KIM&CHANG
IP Newsletter | Spring 2015
PATENT
KFTC Amends IPR Guidelines
The Korea Fair Trade Commission ("KFTC") made significant amendments to its "Guidelines on the Examination of Unfair Exercise of Intellectual Property Rights" ("Amended IPR Guidelines" or "Guidelines") on December 17, 2014, effective as of December 24, 2014. The Amended IPR Guidelines reflect the KFTC's active interest in applying competition law against the "unfair exercise" of intellectual property rights.

The main aspects of the Amended IPR Guidelines are as follows:

New Guidance Regarding Injunctions for Standard Essential Patents ("SEPs")

The Amended IPR Guidelines provide some new guidance regarding when injunctions for SEPs are appropriate, which appear to seek a balance between the interests of both SEP holders and technology implementers, stating that an SEP holder is not automatically required to grant a license to third parties, but since an SEP holder who provided a FRAND commitment is obliged to engage in good-faith negotiations, an injunction against a "willing licensee" may be determined as anti-competitive.

The Amended IPR Guidelines provide some details on the standards for what would constitute good-faith negotiations on the part of the SEP holder, but relatively little guidance as to what is meant by a "willing licensee." The Guidelines do mention the possibility of "reverse hold-up" by "unwilling licensees," and give examples of situations where an SEP holder's injunction is less likely to be held as anti-competitive. However, the examples are fairly narrow in scope, such as when a potential licensee refuses to be bound by or to comply with FRAND terms determined by a court or arbitral institution, or when an injunction is the only meaningful remedy because it is difficult to recover damages from a potential licensee for some reason, such as the imminent bankruptcy of the potential licensee.

The Guidelines continue to include provisions regarding what constitutes abuse by the SEP holder of the standardization procedure, or what license terms may be deemed unfair and beyond the legitimate scope of an SEP, as follows:

(1) An act of unfairly agreeing on certain terms, such as price, quantity, territory, counterparts, and restrictions on technology improvements, etc., during the consultation for selection of standard technology;
(2) An act of unfairly not disclosing information about patent applications or patents in order to increase the possibility of being selected as a standard technology or to avoid prior consultation on license terms;
(3) An act of unfairly avoiding or circumventing licensing on FRAND terms in order to strengthen monopolistic power in the relevant market or to exclude competitors;
(4) An act of unfairly refusing to grant licenses for an SEP; or
(5) An act of discriminating with respect to offered SEP license terms, or of imposing a royalty at an unreasonable level, thereby restricting competition.
New Provisions Concerning Non-Practicing Entities ("NPEs")

Rather than using the term "NPEs," the Guidelines use a new term, Enterprisers Specializing in Patent Management ("ESPM"), which is defined as any person or entity engaging in the business which generates profits through the exercise of patent rights against technology implementers without themselves engaging in either the manufacture or sale of goods or the provision of services using the patented technology. The Guidelines enumerate a number of acts that are potentially abusive, especially when engaged in by ESPMs (though such acts by non-ESPMs may also be abusive), as follows:

(1) Imposition of markedly unreasonable royalties in light of normal trade practice;
(2) Denial of the application of FRAND-compliant conditions agreed to by a previous owner of a patent while imposing markedly unreasonable royalties;
(3) Agreement among members of a consortium which forms an ESPM that the ESPM would unfairly refuse to license, or license on a discriminatory basis, to non-members;
(4) Engaging in patent suits or sending warning letters while obscuring or omitting material information or otherwise engaging in conduct that makes it difficult for the other party to understand or defend itself against the asserted claims; or
(5) Transferring rights from a patent holder to an ESPM and subsequently causing the ESPM to commit acts under (1) and (2) above against other enterprises.
Reform on General Guidance

While Article 59 of the Monopoly Regulation and Fair Trade Law ("MRFTL") provides that the fair exercise of IP rights is not forbidden by the MRFTL, the Amended Guidelines clarify that determination of whether the exercise of IPR is fair requires consideration of the totality of the circumstances, including the purpose and aim of relevant IP laws such as the Patent Act, the content of such IPR, and the effect of the act on competition in the relevant market. The revisions in the Amended IPR Guidelines reflect the first Korean Supreme Court decisions on the application of the MRFTL in cases arising from patent settlement, showing that patent rights do not shield such settlements from the scrutiny of the competition authorities (See Supreme Court Decision Nos. 2012 Du 24498 and 2012 Du 27794, both rendered on February 27, 2014).

The Amended IPR Guidelines also contain the following updates:

(1) For purposes of the Guidelines, it is made clear that "anti-competitiveness" is the sole applicable standard of illegality, and no further references are to be made to "unreasonably impeding fair trade" which has been the typical standard for unfair trade practices. Therefore, where the Amended IPR Guidelines use the term "unreasonable," this is to be understood to refer to the "anti-competitiveness" standard.
(2) The concept of "innovation markets" is introduced, in which a particular innovation market comprises any R&D affected by the exercise of a certain IPR and/or R&D for products, technology, or processes in actual or potential competition with the IPR. Previously the IPR Guidelines only referred to "product markets" and "technology markets."
(3) A new section on "grantbacks" of improvements to licensed technology to the licensor is included, which contains detailed standards for determining whether such grantbacks may constitute abuse.
(4) There is a new note regarding "Package Licensing" that discusses the pro-competitive effects of licensing multiple patents at once, but also indicates that compelling the licensing of non-SEPs together with SEPs against the will of the licensee may constitute an unfair tie-in sale.
KFTC's Enforcement Plans

In the press release accompanying the Amended IPR Guidelines, the KFTC stated that it will continue to monitor the abuse of IPRs in the future. The KFTC also submitted its annual report to the Office of the President on its enforcement plans for 2015 ("2015 Annual Report") on January 13, 2015. Notably, the KFTC plans to continue to focus particular attention on the information & communications technology ("ICT") sector by establishing a Special Task Force for the sector. The 2015 Annual Report also identifies the mobile platform and software and IP sectors as areas of particular interest. According to the 2015 Annual Report, the KFTC will engage in close monitoring of possible abuses of dominance, such as illegal tying practices by dominant software developers and the abuse of patent rights by firms with control over standard technologies (such as coercing grantbacks to a licensor of a licensee's independently-obtained knowledge, experience or technological achievements regarding the contracted products or technology, or unreasonably charging royalties for parts not using the licensed technology).

In view of the Amended IPR Guidelines and the KFTC's scrutiny, companies in the ICT and software industries are advised to pay special attention to any aspects of their licensing transactions which may raise competition law concerns, particularly where licensing of standard-essential technologies is concerned.

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