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Korean Supreme Court Confirms Licensee’s Standing to Challenge Patent Validity

March 2019 - Intellectual Property. Legal Developments by Lee & Ko .

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On February 21, 2019, the Supreme Court of Korea issued an en banc decision overruling its prior precedents on the issue of whether a licensee who is continuing to make royalty payments under an existing license agreement nevertheless has standing to challenge the validity of the licensed patent. In short, the Korean Supreme Court held that absent special circumstance, a patent licensee is an “interested party” eligible for challenging the validity of a licensed patent, despite the lack of any threat or potential threat posed by the patent holder against the licensee’s right to use the patented invention. (Supreme Court En Banc Decision No. 2017Hu2819).

Mixed views on the issue

Under the Korean Patent Act, only an interested party may satisfy the standing requirement to initiate a patent invalidation trial. Regarding the interpretation of “interested party,” however, the Supreme Court’s long-held mixed views were that (i) the mere grant of a license does not automatically disqualify the licensee from being an interested party (See e.g., Supreme Court Decision No. 82Hu30 dated May 29, 2018); or that (ii) since a licensee enjoys the right to use the licensed patent during the licensing term, there is no actual or potential economic harm threatened against the licensee and therefore the licensee is not an interested party (See e.g., Supreme Court Decision No. 82Hu58 dated December 27, 1983).

To address this unsettled issue, the Supreme Court used this case as the vehicle to clarify the meaning of interested party by holding that any person who has a direct and actual interest in invalidating a patent (due to the risk of loss or damage that may be caused by the rights vested in the patented invention) is an interested party and this includes any person who manufactures or sells or will manufacture or sell using the licensed patent. The Supreme Court further held that pursuant to this legal principle, any person who uses a patent under a grant of license should be considered an interested party, despite the fact that there is no actual or potential threat posed by the patent holder regarding the licensee’s use of the licensed patent.

Supreme Court’s reasoning

The Supreme Court’s decision was based on the fact that, (i) since patent licensees are generally subject to various restrictions under a license agreement (e.g., royalty payments and scope of license), they should be permitted a legal recourse for alleviating those burdens by being able to challenge the licensed patent; and that (ii) since challenging and invalidating a patent requires a significant amount of time and resources (even if the patent has a valid cause for invalidation), a person who wishes to use a patent without obtaining a license may postpone challenging the patent and choose to use the patent by obtaining a license first. The choice to obtain a license should not be a bar to challenging the patent later. In other words, obtaining a license does not constitute a waiver of right to challenge the licensed patent.

Significance of this case

With this en banc decision confirming the Supreme Court’s stance on licensee’s standing to challenge patent invalidity, royalty paying licensees are expected to revisit reviewing the possibility of invalidating licensed patents in an effort to avoid unfavorable royalty payment arrangements and remove unnecessary limitations on their use of the patented invention (considering various factors such as restrictive licensee-licensor relationship, rapid development of the relevant technology, or strong business prospects). For licensees, this means that the need for proper evaluation of the validity of a patent is more crucial than ever.

The Lee & Ko IP Practice Group is one of the largest and most prominent IP practices in Korea and is recognized by clients and adversaries alike as one of the strongest practices of its kind. From representing clients in Korea’s largest patent infringement cases and invalidity trials to helping clients evaluate patent invalidity, the Lee & Ko IP Practice Group has deep experience in a wide range of industries and remains the top choice in Korea and around the world.

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