Analysis of a Korean Court Ruling on Willful Infringement and Punitive Damages

Respecting patent rights that protect technology is as crucial as the development of the technology itself. Unfortunately, however, cases of infringement, where patented technology is used without the rightful owner's permission, continue to occur. The amended Patent Act, which took effect on July 9, 2019, introduced a punitive damages system that can increase the compensation amount by up to three times for acts of willful patent infringement. This measure is intended to raise awareness about the seriousness of patent infringement and strengthen the remedies available to rights holders.

Recently, the Patent Court of Korea made a significant decision regarding the application of this punitive damages system (Patent Court, decided Oct. 31, 2024, Case No. 2023-Na-11276). Through this ruling, we at Pine IP Firm aim to highlight the risks of willful patent infringement and the key considerations for businesses.

Case Overview

This case was initiated by kitchenware manufacturer Company A (Plaintiff), who filed a damages claim against competitor Company C (Defendant), alleging that the defendant had manufactured and sold vacuum pots ("Defendant's Products") by infringing on the plaintiff's patent for a "lid for a cooking container" ("the Patent Invention").

According to the facts acknowledged by the court, the defendant continued the infringement under the following circumstances:

• Prior Knowledge and Breakdown of Negotiations: The defendant was aware of the existence of the Patent Invention through its business relationship with the plaintiff. Around 2015, the parties negotiated the use of the patent, but the negotiations broke down due to disagreements over royalties.
• Infringement Began During Negotiations: Around November 2015, while negotiations were still ongoing, the defendant began producing and selling its products incorporating the Patent Invention without the plaintiff's permission.
• Ignoring Demands to Cease Infringement: In February 2019, the plaintiff sent a formal notice to the defendant, informing them of the patent infringement and demanding that they cease the infringing activities. The defendant, however, continued its actions.
• Continued Infringement Even After Losing Legal Disputes: In June 2019, the defendant filed an invalidation trial against the Patent Invention and a declaratory judgment action for non-infringement. However, both claims were dismissed by the Intellectual Property Trial and Appeal Board (IPTAB) in December 2020. Despite the subsequent appeal to the Patent Court also being dismissed and the judgment becoming final in August 2021, the defendant continued to sell the products until October 2022.

The Court's Judgment

The Patent Court clearly determined that the defendant's actions constituted willful patent infringement. The grounds for this decision were as follows:

• The defendant produced and sold the products without authorization after negotiations broke down, despite knowing of the patent's existence.
• The defendant continued the infringement even after receiving an explicit demand from the plaintiff to cease.
• The defendant continued the infringement for a long period even after the court's decision against them in the patent invalidity and scope confirmation lawsuits became final.

The court ruled that the defendant's arguments, such as a "patent attorney's opinion letter on the possibility of invalidation" or a "change in management," were not sufficient grounds to negate willfulness. This was particularly because the attorney's opinion letter was written after the infringement had already begun, explicitly stated it was not legally binding, and contradicted the actual outcome of the litigation.

Key Judgment on the Scope of Punitive Damages

The defendant argued that since the infringement began before the punitive damages provision took effect on July 9, 2019, the regulation could not be applied. This was a critical issue concerning the interpretation of Article 3 of the Addenda to the Patent Act, which states, "This Act shall apply starting from the first violation that occurs after this Act enters into force."

In response, the court clarified that this provision defines the timing for when the punitive damages system applies (i.e., to infringing acts occurring after the effective date), not that it applies only to cases where the infringement first began after the effective date. In other words, the court affirmed that even if the infringement had been ongoing since before the law's effective date, punitive damages do apply to the infringing acts that occurred after the effective date. This sets an important precedent for future similar cases.

Calculation of Damages

First, the court calculated the damages based on Article 128(4) of the Patent Act (presumption of the infringer's profits). The defendant's total sales of approximately KRW 50.1 billion were multiplied by a marginal profit rate of 7.6% (calculated with reference to the standard expense ratio of 92.4% published by the National Tax Service). The court then recognized that the Patent Invention's contribution to the defendant's product sales (contribution rate) was 20%, resulting in a base damages amount of approximately KRW 760 million.

• Basis for the 20% Contribution Rate: The court acknowledged that the Patent Invention was a crucial technological element that contributed to the enhanced sealing function—a core feature of the defendant's vacuum pots—and provided a distinct visual differentiation. However, the contribution rate was limited to 20%, considering that other patents/designs owned by the defendant (e.g., check valve, packing structure, standing handle) and non-technological factors such as the defendant's capital and marketing activities also contributed to sales.

Next, for the damages incurred during the period when punitive damages were applicable (July 9, 2019, to Oct. 31, 2022), which amounted to approximately KRW 88 million, the court applied a punitive multiplier of 2x.

• Basis for the 2x Punitive Multiplier: The court comprehensively considered the factors listed in Article 128(9) of the Patent Act: ▲ the defendant's superior position (the plaintiff was a subcontractor, and there was a significant size difference), ▲ the high degree of willfulness (definitive intent), ▲ the long duration and large scale of the infringement, ▲ the substantial economic benefits gained from the infringement, ▲ the defendant's financial status, and ▲ the insufficient efforts to remedy the damage. Based on these factors, the court decided on a 2x multiplier.

Ultimately, the court ordered the defendant to pay a total of KRW 850.66 million (= approx. KRW 675 million in damages before the effective date + approx. KRW 88 million in damages after the effective date × 2) plus interest for the delay.

Implications for Businesses

This ruling reaffirms the court's strict stance on willful patent infringement. Business executives and practitioners must bear the following points in mind:

1. Conduct Thorough Prior Patent Searches: Before launching a new product, meticulously review patents held by competitors or in related technology fields to proactively prevent potential infringement.
2. Never Ignore a Warning Letter: If you receive a warning letter from a patent holder, do not take it lightly. Immediately consult with a legal expert to determine the best course of action.
3. Engage in Good-Faith Negotiations: Approach licensing negotiations with sincerity. If negotiations fail, do not rashly proceed to use the technology.
4. The Risk of Continuing Infringement During Litigation: Even while arguing for patent invalidity or non-infringement in court, the risk of being found liable for infringement remains until a final judgment is rendered. Continuing the infringing activity, especially when there is a possibility of losing the case, will only make the willfulness more apparent.
5. The Real Threat of Punitive Damages: Be aware that if an infringement is deemed willful, the damages can increase by up to three times, which can cause a severe blow to the company's finances.

Conclusion

Patent rights are a social contract that promotes innovation and a valuable asset for any company. Respecting the rights of others is fundamental to a healthy market order and the surest way to prevent legal disputes and massive losses. The punitive damages system further solidifies this principle.

At Pine IP Firm, we provide professional legal services across the entire spectrum of intellectual property, from patent prosecution and management to dispute prevention and response. If you have any concerns related to patents, please do not hesitate to consult with our experts.

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