IP Newsletter | Summer 2015
	PATENT
	Court Confirms Patentee and Attorney May Be Liable for Damages for Cease & Desist Letters to Accused Infringer's Customers
	The Seoul Central District Court recently rendered a decision ordering compensation for damages due to negligent business interference resulting from infringement warning letters the patentee sent to a competitor's customers (Seoul Central District Court Decision No. 2014gahap551954 rendered May 1, 2015). This confirms the long-held understanding of the Korean legal community that such letters involve substantial risks to patentees. 1. Factual Background Plaintiff A imports into and distributes in Korea drinking straws (called "Quick Milk Magic Sipper"), which are purchased by Plaintiffs B & C for further distribution to large supermarket chain customers such as HomePlus, Hanaro Mart, E-Mart, etc. Through a local attorney, the patentee (an overseas entity) sent warning letters to the customers of Plaintiffs B & C, asserting patent infringement and demanding they immediately stop dealing with Plaintiffs and selling the straws at issue. These customers subsequently either ceased to purchase the product from Plaintiffs B & C or substantially reduced their purchase volumes. Once Plaintiff A became aware of the patentee's warning letters, it responded to the patentee by citing an overseas case decision holding that the subject product did not infringe the corresponding foreign patent and requested that the patentee apologize to the customers and retract its prior assertions of infringement. When the patentee failed to respond, Plaintiff A filed an action at the Korean Intellectual Property Office and successfully obtained a determination that the straws at issue did not fall within the scope of the patentee's patent. Plaintiffs then sued the patentee's local attorney ("Defendant") for damages on the basis that the sending of the infringement warning letters was unlawful.
	2. Issues Presented to the Court Whether warning letters to a competitor's customers were unlawful The court first determined that sending warning letters to a competitor's customers in this particular case was not a fair exercise of patent rights, and could cause legally actionable harm, in view of the following:
	Patentee's warning letter did not merely assert that the straws in question "potentially" infringed the patent, but conclusively accused the straws of infringement; Customers do not possess the capability to determine if the straws in question infringe the patent; It would be impractical for the customers to voluntarily risk being entangled in a legal dispute by continuing to sell the straws at issue after receiving Patentee's warning letter; and The warning letters could have resulted in a reduction in customer purchases, causing harm to Plaintiffs' business (including the business relationship between Plaintiffs and the customers).
	Whether Defendant should be liable for the harm The court determined that Defendant was at least negligent in sending the warning letters, and thus should be held liable for the harm to Plaintiffs' business, in view of the following factors:
	Defendant had no reasonable basis to believe there was patent infringement, in view of the foreign court decision that the subject product did not infringe Patentee's corresponding foreign patent; Defendant nevertheless sent warning letters to a competitor's customers conclusively asserting that there was patent infringement, rather than filing for a preliminary injunction against Patentee's competitor; Defendant failed to respond to Plaintiff A's detailed evidence of non-infringement (i.e., the foreign court decision); and Defendant should have known that sending warning letters to a competitor's customers without first sending a warning letter to the competitor directly could result in suppression of the competitor's business and cause the competitor to lose customers to Patentee.
	The court thus found that Defendant's sending warning letters in this case without any strong basis for infringement was unlawful and negligent, even under the patentee's instructions, and required Defendant to compensate Plaintiffs for the damages arising from the cessation or reduction in supply of the subject product. 3. Implications While the case does not hold that all warning letters sent for the purpose of amicable settlement are unlawful, the practical implication of the case is that any warning letter should first be sent to the competitor directly, and a patentee should seek to resolve the infringement issue with the competitor before considering any communication with the competitor's customers. Attorneys also must be careful to advise patentee clients accordingly, as they are also potentially liable for any damages. Any communications with a competitor's customers should be limited to readily-supportable factual statements, and avoid making direct accusations of infringement. Otherwise, the patentee and its attorney risk being sued for unlawful business interference if the infringement claims are ultimately denied.
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	Duck-Soon CHANG ducksoon.chang@kimchang.com Seung-Chan EOM seungchan.eom@kimchang.com Tommy KIM tkim@kimchang.com
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