[News] Amendment to the Patent Act: Punitive Damages System to Take Effect This June

[Expert Column] Amendment to the Patent Act: Punitive Damages System to Take Effect This June

(Reported by Seong-pil Hwang, Patent Attorney, Tax & Financial Newspaper)

Securing an invention through a patent requires tremendous effort.

An invention must not have been previously disclosed to the public, and it must demonstrate inventiveness over existing technologies. Furthermore, only inventions utilizing the laws of nature rather than mere mathematical algorithms are considered worthy of patent protection.

The reason the government grants special protection to such inventions through patents is not simply because of the inventor’s efforts. Unlike undisclosed know-how, patents become publicly accessible after a certain period of time, allowing anyone to inspect and study the technology. Because inventors contribute to industrial development by disclosing their technologies to others, the government grants and protects exclusive rights for a limited period. This is the fundamental purpose of the patent system.

Therefore, once a country adopts a patent system, it is natural for that country to continuously pursue legislation that thoroughly protects patent rights. However, reality is not so simple.

As intellectual property conflicts between the United States and China intensify, the United States has consistently demanded improvements in China’s level of intellectual property protection. Although China’s recent strengthening of IP protection has been influenced by such external pressures, it is also part of its internal strategy to enhance national competitiveness. In any event, the Chinese government has been steadily improving its intellectual property protection system.

Recently, at a State Council executive meeting chaired by Premier Li Keqiang, the “Amendment to the Patent Law of the People’s Republic of China” was passed and is currently awaiting deliberation. The main purpose of the amendment is to strengthen the level of protection afforded to patent holders.

In addition, on December 4, China’s National Development and Reform Commission, National Intellectual Property Administration, Central Organization Department, and 38 government agencies jointly announced a “Memorandum of Understanding on Punishment for Serious Misconduct in the Field of Intellectual Property Rights.” The memorandum designated six types of conduct including repeated infringement of intellectual property rights, refusal to cooperate with enforcement actions by relevant authorities, and submission of false documents as “serious misconduct.”

Companies and individuals violating these provisions may be placed on a nationwide blacklist and become subject to five types of penalties or restrictions by the National Intellectual Property Administration, as well as 33 additional government wide sanctions and restrictions. Regardless of how effectively these measures are implemented in practice, the legislation itself is highly innovative. Furthermore, the system includes very specific and severe restrictions, such as limitations on preferential treatment in patent examinations, restrictions on company establishment, real estate transactions, and applications for government subsidies.

Urgent Need to Institutionalize Stronger Protection for Patent Holders

The Chinese government has also continuously worked to improve the calculation of damages related to intellectual property infringement. The average amount of damages awarded in intellectual property cases in the United States between 1997 and 2016 was reportedly KRW 6.57 billion. In China, the average damages awarded by the Beijing Intellectual Property Court increased rapidly from RMB 500,000 in 2015 to RMB 1.4 million in 2017.

In contrast, the average damages awarded in Korean patent infringement lawsuits between 1997 and 2017 amounted to only KRW 60 million.

The amount of damages calculated by courts in patent infringement cases does not necessarily represent the full level of protection granted to patent holders. Nevertheless, it is a very important indicator for evaluating the degree of protection.

One of the most difficult aspects of patent infringement litigation is calculating damages. Therefore, the existence and actual implementation of systems such as punitive damages and the shifting or easing of the burden of proof must also be carefully considered.

China is rapidly pursuing institutional development. As one of the IP5 countries, Korea must urgently accelerate institutional reforms aimed at protecting patent holders. In Korea, there is even a saying that it is more profitable to appropriate another party’s technology and simply pay damages later if sued for patent infringement, rather than investing substantial effort into developing patented technologies.

Strong protection of patent rights is an important driving force for industrial development. Strong protection encourages large numbers of patent applications, leads to the creation of high quality patents, intensifies competition among such patents, and ultimately contributes to industrial advancement.

However, if the level of protection remains weak, both domestic and foreign individuals and companies may eventually stop filing patent applications in Korea, inevitably weakening Korea’s technological competitiveness.

On December 10, the Korean Intellectual Property Office announced through a press release that amendments to the Patent Act and the Unfair Competition Prevention and Trade Secret Protection Act had passed the National Assembly plenary session on December 7. The key purpose of these amendments is to strengthen intellectual property protection through measures such as introducing punitive damages for patent and trade secret infringement and increasing criminal penalties.

The amendments are expected to take effect around June of this year. Most notably, they introduce a punitive damages system under which those who intentionally infringe another person’s patent rights or trade secrets may be held liable for up to three times the amount of damages suffered.

To strengthen the protection of patent rights, the amendments allow courts to award up to three times the recognized damages in cases where patent rights (including exclusive licenses) or trade secrets are intentionally infringed.

The current Patent Act includes various provisions under Article 128 concerning the calculation of damages. For example, Article 128(4) adopts the “infringer’s profits” doctrine, which presumes the infringer’s profits to be the patent holder’s damages. However, this presumption can easily be rebutted when the patent holder lacks sufficient production capacity.

As a result, many have argued that the current provisions are largely meaningless for startups, individual inventors, and small and medium-sized enterprises that lack sufficient manufacturing facilities.

Most importantly, the amended law must be practically utilized to protect their rights. However, before introducing punitive damages, Korea must also promptly address the problem of fundamentally low damage awards themselves.

According to the Korean Intellectual Property Office, the amendments are expected to help eradicate technology theft against small and medium-sized enterprises and contribute to innovative growth and a fair economy. However, the fact that such systems are only now being seriously discussed may also reveal that Korea despite having achieved the remarkable “Miracle on the Han River” has remained insufficient in protecting the technologies of SMEs.

China is moving quickly and specifically to establish systems comparable to those of the United States in order to strengthen its internal competitiveness. For Korea, what is urgently needed is not merely a system that “helps” achieve innovative growth and a fair economy, but rather strong intellectual property protection that functions as a powerful deterrent.

[프로필] 황 성 필

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