IP in business transactions: South Korea overview

A guide to intellectual property law in South Korea. The IP in business transactions Q&A gives an overview of maintaining an IP portfolio, exploiting an IP portfolio through assignment and licensing, taking security over IPRs, IP and M&A transactions, and the impact of IP on key areas such as competition law, employees and tax.

To compare answers across multiple jurisdictions, visit the IP in business transactions Country Q&A tool.

This Q&A is part of the multi-jurisdictional guide to IP law. For a full list of jurisdictional Q&As visit www.practicallaw.com/ip-mjg.

Contents

Overview of main IPRs

1. What are the main IPRs in your jurisdiction? How are they protected?

Patents

Patent rights arise on registration through a series of formal and substantive examination processes at the Korean Intellectual Property Office (KIPO) (www.kipo.go.kr). Filing patent applications and utility model applications directly with KIPO is required for registration and protection in Korea. International applications filed through the Patent Cooperation Treaty 1970 (PCT) must be filed with KIPO within 31 months from the priority date. The priority date is either the filing date of the international PCT application, or if one or more priority claims are contained in the international PCT application, the earliest filing date of the priority application(s) (Article 2 (xi), PCT).

Trade marks

Trade mark rights arise on registration after going through a series of formal and substantive examination processes at KIPO. Filing trade marks can be done directly with KIPO or through the World Intellectual Property Organization (WIPO), based on the WIPO Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks 1989 (Madrid Protocol).

Well-known marks can be further protected under the Unfair Competition Prevention and Trade Secret Protection Act (UCPA), regardless of registration status.

Copyright

Copyright comes into existence and is protected from the moment a work of authorship is completed.

Copyright includes an author's moral rights as well as economic rights. The moral rights are in principle inalienable. However, by express agreement, the author can agree not to exercise his moral rights against a specific party.

Design rights

Design rights arise on registration generally after going through a series of formal and substantive examination processes at KIPO. Designs can be filed directly with KIPO. Unregistered designs can be protected under the UCPA if the:

  • Imitation product is made within three years from the date the original product was made.

  • Product shape is not a commonly used form for such goods.

Confidential information

Confidential information of a technical or managerial nature and of independent economic value that has been kept secret through substantial efforts is protected.

If the above requirements are satisfied, confidential information or trade secrets are entitled to protection under the Unfair Competition Prevention and Trade Secret Protection Act. If there is an infringement, the owner/holder can file a:

  • Civil lawsuit seeking a preliminary or permanent injunction and/or damages.

  • Criminal complaint against the infringer for criminal sanctions.

For further information about the main IPRs, see Main IPRs: South Korea.

 

Maintaining IPRs

Search and information facilities

2. What facilities are available to conduct IP searches and obtain IP information on registered IP rights?

Patents

Patent searches can be conducted using KIPO's official computer database and Korea Intellectual Property Rights Information Service (KIPRIS). Patent information, including bibliographic data and prosecution history, is available through KIPRIS after the filed applications are published.

As of 3 January 2014, KIPRIS also provides a free Korean-to-English computer-generated translation service of Korean published and registered patents and utility models.

However, there are no official facilities that provide services for monitoring possible infringement of patent rights. Patent owners need to either enlist the services of IP law firms or specialised lawyers to conduct the monitoring, or do it themselves.

Trade marks

Trade mark searches can be conducted using KIPO's official computer database, KIPRIS. Trade mark searches can also be conducted using commercial databases before an application is filed and after its registration. Commercial databases include:

When monitoring for possible infringements, trade mark owners can instruct the services of law firms specialising in Korean trade mark practices and/or private investigators. Trade mark owners can also use private organisations, such as the:

  • Trade related IPR Protection Association (TIPA) (www.e-tipa.org), on the payment of membership fees.

  • Special judicial police squad for trade marks (SJPS) under KIPO.

Copyright

Copyright searches can be conducted using the official computer database of the Korea Copyright Commission (KCC) (www.cros.or.kr). However, as registration is not a requirement for copyright protection the KCC database may contain all relevant prior work protected as copyright. However, searching can be useful in identifying whether or not a certain copyrighted work has been registered with the KCC.

Details of fees and other maintenance requirements for the above IPRs are set out on the KIPO website (www.kipo.go.kr) and the KCC’s website (www.copyright.or.kr).

Design rights

Design searches can be conducted using KIPO's official computer database, KIPRIS. Design Map (www.designmap.or.kr) is a useful website operated by KIPO to search registered designs and published designs.

Confidential information

Due to the nature of confidentiality, there are no publicly available tools or facilities to conduct searches and obtain information on confidential information.

Maintenance of main IPRs

3. What steps must a business take to maintain the registration and status of its main IPRs?

Patents

To keep a patent in force, maintenance fees or annuity fees must be paid. The applicant must pay the first three years' annuities in a lump sum within three months after receiving a notice of allowance. From the fourth year, annuities can be paid yearly or as a lump sum for several years.

Trade marks

To obtain a trade mark registration, the applicant must pay a ten-year registration fee in a lump sum or in two instalments, within two months from receipt of notice of the trade mark. To renew a trade mark registration, the registrant must file a trade mark renewal application within the year preceding the end of the registration validity period, or up to six months after the expiration date with payment of a late fee.

To maintain a trade mark registration, the registrant must use the mark in South Korea in its registered form with its designated goods. If not, the registered mark can be cancelled due to non-use. This occurs when a registered trade mark is not used by its owner or licensee without a justifiable reason during the three-year period immediately preceding the filing date of a cancellation action filed by an interested party.

Copyright

Although registration is not a pre-condition for copyright protection, the person whose name is registered as the author or the right holder is presumed to be the author or the right holder of the registered work. Any person who infringes a registered copyright is presumed to have been negligent in his act of infringement. In the case of a work whose date of first publication or release is registered, the first publication or release of the work is presumed to have taken place on the registered date.

There is no penalty for failure to register a work. However, rights holders who do not register their copyrights with the competent authority cannot enjoy benefits of the presumptions discussed above.

Design rights

The applicant must pay the first three years' annuities in a lump sum to KIPO within three months after receiving notice of allowance. From the fourth year, the annuity can be paid either annually before the end of the period covered by the preceding year's annuity, or by paying a lump sum for several future annuities.

Confidential information

Confidential information cannot be registered. This is because once the information is disclosed publicly it loses the status of secrecy, which is one of the legal requirements for claiming protection under Korean law.

Monitoring infringement

4. What steps can a business take to avoid committing an infringement of another party's IPRs and to monitor whether a competitor is infringing its IPRs?

Patents

A South Korean law firm or lawyer specialising in a Korean IP practice should be contacted to discuss the validity of and/or product/process infringement of the IPR concerned. In these circumstances, the legal adviser should consider the:

  • Prosecution history estoppels. These are the opinions of the examiner as expressed during prosecution of the application and the intent or admission of the applicant in amendments and/or arguments made during the prosecution of the application. These can be considered when determining the later claim construction, scope and enforcement of granted claims.

  • Doctrine of equivalents. Under this doctrine, a party can be liable for patent infringement even though a device or process does not fall within the literal scope of a patent, but is still within the equivalent scope.

Based on this analysis, the business can take certain actions, which include:

  • Challenging the existing patent's validity.

  • Filing a patent scope-confirmation trial.

  • Inventing an alternative method or product design that does not infringe the patent (design-arounds).

In addition, if a competitor’s patent application is under prosecution within KIPO and the business has conducted some IP diligence (for example, an analysis of the invalidity or a prior art search), the business can submit information and evidence against the validity of the competitor’s filed application to KIPO to burden or prevent the competitor's patent application from ripening into a patent right.

Trade marks

As trade mark rights generally arise once they are registered, it would be prudent to conduct a trade mark search for identical or similar marks before using a trade mark. To monitor third party infringing activities, the business should consider instructing the services of a South Korean law firm specialising in Korean trade mark practice and/or TIPA (see Question 2, Trade marks).

Copyright

As registration is not a pre-condition for copyright protection in Korea, it is not easy to find feasible measures that can be taken to avoid possible infringement of a third party's copyright.

However, in relation to monitoring third party's infringing activities, instructing either a South Korean law firm specialising in Korean copyright practice or a private investigator to monitor and conduct market surveillance on a regular basis should be considered.

Design rights

The business should consider contacting a South Korean law firm or lawyer specialising in Korean design practice to discuss the validity and/or infringement of the design.

Confidential information

Trade secret infringement frequently occurs due to employees' misappropriation of their former employers' trade secrets. An employer can consider requiring its employees to sign an agreement not to reveal or use the trade secrets of others, including their former employers. These agreements can help the employer defend its position against any claims, particularly a criminal claim for infringement. Also, if an employee who infringes the trade secrets of others were to be held criminally liable, the employer may also be held criminally liable. However, if the employer took considerable cautious and supervisory measures to prevent such infringement by the employee, then the employer may not be deemed liable. Therefore, in order to reduce the risk of being found criminally liable for the trade secret infringement of an employee, the employer should conduct periodic educational training, internal audits, and so on, for its regular employees.

Further, to avoid or defend an infringement of a third party's trade secret, it is necessary to secure evidence that supports the argument that the trade secret is already in the public domain or was developed independently in a legitimate manner. Examples of monitoring a competitor's infringing activities of an IPR could include:

  • Monitoring the activities of former key employees who have knowledge of any trade secret or know-how of the company and may have been employed by a competitor.

  • Periodically checking its website and relevant articles.

  • Investigating its published IPRs.

 

Exploiting IPRs

5. What are the main steps in an IP audit in your jurisdiction to determine the content of an IP portfolio?

Patents

The main steps in a patent audit involve conducting searches of publicly available databases, a validity analysis and an evaluation of patent claims (see Question 2, Patents). The value of patent rights can be ascertained by the strength of the patent right (validity) and how easily competitors can avoid infringement.

For a validity analysis, a reading/search of the following may be essential:

  • File history of the patent application. A review of the history of the patent application should provide relevant information for consideration in the later enforceability of a granted patent, such as the cited prior art and the examiner’s comments regarding this, the applicant’s arguments and amendments in responses to the examiner’s rejections, and so on.

  • Search of prior art. For a validity analysis based on prior art, a review of the searched prior art and a comparison against the patent claims on an element-by-element basis is required.

  • Claim construction. This involves defining the scope of the patent claim(s).

The initial stage of the validity/enforceability analysis should include whether priority is properly claimed or whether annuities are paid in time.

Trade marks

The main steps in a trade mark audit involve conducting searches of publicly available databases (see Question 2, Trade marks). The value of trade mark rights can be ascertained by:

  • Searching any conflicting registrations.

  • Confirming that the mark is in use.

  • Confirming whether the mark is co-owned with/or licensed to third parties.

  • Confirming whether there are third parties with rights to continuously use the mark based on the prior use, and so on.

Copyright

Although the results may not be reliable (as registration of a work is not required for copyright protection in Korea), conducting searches using the database offered on the KCC's website enables anyone to verify whether or not a certain copyrighted work has been registered with the KCC (see Question 2, Copyright).

Design rights

The main steps in a design audit involve conducting searches of publicly available databases (see Question 2, Design rights). The following must also be verified:

  • The anticipated expiration date of the design.

  • Confirming the validity and scope of protection of the design by conducting prior art search.

  • Confirming whether the mark is co-owned with/or licensed to third parties.

Confidential information

Due to the nature of confidentiality, there are no publicly available measures that can be helpful to determine the content of a portfolio for confidential information.

 

Assignment

Scope of assignment

6. On what basis can main IPRs be assigned?

Patents

Both pending patent applications (future rights for a patent) and granted patents can be assigned. If a patent or a patent application is jointly owned, no owner can transfer his share without obtaining the consent of all the other joint owners.

Trade marks

A trade mark right can be freely transferred separately from goodwill. However, business marks cannot be transferred without transferring the business itself and collective marks cannot be transferred without the merger of the entities. A trade mark right can be transferred on a goods-by-goods basis, but similar goods should be transferred together.

Copyright

Copyright can be freely transferred, in whole or in part (in the latter case, division of copyright for the purpose of granting a licence can be made either on a territory or time basis), except for moral rights, which are non-transferrable and remain with the author. In the case of multiple assignments by the copyright owner, the first recorded assignment with the KCC prevails against any subsequent assignment.

Design rights

Both a design application and a design right are transferable. If a design or a design application is jointly owned, no owner can transfer his share without first obtaining the consent of all the other joint owners.

Confidential information

Confidential information can be freely transferred.

Formalities for assignment

7. What formalities are required to assign each of the main IPRs?

Patents

Except in the case of inheritance or other general succession, assignment of patent rights must be recorded on KIPO's patent registry to become effective. Documents required for the registration process are:

  • Deed of assignment executed by the assignor.

  • Notarised Corporate Nationality Certificate executed by the assignor.

  • Power of attorney of the assignor and assignee.

Trade marks

Except in the case of inheritance or other general succession, an assignment of trade mark rights must be recorded in KIPO's trade mark registry to become effective. Documents required for the registration process are:

  • Deed of assignment, executed by the assignor.

  • Notarised Corporate Nationality Certificate, executed by the assignor.

  • Power of attorney of the assignor and assignee.

Copyright

Under the Korean Copyright Act, a copyright consists of an author's moral rights and economic rights. Only the economic rights can be assigned to others. As the assignment of economic rights can be made merely on mutual agreement between the assignor and assignee, either can argue for the enforceability of such assignment against the other without having to register the assignment with the KCC. However, it may strengthen the enforceability of such assignment against a third party claiming the same if the assignment has been validly registered with the KCC.

The following documents are required for the registration of a copyright assignment:

  • Application for assignment recordation.

  • Details of applied assignment recordation.

  • Copy of assignment agreement.

  • Reproduced copy of the copyrighted work.

  • Notarised Corporate Nationality Certificate, executed by the assignor.

  • Power of attorney of the assignor and assignee.

Design rights

Except in the case of inheritance or other general succession, assignments of design right must be recorded on KIPO's design registry to become effective. The following documents are required to register of an assignment of a design right:

  • Deed of assignment, executed by the assignor.

  • Notarised Corporate Nationality Certificate, executed by the assignor.

  • Power of attorney of the assignor and assignee.

Confidential information

There is no legal requirement for an assignment of confidential information. Recordation of assignment of confidential information is not available in South Korea.

Main terms for assignments

8. What main terms should be included in an assignment of IPRs?

The main terms of an assignment agreement include:

  • The subject of the assignment.

  • Purchase price.

  • Duties of the parties.

  • Confidentiality.

  • Governing law and jurisdiction.

A duty clause generally includes that the assignor will not, for example:

  • Use the IPRs from the effective date of the assignment.

  • File an application for a subject similar to those of the IPRs.

  • Contest the IPRs.

For the purpose of the registration of assignment before KIPO, a short form of assignment indicating the exact names and addresses of assignor and assignee and the subject patent being assigned, would suffice.

 

Licensing

Scope of licensing

9. On what basis can the main IPRs be licensed?

Patents

An exclusive or non-exclusive licence can be granted to others based on Article 100 (1) and 102 (1). Patent rights can be licensed with restrictions on time, types of use (such as manufacturing, selling, importing, leasing and so on) and region/location. The licence, including such restrictions can be registered with the KIPO's Patent Registry.

Trade marks

Trade marks can be licensed with or without goodwill and with jurisdictional restrictions. Trade marks can be also licensed for parts of designated goods/services.

Copyright

Copyright can be freely licensed to third parties, in whole or in part (in the latter case, division of copyright for the purpose of granting a licence can be made either on a territory- or time- basis), except for moral rights, which are non-transferrable and remain with the author.

Design rights

Designs can be licensed in whole or in part and with jurisdictional restrictions. Designs can be licensed for a specific activity, such as manufacturing, selling, importing and so on.

Confidential information

Confidential information can be freely licensed to third parties. There are no legal requirements for licensing confidential information.

Formalities for licensing

10. What are the formalities to license each of the main IPRs?

Patents

Registration is generally not required to license patent rights. However, an exclusive licence for a patent is only effective if it is registered with KIPO.

Trade marks

Registration is not required to license trade marks.

Copyright

No formalities are required to license a copyright.

Design rights

Registration is generally not required for licensing designs. However, an exclusive licence for a design is only effective if it is registered with KIPO.

Confidential information

No formalities are required to license confidential information. Recordation of a licence for confidential information is not available in Korea.

Main terms for licences

11. What main terms should be included in an IP licence?

The main terms of an IP licence include:

  • The subject of the licence.

  • Licence term.

  • Quality control.

  • Termination of the licence.

  • Indemnification provisions.

  • Dispute resolution.

  • Governing law and jurisdiction.

For the purpose of registration of licence before KIPO, a short form of the licensing agreement indicating the exact names and addresses of the licensor and licensee, the subject patent, and the licence term (time, types of use and region/location) would suffice.

 

Taking security

12. Is security commonly taken over IPRs?

It is possible to grant a security over an IPR (such as a granted patent), but not over an application for an IPR (such as a patent application). South Korean IP Law requires registration of a pledge over IPRs, among other security interests, for claiming against a third party (Article 101, Korean Patent Act).

 
13. What are the main security interests taken over IPRs?

Patents

The main form of security that can be taken over patent rights is a pledge. A pledge over a patent must be recorded in the KIPO patent registry to be valid and enforceable.

Trade marks

The main form of security that can be taken over trade marks is a pledge. A pledge over a trade mark registration must be recorded with KIPO to be valid and enforceable.

Copyright

The main form of security that can be taken over a copyright is a pledge. Recordation is not required for a pledge to be valid and enforceable. However, a pledge recorded with the KCC prevails against any non-recorded pledges.

Design rights

The main form of security that can be taken over designs is a pledge. A pledge over a design registration must be recorded with KIPO to be valid and enforceable.

 

M&A

Due diligence

14. What IP-related due diligence is commonly carried out in both a share sale and an asset sale?

Share sale

IP-related due diligence in a share sale aims to do the following:

  • Identify and evaluate IPRs owned by the target and confirm ownership and validity.

  • Identify IPRs owned jointly with third parties and check if there is any limitation on exploiting such IPRs.

  • Identify IPRs for which exclusive licences have been granted to third parties.

  • Identify trade marks that have not been used for the last three years and therefore may be subject to a risk of cancellation action.

  • Check any pending, threatened or potential infringement claim or liability.

  • Check whether all IPR licence arrangements necessary for the business have been made and, if not, assess the costs for entering into such licences.

  • Check whether IP licences, including licences for the use of computer software programs necessary for the business, include any change of control provision that can be triggered by the contemplated share acquisition transaction.

  • Check whether assignment of work-for-hire inventions from inventor employees has been properly made and assess potential liability for compensation to these employees.

Asset sale

IP-related due diligence in an asset sale aims to:

  • Identify all the IP assets subject to the transfer.

  • Check ownership and encumbrances.

  • Identify IPRs owned jointly with third parties and check whether consent of the third party joint owners is necessary for the transfer of these IPRs.

  • Depending on the importance of the IP, check the validity and status of the IP.

  • Assess the IP assets' value.

  • Identify trade marks that have not been used for the last three years and may be subject to a risk of cancellation action.

  • Check whether IP agreements are included in the asset that is subject to transfer and check that these agreements are transferable.

Warranties/indemnities

15. What IP-related warranties and/or indemnities are commonly given by the seller to the buyer in both a share sale and an asset sale?

Share sale

The seller commonly warrants to the buyer that:

  • There is no pending, threatened or potential claim or litigation for infringement.

  • The IPRs are valid and effective (to the knowledge of the seller).

  • Exploitation of technologies and information necessary for the business does not infringe any IP rights of any third party (to the knowledge of the seller).

Asset sale

The seller commonly warrants to the buyer in relation to:

  • Its ownership of the IPRs.

  • Its title to the IPRs being without encumbrances.

  • Validity of the IPRs (to the knowledge of the seller).

Transfer of IPRs

16. How are the main IPRs transferred in both a share sale and an asset sale?

Share sale

No specific transfer procedure is required.

Asset sale

In case of trade marks, patents, utility models and designs, registration of the title transfer with the KIPO is required.

In case of copyrights, registration of the title transfer with the Copyright Commission is required.

 

Joint ventures

17. Is it common for companies to set up joint ventures in your jurisdiction to develop projects that heavily involve IPRs?

Joint ventures to develop projects that heavily involve IPRs are commonly set up. The joint venture agreement commonly includes a provision defining ownership of the IPRs:

  • Contributed to the joint venture by the shareholders of the joint venture.

  • Developed by the joint venture and their possible licensing.

The agreement may also include a provision regarding confidentiality.

 

Competition law

Main provisions and common issues

18. What are the main provisions of your national competition law that can affect the exploitation of the main IPRs?

The Fair Trade Law prohibits an act of unfairly coercing or inducing customers of competitors to do business, or an act of trade under terms and conditions that unfairly restrict or disrupt business activities. In particular, where these coercing or disrupting acts are accompanied with dissemination of facts, statements or assertions that are not objectively proved or that are exaggerated, the Fair Trade Commission or the court is more likely to find that such an act is an unfair trade practice.

The Fair Trade Law does not apply to any act deemed to be an exercise of rights under the Copyright Act, the Patent Act, the Utility Model Act, the Design Act, or the Trade Mark Act (Article 59, Fair Trade Law). However, even though certain activities seem to exercise IPRs, if they are deemed to be unjustifiable acts going far beyond the purpose of the IPRs (which are designed to encourage invention and creation), or if they restrain competition in technology markets or goods markets, the Fair Trade Law may be applied (according to the Guidelines for reviewing the exercise of IPRs established by the Fair Trade Commission).

According to the Guidelines for reviewing the exercise of IPRs established by the Fair Trade Commission, when the exercise of IPRs has a hindering effect on fair trade, but at the same time has a positive effect that is in accordance with the original intent of the IPR system (technological innovation, and so on), then the exercise should be carefully reviewed and both effects compared to see whether it violates the Fair Trade Law.

 
19. What are the most common national competition law issues that arise in the exploitation of the main IPRs?

In entering into a patent licence arrangement, the Fair Trade Law protects a licensee from potential misuse of a patent right by the patent holder or licensor, when it is considered an unfair trade practice. Examples of such unfair trade practices are:

  • Imposing royalty payments after the patent expires.

  • Prohibiting a licensee from making improvements to the licensed patent.

  • Imposing obligations to transfer these improvements to the licensor for free.

In addition, a patent holder's unfair refusal to grant a licence to block market entry may be an unfair trade practice.

A possible solution is to have the agreement reviewed by local counsel, to see whether problematic licence terms need to be corrected.

Exclusions/exemptions

20. What exclusions or exemptions are available for national competition law issues involving the exploitation of the main IPRs?

The Fair Trade Law does not recognise exemptions or exclusions such as parallel exemptions or block exemptions, other than exercise of rights under the Copyright Act, Patent Act, the Utility Model Act, the Design Act, or the Trade Mark Act (see Question 18).

 

Advertising

21. To what extent do advertising laws impact on the use of third party trade marks?

Unfair labelling and advertising practices that may deceive or mislead consumers or impair fair trade in the market are prevented under the Fair Labelling and Advertising Act, which prohibits:

  • False or exaggerated labelling and advertising.

  • Deceptive labelling and advertising.

  • Unduly comparative labelling and advertising.

  • Slanderous labelling and advertising.

 

Employees and consultants

22. Who owns each of the main IPRs created by an employee in the course of his employment? Is compensation payable to the employee? What main steps can an employer take to ensure it owns each of the main IPRs?

Ownership

Under the Invention Promotion Act (IPA), an employee-inventor initially owns a work-for-hire invention, that is, an invention made by an employee during work relating to his employer's business, and for which the employee's activities fall within the scope of his present or past work.

Compensation

The employee is entitled to reasonable compensation for any work-for-hire inventions acquired by the employer.

Main steps

An employer can obtain the rights to the employee's invention by including an assignment clause in the employment contract, and following the proceedings under the IPA as follows: Where an employee completes a work-for-hire invention, the employee must report this to the employer in writing, and the employer must notify the employee whether the employer wants to claim title to the invention within a designated period. If the employer claims title, assignment of ownership to the invention is deemed to occur when the employer notifies the employee.

If there is no prior agreement or service regulation, then the employer cannot acquire rights to the employee invention against the employee's will, but still can have a royalty-free and non-exclusive licence.

Large companies cannot obtain even the non-exclusive licence if they lack internal regulations on assignment and employee invention compensation, which should be implemented after consulting with employees (amended IPA effective as of 31 January 2014).

 
23. Who owns each of the main IPRs created by an external consultant? What main steps can a business take to ensure it owns each of the main IPRs?

Ownership

IPRs created by an external consultant are generally owned by the consultant.

Main steps

It is generally recommended that the contract for the external consultant's services include an agreement for assigning the IPR to the client/customer, to avoid a potential dispute over ownership of the IPR.

 

Tax

24. What are the main taxes payable by a licensor on the licensing of the main IPRs?

When a licensee in South Korea pays royalties to a licensor outside South Korea, two types of taxes apply, withholding tax and value added tax (VAT).

Withholding tax

Compensation given for the use of, or the right to use, industrial, commercial, or scientific knowledge, experience, or skill (know-how) is classified as a royalty under the Corporate Income Tax Law. The licensee must generally withhold tax at a rate of 22% (including local income tax, levied at 10% of corporate income tax) of the gross amount. However, if there is a tax treaty between South Korea and the country where the licensor resides, the withholding tax rate is reduced, for example to 11% for copyright and 16.5% for other IPR licensors in the US.

VAT

If the licensee uses the IP for VAT-exempt business (a business whose income is not subject to VAT), it is generally required to collect 10% VAT from itself on behalf of the licensor, for payments made to the licensor in relation to the licensing, and pay the tax to the South Korean government.

 
25. What are the main taxes payable by a seller on the disposal of the main IPRs?

If a seller of IPRs is a South Korean tax resident, any gain from the sale is taxable income and is subject to corporate income tax at the following rates, inclusive of local income tax:

  • For income of KRW200 million or less: 11%.

  • For income of KRW200 million to KRW20 billion: 22%.

  • For income of more than KRW20 billion: 24.2%.

For non-tax residents, income from the disposal of IPRs is classified as royalty income under the Corporate Income Tax Law. When buyers pay consideration to the sellers, they must withhold tax on the amount (see Question 24, Withholding tax). However, depending on the tax treaty, income from the disposal of IPRs may be classified as capital gains, and exempt from taxation in South Korea.

 

Cross-border issues

26. What international IP treaties is your jurisdiction party to?

South Korea is party to the:

  • WIPO Convention Establishing the World Intellectual Property Organization 1967.

  • WIPO Paris Convention for the Protection of Industrial Property 1883.

  • WTO Agreement on Trade-Related Aspects of Intellectual Property Rights 1994.

  • PCT.

  • Paris Convention for the Protection of Intellectual Property Rights 1980.

  • Universal Copyright Convention 1987.

  • WIPO Berne Convention for the Protection of Literary and Artistic Works 1971.

  • Trademark Law Treaty 2003.

  • Madrid Protocol.

  • WIPO Copyright Treaty 1996.

A detailed list of treaties can be found at www.wipo.int/wipolex/en/national.jsp.

 
27. Are foreign IPRs recognised in your jurisdiction?

Patents

No recognition is given to foreign patent registrations in South Korea.

Trade marks

No recognition is given to foreign trade mark registrations in South Korea.

Copyright

A foreign work is protected by copyright if any one of the following conditions is satisfied:

  • An international treaty obligates Korea to provide such protection.

  • The work was published in South Korea for the first time or published in South Korea within 30 days from the first publication in another country.

  • An individual author resides in South Korea or if a corporate author has its principal office in South Korea.

Design rights

No recognition is given to foreign design registrations in South Korea.

 

Reform

28. Are there any proposals for reform?

Patents

Proposed amendments to the Korean Patent Act (KPA) are pending before the National Assembly to take effect one year after the National Assembly passes the amendments. The main changes are to allow foreign language (English only currently) based applications and allow correction of the patent specification based on a PCT publication. Currently, correction to a Korean patent specification is only allowed based on the originally filed Korean translation, not the PCT publication in a foreign language.

Trade marks

The major proposed changes are as follows:

  • Consent letters of a senior conflicting mark registrant will be accepted for a junior trade mark applicant to obtain a registration.

  • Proving secondary meaning will become easier. Currently, secondary meaning is recognised if the applicant proves that consumers are easily able to recognise the trade mark as a source identifier. The proposed amendment lowers this standard by deleting "easily".

  • Marks that may cause dilution will be denied registration.

  • A registration may be denied on the basis that the application is unfairly made or lacking in good faith.

  • Proving legal standing to file a non-use cancellation action will no longer be required.

  • A five-year statute of limitations for invalidation actions based on fame will be implemented.

Copyright

The major changes are as follows:

  • An amendment bill stating that use of copyrighted works created and published by the government or any local government constitutes a fair use, received legislative approval and will take effect on 1 July 2014.

  • Proposals submitted by several members of the National Assembly to require filing of criminal complaints for some of the offenses prohibited under the Copyright Act or to narrow the scope of offenses not requiring such filing of criminal complaints, are pending at the National Assembly.

  • The government proposal to give the KCC the following authority is pending at the National Assembly:

    • authority to cancel an existing copyright registration if that registration was granted to a person who had no authority to register the work: and

    • authority to issue a decision in a mediation proceeding before the KCC if either party unreasonably refuses KCC’s mediation proposal or if the claimed amount is small.

  • The following proposal submitted by a member of the National Assembly is pending at the National Assembly:

    • to establish an institute for copyright protection to handle works for copyright protection, which have been handled by and between the Copyright Protection Center and the KCC to date; and

    • to introduce a system requiring a copyright-related national skill qualification certificate.

Designs

The major changes are as follows (effective as of 1 July 2014):

  • Extension of the term of a design right from 15 years from the date of registration to 20 years from the application date.

  • It will be possible to claim an exception to loss of novelty when an examiner preliminary rejects the design application or when a third party files an opposition or invalidation action.

  • The similar design system will be abolished in favour of adopting a related design system, recognising the independent right to and granting a valid duration period for the related design.

  • International applications for designs will be filed through a single application pursuant to the Hague Agreement for the International Registration of Industrial Designs.

 

Contributor profiles

Song Dae Lim

Kim & Chang

T +822 3703 1088
F +822 723 3287
E sdlim@kimchang.com
W www.ip.kimchang.com

Professional qualifications. South Korean CPA, 1992

Areas of practice. Tax; international taxation related to cross-border transactions.

Recent transactions

  • Representing Synopsys in tax appeals on Korean taxation matters regarding BO (Beneficial Owner) on payment of royalty by Korean companies.

  • Advising multinational clients on tax matters (including customs duty) in various IP transactions such as TP on IP transfer and payment of royalty, and tax audit by the Korean tax authority.

Jung Ae Suh

Kim & Chang

T +822 3703 1335
F +822 2122 3800
E jasuh@ip.kimchang.com
W www.ip.kimchang.com

Professional qualifications. South Korean Patent Bar, 1998

Areas of practice. IP litigation; chemical practice; life sciences practice.

Sung Nam Kim

Kim & Chang

T +822 6488 4066
F +822 2122 3800
E
snkim@ip.kimchang.com
W
www.ip.kimchang.com

Professional qualifications. South Korean Patent Bar, 1998

Areas of practice. Trade marks; design; IP litigation.

Linda A Park

Kim & Chang

T +82 2 6488 4047
F +82 2 2122 3800
E lapark@ip.kimchang.com
W www.ip.kimchang.com

Professional qualifications. Washington, US, 2005; US Patent and Trade mark Office, 2008

Areas of practice. Strategic IP counselling; patent prosecution and procurement; licensing.

Non-professional qualifications. MS in Electrical Engineering, University of Washington; BA in History, Whitman College; Masters in Teaching, Seattle University

Languages. English, Korean

Professional associations/memberships. International Association of Korean Lawyers.

Publications. The USPTO's 21st Century Strategic Plan: What Does It Mean for American Innovation?, CASRIP Newsletter, Vol. 9, Issue 3 (Autumn 2002).

Alexandra Bélec

Kim & Chang

T +822 6488 4059
F +822 2122 3800
E abelec@ip.kimchang.com
W www.ip.kimchang.com

Professional qualifications. Quebec, Canada, 1999

Areas of practice. Trade marks; design; domain name; copyrights; IP litigation.

Jason J Lee

Kim & Chang

T +822 6488 4060
F +822 2122 3800
E jlee4@ip.kimchang.com
W www.ip.kimchang.com

Professional qualifications. California Bar, 2005

Areas of practice. Copyright; designs; IP litigation; trade marks; unfair competition.

Languages. English, Korean

Dae Hyun Seo

Kim & Chang

T +822 3703 1738
F +822 737 9091
E daehyun.seo@kimchang.com
W www.ip.kimchang.com

Professional qualifications. South Korean Bar, 2009

Areas of practice. IP litigation and transaction.


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