Legal Update: How to Calculate Damages in Patent Infringement Cases in Korea

The last year’s amendment to the Patent Act introducing treble damages for willful patent infringement has been followed by another significant amendment this year. On June 9, 2020, an amendment to the Patent Act was promulgated to provide a basis for allowing additional damages for patent infringement. This article will give an overview about how to calculate damages in patent infringement cases in Korea under the new amendment which will take effect on December 10, 2020.

Under Article 128 of the Patent Act, a patentee or its exclusive licensee (a “Right Holder”) is entitled to claim compensation for damages caused by a willful or negligent patent infringement against the infringer. Before the new amendment takes effect, the amount of such damages could be calculated as follows: (i) the number of infringing products sold by the infringer, multiplied by (ii) a profit per unit (“PPU”) of the patented products that could have been sold by the Right Holder if there had been no infringement; provided, however, that it will not exceed the amount equal to (iii) the number of the patented products that could have been manufactured by the Right Holder at its maximum capacity subtracted by the number of the patented products actually sold by the Right Holder, multiplied by (iv) the PPU. This way of calculating damages (i.e., lost profits), rooted under the traditional concept of damages, has been criticized for failing to recognize the fact that a Right Holder may still license or sublicense its patent rights for royalty payments while it is producing its own patented products.

Starting from December 10, 2020, in addition to the amount of the damages calculated as above, if the number of the infringing products in item (i) above exceeds the number of the patented products calculated as in item (iii) above, the Right Holder will be entitled to damages in the amount equivalent to a hypothetical “reasonable royalty” for its patented invention for such exceeding number of products.

To illustrate the foregoing, a simple case is presented as follows: (i) Company B has infringed a patent owned by Company A, producing and selling 200 units of the infringing products; (ii) Company A has produced its patented products of 60 units out of its maximum manufacturing capacity of 80 units and sold 50 units subsequently; (iii) absent the infringement, Company A could have sold its patented products at a PPU of KRW100,000; and, (iv) a hypothetical reasonable royalty for the patented invention would have been KRW70,000 per unit. Before the new amendment taking effect on December 10, 2020, the damages could be calculated as KRW3,000,000, i.e., (80 – 50) units multiplied by KRW100,000. From December 10, 2020, the total damages will be allowed to be KRW11,400,000, i.e., KRW3,000,000 plus (200-80) units multiplied by KRW70,000.

The additional damages as explained above, along with treble damages for intentional infringement, may substantially increase the damages amount. Will the damages awarded in patent infringement cases in Korea get even closer to such damages in other IP5 countries such as the United States? Possibly, if a U.S.-type discovery system is also adopted by the courts as it is being widely discussed in Korea.