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Newsletter | February 2016, Issue 1
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Intellectual Property
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Patent License Dispute & New Precedent – Licensee Wins a Favorable Judgment in Terminating Its Patent License Agreement
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On November 19, 2015, Kim & Chang obtained a favorable decision for our client, the licensee, from the Seoul High Court in a patent license-related dispute.42
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With this decision, the court set up a new precedent, and significantly reduced the license fee claimed by the licensor.
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Background:
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Company T (as licensee) entered into an exclusive license agreement with Institute A (licensor), whereby Company T was granted an exclusive right to use certain patent-pending technology for a module used for a ballast tank of a ship. Company T agreed to pay 3% of the revenue resulting from manufacture and sale of the module adopting the technology.
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This case was brought by Institute A in 2012, in which it claimed license fees based on the revenue from sale of the ballast tank of a ship, and not on the module that constitutes a part of the ballast tank (20% in terms of revenue). The licensor made this claim on the ground that the electrolysis module is not sold separately.
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In response, Company T challenged the validity of the licensed patent of Institute A, stating that the patented technology lacks inventiveness and belongs to the public domain.
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In the invalidation action, the Intellectual Property Tribunal of the Korean Intellectual Property Office decided that the patent is invalid. The Patent Court affirmed the decision, which became final on September 26, 2014.
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License Agreement-related Dispute (Termination):
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After the invalidation action against Institute A’s licensed patent was filed, our client, Company T, sent a termination notice to Institute A on April 10, 2013, stating that the license patent is invalid.
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While the civil lawsuit was pending, the Supreme Court rendered a landmark decision in another case,43 (holding that in case a licensed patent becomes invalid, going forward, the relating patent license agreement becomes ineffective as of the date on which the invalidation decision becomes final, not ab initio.
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As a result, in our case, the critical issue became when Institute A’s entitlement to license fees ends.
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In the civil case on the license agreement-related dispute, Institute A claimed that the purpose of the license agreement is to transfer Institute A’s knowhow to Company T, rather than to grant an exclusive license right to the patent. Thus, Institute A argued, that despite the invalidation of the patent, Company T continues to be obliged to pay the license fee. Institute A demanded that this payment obligation should be based on the revenue from the sale of the ballast tank of a ship.
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On November 2, 2014, the first instance court accepted Institute A’s claim, and decided in favor of Institute A.
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Upon appeal, however, Seoul High Court viewed that the license agreement is for granting an exclusive license right to use the patent. The High Court accepted the fee negotiation history submitted by Company T showing the parties’ agreement to the revenue from sale of the module.
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More importantly, Seoul High Court moved a step ahead of the above Supreme Court decision, and accepted our argument on behalf of Company T that the highly likely invalidation of the licensed patent44 is a valid ground for terminating the patent license agreement.
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Accordingly, Seoul High Court held that Company T is liable for the license fee accrued only up to the time when the license agreement was terminated45.
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| 42 |
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| 43 |
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Case No. 2012Da42666 was decided on November 13, 2014.
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| 44 |
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Even before the patent is finally rendered invalid.
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| 45 |
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By Company T’s notice on April 10, 2013 that the patent license is invalid.
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Back to Main Page
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For more information, please visit our website:
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