On January 25, 2024, the Korean National Assembly passed significant amendments to the Patent Act (the “Amended Patent Act”) and the Unfair Competition Prevention and Trade Secret Protection Act (the “Amended UCPA,” and together with the Amended Patent Act, the “Amendments”) that (i) increase punitive damages available for willful infringement of patents, trade secrets and certain unfair competition acts up to five times the actual damages, and also (ii) strengthen criminal sanctions for trade secret infringement. The Amendments were promulgated on February 20, 2024 and will take effect on August 21, 2024.
While criminal penalties and damage awards for the infringement of technology-related rights, such as patents and trade secrets, have steadily increased in recent years, they remain relatively low compared to many other countries. Moreover, rights owners often face challenges in obtaining significant relief even after successfully pursuing litigation against infringement. The Amendments have been introduced in response to such criticism.
The key provisions of the Amendments are as follows:
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Enhanced Punitive Damages for Intentional Infringement
The Amendments increase punitive damages that may be awarded for intentional infringement/misappropriation to up to five times the actual damages, compared to the previous maximum of up to three times under the current law. By increasing the damages available for intentional or willful infringement/misappropriation, the Amendments aim to allow victims of infringement/misappropriation to be more adequately compensated for losses, while providing a more meaningful deterrent to infringing activity. The enhanced punitive damages provision will apply to acts of infringement/misappropriation that occur after August 21, 2024, the effective date of the Amendments. If the infringing acts started before the Amendments’ effective date but continued afterwards, the Amendments would apply to the acts committed after the effective date.
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Enhanced Criminal Penalties for Trade Secret Infringement
The Amended UCPA increases penalties against corporations for engaging in criminal unfair competition and misappropriation of trade secrets. Previously, corporations and individuals were subject to the same statutory fine amount as a penalty. However, under the Amended UCPA, the maximum statutory penalty for a corporation is now three times the statutory maximum for an individual. In addition, the Amended UCPA extends the statute of limitations for corporations from the current five years to ten years.
The Amended UCPA also provides for the confiscation of goods that criminally misappropriate trade secrets or facilitate unfair competition, as well as the equipment used in the manufacturing of such items. In other words, since separate civil proceedings are no longer necessary to confiscate items connected with trade secret misappropriation, enforcement is likely to be faster, reducing the likelihood of secondary infringement and damages.
Finally, the Amended UCPA now expressly prohibits unauthorized acts that damage, destroy, or alter the trade secrets of others, and provides that a person who engages in such prohibited conduct to obtain unfair profits or cause harm to an owner of a trade secret may be punished with imprisonment for up to ten years or with a fine of up to KRW 500 million. The Amended UCPA now provides a statutory basis to punish acts of damaging, destroying or altering trade secrets (e.g., through hacking), where such acts were not clearly punishable under the existing UCPA.
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New Mechanism for Corrective Orders by KIPO to Improve Operational Processes
The Amended UCPA introduces a mechanism giving the Commissioner of the Korean Intellectual Property Office (KIPO) the authority to issue corrective orders to parties engaging in acts of unfair competition requiring them to cease such unlawful acts, remove or edit any unlawful marks and not repeat such acts. This is for the purpose of improving the operation and execution of administrative investigations KIPO initiated against those who engage in acts of unfair competition. Failure to comply with a corrective order may result in both the details of the violation being made public and fines being imposed.
In addition, the Amended UCPA provides victims of acts of unfair competition an opportunity to request and obtain copies of materials collected during administrative investigations of acts of unfair competition conducted by KIPO, while establishing additional safeguards for trade secret information contained within investigative records. In such cases, a court may order restrictions on the scope of access to such administrative investigation records and the scope of individuals who may access such records.
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With the implementation of the Amendments, it is expected that damages awards for intentional infringement of patent rights and trade secrets will likely increase. Further, by giving victims of unfair competition access to evidence collected in KIPO’s administrative investigations of unfair competition, the Amended UCPA is expected to (i) make it easier for them to file civil lawsuits to claim damages, and to (ii) reduce the burden on victims to prove that acts of unfair competition have occurred.
As IP rights holders in Korea are expected to proactively exercise their rights and as potential civil, administrative, and criminal sanctions against infringers are now significantly increased, there will be an increased need for companies to thoroughly review their procedures to ensure that the inflow or use of competitors’ trade secrets or infringement of third party patents does not occur. On the other hand, rights holders now have additional or improved civil, administrative and criminal remedial procedures available to counteract infringements and misappropriation, as well as additional ways of securing evidence to support such proceedings. Accordingly, these changes should be considered when formulating litigation strategy, irrespective of whether bringing or defending against IP infringement actions.
