korean law prescribes the registration of an exclusive license as the conditions for an effective exclusive licence of patent rights, utility modes right and design rights, in order to exercise the rights as an exclusive licensee as provided for under Korean law, the registration of the exclusive licence would be necessary. If an exclusive licence of patent rights, utility model rights and design rights executed between a patent holder and an exclusive licensee is not registered, the exclusive licence would only affect the parties to the licence. On the other hand, the Korean Trademark Act does not prescribe the registration of an exclusive licence of trademark rights as one of the conditions for an effective exclusive licence of trademark rights. While the registration of a non-exclusive licence of trademark rights is not one of the conditions for an effective non-exclusive licence of trademark rights, it is possible to register and if registered, the parties will enjoy more enhanced protections under Korean law.
Depending on the grounds that give rise to a licence, there are:
- a contractual licence where a licence arises through an agreement between the parties;
- a statutory licence where a licence arises if and when certain requirements prescribed by law are satisfied; and
- a compulsory licence where a licensor’s grant of licence is compelled by law.
Relevant legal provisions governing a statutory licence and a compulsory licence vary according to the different types of intellectual rights concerned. Set out below are different forms of licence arrangements available for patents, utility rights, trademark rights and design rights.
The Patent Act and the Utility Model Right Act grant a statutory non-exclusive licence in the following cases:
- where a person makes an invention independently prior to the filing of an application for a patent for the same invention (or acquires details of the invention from such a person) and has been engaged in commercial or industrial activities or preparation thereof involving such invention in Korea;
- where a lawful right holder files a patent transfer claim against another person who had no right to file the patent application or who is one of the joint applicants of the patented invention; and
- where an original patent holder of a patent that will be invalidated on the grounds of an existing (often, unregistered) invention which is identical to the registered patent, has deployed the invention or was prepared to do so without knowing that his or her patent would be subject to invalidation.
The Patent Act grants a compulsory licence in the following cases:
- where a person who has been negotiating for a non-exclusive licence involving a patented invention fails or is unable to reach an agreement with the holder of the patent, and the patented invention has not been deployed for three or more consecutive years without justifiable grounds;
- deploying a patented invention is particularly necessary for public interest;
- deploying a patented invention is necessary to rectify a trade practice found to be unfair through judicial or administrative proceedings (where an additional agreement is not necessary); or
- deploying a patented invention is necessary to export medicines to countries intending to import the medicines to treat diseases that threaten public health in those countries.
In these cases, Korea Intellectual Property Office (KIPO) sets the appropriate level of royalties.
The Trademark Act recognises a non-exclusive licence based on a prior use in the following cases:
- where a person has been using a trademark identical or similar to the registered trademark of another person on goods identical or similar to the designated goods;
- the person has continuously used such trademark in Korea before another person files an application for trademark registration without intending to engage in unfair competition; and
- as a result of continuous use of the trademark, the trademark is recognised among consumers in Korea as a trademark of the goods of a specific person at the time another person files an application for trademark registration for such mark.
The Design Protection Act recognises a non-exclusive licence based on a prior use and a non-exclusive licence based on a use prior to the filing of invalidation claims.
In addition to the foregoing cases where specific laws govern licensing, parties may freely enter into a licence agreement for copyrights, trade secrets, know-how, franchise or other rights that are not prescribed by law and may determine the terms and scope of licence as they wish.
Law affecting international licensing
Creation of international licensing relationship
Does legislation directly govern the creation, or otherwise regulate the terms, of an international licensing relationship? Describe any such requirements.
The compulsory patent licence noted in question 2 applies to a foreign holder of a patent right. Accordingly, if a person who wishes to obtain a licence for a patented invention in Korea has negotiated with a foreign patent holder regarding a non-exclusive licence and failed to reach an agreement and if such person satisfies certain requirements as noted above, a non-exclusive licence may be recognised.
Also, the Korean Monopoly Regulation and Fair Trade Act (MRFTA) and the Review Guidelines for Unfair Exercise of Intellectual Property Rights (IPR Guidelines) regulate undue anticompetitive effects that may arise in the licensing of IPR. Especially, according to the IPR Guidelines, if a licensor abuses its status and sets the terms of a licence agreement one-sided, such acts may be considered as unfair trade practices and the relevant contract clauses may be declared invalid. The licensor may also be subject to a fine.
What pre-contractual disclosure must a licensor make to prospective licensees? Are there any requirements to register a grant of international licensing rights with authorities in your jurisdiction?
There is no law that requires a licensor to disclose certain terms or register a grant of licensing rights before the licensor enters into a licence agreement. That being said, if a licensor enters into a licence agreement where the licensor knew that the relevant patent rights are invalid as there are clear grounds for patent invalidation, the licence agreement may be held invalid pursuant to the Civil Act as such acts would be considered to constitute a fraud against the licensee.
Are there any statutorily- or court-imposed implicit obligations in your jurisdiction that may affect an international licensing relationship, such as good faith or fair dealing obligations, the obligation to act reasonably in the exercise of rights or requiring good cause for termination or non-renewal?
The IPR Guidelines prescribes the following act by a licensor as unfair trade practices:
- demanding an unreasonable level of compensation or terms in granting a licence;
- unreasonably refusing to renew a licence agreement;
- unreasonably limiting the scope of a licence;
- imposing unreasonable conditions for the granting of a licence; and
- abusing the patent rights related to standard essential patents.
Also, the IPR Guidelines deny the effectiveness of any contract clause related to the foregoing and regulate such acts by imposing a fine.
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 for the Protection of Industrial Property 1883 in 1980. Korea joined the Patent Cooperation Treaty 1970 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 1994.
Can the licensee be contractually prohibited from contesting the validity of a foreign licensor’s intellectual property rights or registrations in your jurisdiction?
The Korean Fair Trade Commission’s ‘Review Guideline 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, such an agreement may be invalidated. Note, even when no contract prohibiting a licensee from contesting the validity of a patent is executed, the Supreme Court has ruled that a licensee does not constitute an interested party who can challenge the validity of a patent based on the reasons that the patent may be freely exploited by the licensee. According to the Supreme Court of Korea, an exclusive licensee does not constitute an interested party who can challenge the validity of a patent, and thus, cannot file an invalidation action in connection with the patent. We note, however, the Supreme Court has rendered conflicting decisions as to whether a non-exclusive licensee constitutes an interested party who can file an invalidation action.
Invalidity or expiry
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 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 has 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.
Requirements specific to foreigners
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 applications, the person would need to submit documents that prove that the application was filed in foreign countries.
Can unregistered trademarks, or other intellectual property rights that are not registered, be licensed in your jurisdiction?
First, with respect to 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 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, we believe that licensing such 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 in order 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.
Proceedings against third parties
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. In order 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 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 use of the mark to a third party only if the licensee has obtained the licensor’s consent to sublicense. Korean Trademark Act provides that unless there is consent of a licensor, a licensee is not allowed to grant a sublicense 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.
Jointly owned intellectual property
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?
Under Korea’s Patent Act and Trademark Act, a co-owner of a patent or a trademark may not assign his or her share of ownership or establish a pledge on his or her share of ownership without the consent of the co-owners of his or her patent or trademark rights. Also, the foregoing Acts allow the execution of a licence only when all co-owners of the applicable patent or trademark agree to licensing out their rights.
However, if the co-owners of a patent or trademark separately execute a contract that stipulates the manner of disposing of their shares of ownership, such contract shall take precedence and allow the co-owners to dispose of their shares differently than mandated by the law, establish a pledge or license their rights.
First to file
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.
Scope of patent protection
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.
With respect to 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.
Trade secrets and know-how
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, with respect to 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.
With respect to 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:
- author’s moral rights, including right of publication, right of attribution and right to the integrity which cannot be transferred to a third party or waived; or
- author’s proprietary rights, including 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.
Perpetual software licences
Does the law in your jurisdiction recognise the validity of ‘perpetual’ software licences? If not, or if it is not advisable for other reasons, are there other means of addressing concerns relating to ‘perpetual’ licences?
Korean law does not specifically limit the software licence period. We note, however, that if a long-term licence agreement is entered into by the licensor abusing its superior bargaining power, such act would be considered as an unfair trade practice and may be limited or restricted in accordance with the MRFTA.
Are there any legal requirements to be complied with prior to granting software licences, including import or export restrictions?
There is no separate statutory restriction related to software licences. Also, import and export restrictions by Korean law are generally restrictions on goods, and therefore, generally do not apply to software licences. It should be noted, however, the export of certain software that is classified as strategic material for military or intelligence security use, requires prior permission.
Restrictions on users
Are there any legal restrictions in your jurisdiction with respect to the restrictions a licensor can put on users of its software in a licence agreement?
In Korea, there appears to be no legal restriction placed on a licensor’s contractual prohibition of reverse engineering by its licensee.
In fact, the Korean Copyright Act allows the licensee of a computer software to reverse-engineer the program without the approval of the licensor if it cannot easily obtain information necessary to achieve program compatibility and the obtainment of such information is inevitable. The foregoing provision appears to carve out an exception to the general legal principle that a licensor may prevent its licensee from reverse engineering. Thus, in principle, the licensor of a computer software seems entitled to prohibit reverse engineering by its licensee under the Korean Copyright Act.
Royalties and other payments, currency conversion and taxes
Is there any legislation that governs the nature, amount or manner or frequency of payments of royalties or other fees or costs (including interest on late payments) in an international licensing relationship, or require regulatory approval of the royalty rate or other fees or costs (including interest on late payments) payable by a licensee in your jurisdiction?
There is no legislation that specifically governs the calculation of royalties or other fees or costs. Generally, the parties determine the amount and payment schedule of royalties through separate agreements. However, if a licensee is late in the payment of royalties, unless the licence agreement prescribes a separate interest on late payment, an annual 6 per cent interest prescribed by the Korean Commercial Code may be applied. Also, the Review Policy on Unfair Exercise of Intellectual Property Rights, places rather abstract limitations preventing a licensor from collecting royalties that are ‘unfair’.
Are there any restrictions on transfer and remittance of currency in your jurisdiction? Are there are any associated regulatory reporting requirements?
The law that applies to foreign exchange transactions and other foreign transactions is the Foreign Exchange Transactions Act (FETA). According to the FETA, any transaction relating to origination of claims constitutes a capital transaction, and any person who desires to engage in a capital transaction must report the transaction to the Minister of Strategy and Finance before payment or receipt on claims or debts.
Taxation of foreign licensor
In what circumstances may a foreign licensor be taxed on its income in your jurisdiction?
According to Korea’s Corporate Tax Law, if a person uses IPR in Korea and makes payment in Korea, Korea will impose taxes, as the royalties received in connection with the foregoing by a foreign entity would be considered a Korean source income. The applicable tax rate is 10 per cent if the tax base is 200 million won or less, and 20 per cent of the amount in excess of the 200 million won tax base plus 20 million won.
That being said, if a licensor is situated in a country with which Korea has entered into a tax treaty, the foreign licensor may not be taxed in its country for the amount that has already been taxed in Korea. The tax rate may also be limited in accordance with the relevant tax treaty.
In connection with the interpretation of the US-Korea tax treaty, a Korean district court has recently ruled that Korea may not impose taxes on royalties if a foreign licensor of patents registered only in the US receives such royalties from a Korean entity on the basis that if there is no patent registered in Korea, patent infringement cannot occur and therefore, the need for payment of royalties for the use of such patents cannot be recognised. Accordingly, for Korea to impose taxes on royalties that a foreign entity receives from a Korean entity, the relevant licence must cover a patent registered in Korea.
Competition law issues
Restrictions on trade
Are practices that potentially restrict trade prohibited or otherwise regulated in your jurisdiction?
In Korea, the MRFTA has been enacted and enforced to prevent the abuse of market dominance and excessive concentration of economic power in enterprises and regulate illegal acts of collusion and unfair trade practices. Also, the Korea Fair Trade Commission, Korea’s competition agency, prosecutes the abuse of market dominance, illegal acts of collusion, unfair trade practices and may order corrective measures or impose penalties.
Are there any legal restrictions in respect of the following provisions in licence agreements: duration, exclusivity, internet sales prohibitions, non-competition restrictions and grant-back provisions?
In Korea, there is no law that directly restricts or limits the terms of a licence agreement. That being said, if any act constitutes an abuse of market dominance, illegal acts of collusion, unfair trade practices in light of the terms of the licence agreement in its entirety, the acts may be prohibited in accordance with the MRFTA.
Whether an act violates the MRFTA may be determined by examining whether the exercise of IPR, including granting of a licence, hinders competition of the related goods, technology or R&D among current or potential market participants.
In particular, in connection with payment of licence fees, each of the following acts would constitute a violation of the MRFTA:
- unfairly collaborating with other enterprises to decide, maintain or change the licence fees;
- unfairly imposing discriminatory licence fees depending on the counterparty;
- unfairly demanding licence fees that include fees for the portion of the licensed technology that is not used;
- unfairly imposing licence fees for the period beyond the duration of the patent right; and
- unilaterally deciding or altering the method of calculating licence fees without prescribing the calculation method in the contract.
Also, a licensor’s unreasonably refusing to enter into a licence agreement with a particular enterprise, unfairly limiting the scope of licensing and imposing unreasonable and irrelevant conditions when granting a licence, can be deemed a violation of the MRFTA.
IP-related court rulings
Have courts in your jurisdiction held that certain uses (or abuses) of intellectual property rights have been anticompetitive?
Yes. Korean courts view that if an exercise of IPR is beyond the scope of justifiable exercise and constitutes an abuse of market dominance and unfair trade practices, such exercise would constitute a violation of the MRFTA.
Indemnification, disclaimers of liability, damages and limitation of damages
Are indemnification provisions commonly used in your jurisdiction and, if so, are they generally enforceable? Is insurance coverage for the protection of a foreign licensor available in support of an indemnification provision?
Contracts that are executed in Korea generally include a damages clause. Also, there are a number of disputes wherein compensation is claimed based on a damages clause in a contract. That being said, if the court believes that the amount of damages is unduly exorbitant, the court uses its discretion to reduce the amount.
Regarding the scope and terms of an insurance coverage, each insurance company makes its own decision and there is no law that prevents the same; therefore, the above insurance is theoretically possible.
Waivers and limitations
Can the parties contractually agree to waive or limit certain types of damages? Are disclaimers and limitations of liability generally enforceable? What are the exceptions, if any?
In accordance with the principle of freedom of contract, it is possible that the parties contractually agree to waive or limit certain types of damages that may occur in connection with the contract. The Korean courts respect the terms agreed to by the parties, barring an unusual situation.
That being said, if the waiver of damages or limitation of damages is considered excessive or abusive, the execution of the contract itself may constitute unfair trade practices and a violation of the MRFTA.
Right to terminate
Does the law impose conditions on, or otherwise limit, the right to terminate or not to renew an international licensing relationship; or require the payment of an indemnity or other form of compensation upon termination or non-renewal? More specifically, have courts in your jurisdiction extended to licensing relationships the application of commercial agency laws that contain such rights or remedies or provide such indemnities?
The IPR Guidelines provide rather abstract criteria that an act of a licensor unreasonably refusing to grant a licence to a particular enterprise and thereby causing anticompetitive effects in the relevant market may constitute an unfair trade practice. That being said, there is no specific law restricting or limiting the licensor’s authority to terminate a licence agreement or prescribing indemnity or other compensation at the expiry or termination of the licence agreement.
Impact of termination
What is the impact of the termination or expiration of a licence agreement on any sub-licence granted by the licensee, in the absence of any contractual provision addressing this issue? Would a contractual provision addressing this issue be enforceable, in either case?
If a licence agreement expires or terminates, in principle, a sub-licence agreement will be terminated unless there are unusual circumstances, such as the licensor giving consent to the sub-licence after having learned that the sub-licence agreement has been executed. It is possible to include a contractual provision addressing the issue and such provision would be enforceable.
Impact of licensee bankruptcy
What is the impact of the bankruptcy of the licensee on the legal relationship with its licensor; and any sub-licence that the licensee may have granted? Can the licensor structure its international licence agreement to terminate it prior to the bankruptcy and remove the licensee’s rights?
If a licensee files for bankruptcy, generally, the licensee would not have sufficient funds to pay licence fees, and in such case a licensor may terminate the licence agreement based on default. As noted in our response to question 36, following the termination of a licence agreement, in principle, the sub-licence would not be valid any more. However, in a rehabilitation proceeding, if the court deems the continuation of the licence essential in the preservation and continuation of the debtor’s business, the court may impose a restriction on terminating the licence agreement.
Impact of licensor bankruptcy
What is the impact of the bankruptcy of the licensor on the legal relationship with its licensee; and any sub-licence the licensee has granted? Are there any steps a licensee can take to protect its interest if the licensor becomes bankrupt?
In the event that bankruptcy proceedings are commenced against the licensor, the ownership over its IPR would ultimately be transferred to one or more third parties via auction. Although no explicit legal provision or court precedent governing the rights of the licensee or sub-licensee to protect against such ownership transfer appears to exist, we believe that as long as the relevant licence or sub-licence is registered, the licensee or sub-licensee may claim that its licence or sub-licence continues to be effective.
Governing law and dispute resolution
Restrictions on governing law
Are there any restrictions on an international licensing arrangement being governed by the laws of another jurisdiction chosen by the parties?
The Act on Private International Law provides that the parties may agree to a certain governing law, and any dispute arising out of or in connection with the contract may be governed by the governing law agreed between the parties. Accordingly, it is possible to decide the governing law chosen by the parties when executing an international licensing agreement. However, if there is no ‘reasonable relevance’ between the case and the jurisdiction chosen by the parties, the court has ruled that such jurisdiction cannot be recognised.
Contractual agreement to arbitration
Can the parties contractually agree to arbitration of their disputes instead of resorting to the courts of your jurisdiction? If so, must the arbitration proceedings be conducted in your jurisdiction or can they be held in another?
In order to initiate an arbitration proceeding in Korea, in principle, there must be an agreement between the parties to arbitrate, and such agreement must be made in writing. In practice, it is possible to initiate an arbitration proceeding even if there is no agreement by the parties to arbitrate; however, in such case, the arbitration tribunal may only make a temporary disposition.
As Korea is a contracting state to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, pursuant to the Convention, any arbitration decision rendered in another contracting state is valid in Korea. Accordingly, it is possible for the parties to contractually agree to arbitration in states other than Korea and enforce the arbitration award in Korea.
The parties may contractually agree not to go through arbitration proceedings, and there are no specific conditions for a contractual wavier to be enforceable.
There is no arbitral institution specialising only in licence agreements in Korea, but most arbitration cases involving companies are handled by the Korean Commercial Arbitration Board located in Seoul.
Would a court judgment or arbitral award from another jurisdiction be enforceable in your jurisdiction? Is your jurisdiction party to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards?
A final and conclusive judgment rendered by a foreign court is valid in Korea if it satisfies the following requirements:
(i) that the international jurisdiction of such foreign court is recognised under the principle of international jurisdiction pursuant to the statutes or treaties of Korea; (ii) that a defeated defendant is served, by a lawful method, a written complaint or document corresponding thereto, and notification of date or written order allowing him or her sufficient time to defend, or that he or she response to the lawsuit even without having been served such documents; (iii) that the approval of such final judgment, etc, does not undermine sound morals or other social order of Korea in light of the contents of such final judgment, etc, and judicial procedures; and (iv) mutual guarantee exists, among others.
However, for the compulsory enforcement of a foreign judgment or award, a separate Korean court’s decision to enforce the foreign judgment is required.
Is injunctive relief available in your jurisdiction? May it be waived contractually? If so, what conditions must be met for a contractual waiver to be enforceable? May the parties waive their entitlement to claim specific categories of damages in an arbitration clause?
Injunctive relief based on a court judgment or decision is available in Korea.
The parties may add an arbitration clause waiving part or all of their entitlement to specific relief, including injunctive relief. If such waiver clause in not deemed to unfairly favour one party over another so as to constitute unfair trade practices, the waive clause may be included and upheld.