• KIPO’s expenditure has caught up to income against backdrop of filing volatility
  • First action pendency rises for first time in five years
  • China overtakes Japan as second biggest foreign filer in Korea

In the first of a new series of country data reports from World Trademark Review, we identify the key trademark trends in the Korean market, consider where filing business is emanating from and highlight the performance of the leading domestic brands.

Korea’s trademark industry has shown marked improvement over the last decade, which can be principally credited with the Korean Intellectual Property Office’s (KIPO) commitments to enhancing the speed and quality of its services. And, in recent years, there has been a noticeable rise in applications and decrease in pendency periods. However, this honeymoon growth period may have come to an end: for the first time in over five years, data released by KIPO reports that the number of trademark applications has fallen over the past year, while the average pendency for first actions has gone up. More concerning, though, is that the office’s rate of expenditure has gradually outpaced its rate of income, and at the end of 2016, the two figures were equal. While there are no indications yet of a possible rates rise, it is a situation rights owners should keep watch of.

Filing trends: the rise of Chinese brands

Korea has enjoyed a steady increase in filings in recent years. However, at the end of 2016, demand from both domestic and foreign filers dropped. The decrease is mostly attributed to foreign applicants though, with 12,000 fewer foreign applications according to KIPO’s own statistics – an almost 50% decrease from the previous year (see graph below).

Applications by origin at KIPO – 2012-2016 (view full-size):

Interestingly, KIPO’s Korean and English websites provide two differing figures for foreign filings in 2015: the former shows a much lower figure for filings, suggesting foreign applications have actually increased slightly between 2015 and 2016. However, notwithstanding this discrepancy, both tables show a fall in filings via the Madrid Protocol. Thus, this will be a trend worth monitoring, especially for firms focused on filing revenues in Korea.

In terms of where international filings are coming from, US brand owners continue to be the most significant players in the Korean trademark market, despite a conspicuous decline in filings compared to a decade ago (the graph below reports filing trends from the top seven foreign filers).

Filings at KIPO by applicant origin – 2007-2015 (view full-size here):

As can be seen, Chinese filings have grown at a faster rate than any other country, which reflects the country’s expanding influence in the branding world. Notably, Chinese filings overtook Japanese applications for the first time in 2015, with Japanese rights holders seemingly shifting their focus away from Korea. This could prove to be a good opportunity for local law firms with strong Chinese client bases, or a China-facing desk, as demand is set to continue. Specifically, as China continues to focus on its Made In China 2025 initiative there is reason to expect more companies from the country to be eyeing international expansion in the coming years, making this a potentially lucrative business generation focus (with that in mind, the priority sectors that the government is focusing on are worth attention: advanced rail and equipment, aviation and aerospace equipment, agricultural machinery and technology, low- and new-energy vehicles, biopharmaceuticals and high-tech medical equipment, advanced marine equipment and high-tech vessels, new materials, high-end manufacturing control machinery and robotics, integrated circuits and new generation IT, and power equipment).

As to current industries of focus, filings in Korea typically follow the average class filings trends – that is, the average percentage of filings in each Nice class across 52 IP offices. There is one notable difference, however, with a greater emphasis on goods over services. The number of Korean filings for virtually all classes covering services is below the average. One notable exception is applications for class 43 (services for food and drink and accommodation), which are almost 6% higher than the average of filings around the world. Similarly, filings for class 3 (cosmetics and cleaning preparations) are notably higher at 5.5% greater than the average (see graph below). For law firms targeting domestic filings, the data highlights sectors that may prove ripe for revenue generation.

Percentage of filings by trademark class – 2014-2016 (view full-size here):

KIPO has taken the lead, but challenges lie ahead

In terms of overall performance, KIPO has become a model for many other IP offices to follow, particularly in recent years. Indeed, in World Trademark Review’s innovation index of IP offices, Korea sits at the apex of the rankings with regard to value-added services, and joint fourth overall, along with the United States and the United Kingdom:

While the total number of applications at KIPO has risen over the last five years, pendency has also decreased. However, the future may prove more challenging in that regard. Young-Min Kim, the former KIPO Commissioner, stated that the office’s goal is to improve examination quality and reduce pendency periods; specifically, he had set a goal of reducing pendency for trademark actions to five months by 2015, and three months by 2017. While the former was achieved, the latter may be a big ask. While KIPO’s efficiency had been on a steady course of improvement since 2012, in 2016 first action pendency went up. This may have in part been precipitated by the year-on-year decrease in administrative staff at KIPO over the last five years. In any case, this is a setback the office will be keen to reverse:

Trademark Pendency at KIPO – 2012-2016 (view full-size here):

As to the resources available in its efforts to meet its KPIs, the office’s expenditure has slowly but surely caught up to its income. Its spending has increased at roughly 7% a year since 2012, while the funds it carries over from the previous years have regularly diminished. In 2016 the end-of-year figures for income and expenditure were the same, and if the trend continues on its current course KIPO’s spend is set to surpass the money it draws in.

How the new KIPO Commissioner Sung Yunmo, who was appointed in August this year, will deal with the issue remains to be seen. However, Yunmo has vowed to maintain the speed and quality of KIPO’s services, meaning that expenditure will likely remain on the ascendant. So could an increase in office fees be on the table, given that the current level of fees income has failed to keep up with the rise in office spending (as seen in the chart below)?

KIPO total Income and expenditure – 2012-2016 (view full-size here):

While this will be a concern to rights holders, given that the office is self-funded, S. Yong Lee, an attorney at YP Lee, Mock & Partners, believes a fee increase is unlikely due to the opposition such a proposal would face: “As far as I know, KIPO’s budget can still sufficiently cover the costs for examinations and trials, which is what the budget is mainly spent on. It would be difficult for the office to be able to persuade IP rights holders, lawmakers and the relevant officials for a rise in office fees. If budget problems become more serious, then KIPO would instead need to lessen the scope of its IP projects.” Indeed, KIPO’s spending on non-personnel resources has continuously increased – with project spending rising by 30% in 2016 – so this is one area it could address to lower costs.

It’s worth noting that internal funding has been rapidly increasing in recent years. Investments at KIPO more than tripled between 2014 and 2015 and this figure then jumped sharply again in 2016 to just shy of $94 million. At its current rate of increase, this could be the ticket to widening the income/expenditure gap; however, these investments will not be an endless source of funds, so the office would still need to look towards other solutions. In any case, this will be one avenue of income that KIPO can continue to rely on for now.

Korea’s brand powerhouses – and where they are expanding internationally

As noted earlier, domestic filings continue to dominate at KIPO. Korean brands also have a perceptible presence on the global stage, with Samsung currently ranked as the sixth most valuable brand in the world. The table below illustrates the changing brand value of the ten most valuable brands in Korea:

Top 10 Korean brands by brand value – 2012-2017 (view full-size here):

As can be seen, the leading Korean brands have fluctuated in value – and seven of the top ten have fallen down the brand valuation rankings in the last year. This is in sharp contrast to the current top ten most valuable brands in the world, which have generally demonstrated consistent year-on-year increases in their value, as seen below.

Top 10 global brands by brand value – 2012-2017 (view full-size here):

Notably, the exception here is Samsung, which has suffered the greatest setback among the global brand leaders, having dropped from the second most valuable brand in the world in 2015 to seventh in 2016, due to the infamous difficulties it had with its Galaxy Note 7 smartphone.

The volatility of Korean brands may be stabilised as the top brands deepen their global presence though, with Korean entities in general increasing their international trademark activity. Over the last few years, filings from Korean applicants have increased drastically – in 2015, filings into certain jurisdictions, such as Mexico, even doubled compared to 2014. Filings at the EUIPO have also risen sharply and have now almost caught up to the number of filings in Japan, while interest in China has led to filings there overtaking Brazil in 2015. However, the United States remains the clear destination of choice for most Korean brand owners:

Korean filings by foreign IP office – 2007-2015 (view full-size here):

For domestic law firms, any drop in trademark filings will be a concern and something to keep a close eye on, especially for those that derive significant proportions of their revenue from prosecution work. For those seeking prosecution work, in terms of international clients, while the US is holding steady, the figures show that the focus should be on Chinese companies – particularly as the country is determined to deepen its domestic brand roster and facilitate further international expansion. Meanwhile, those outside of Korea can confidently expect to see a growing presence of Korean brands internationally, in spite of some volatility in brand value, as filings across most jurisdictions surge.