South Korea

On November 19, 2021, Company C, a manufacturer of equipment for secondary batteries, filed a lawsuit against Wonik PNE Co., Ltd. (the “Company”), which operates in the same industry. The counterparty alleged that the Company was infringing its patent for a “secondary battery pouch folding device” (the “Subject Patent”) and sought both an injunction and KRW 3 billion in damages. Representing the Company, Lee & Ko argued that the true inventor of the Subject Patent is employee A, and that the Subject Patent amounts to an employee invention that rightfully belongs to the Company. On this basis, Lee & Ko argued that the counterparty’s claim of patent infringement constituted an abuse of patent rights, since the Company was the legitimate patentee. The facts showed that employee A completed the invention while still employed by the Company, but did not disclose it to the Company. Instead, A provided the design drawings to another employee, B. After leaving the Company, B filed for and registered the Subject Patent in his own name, and later transferred it to the counterparty, a company he had established. Lee & Ko persuasively argued that, under these circumstances, the counterparty’s assertion of patent infringement was an abuse of rights. As a result, the Company secured a complete victory at the first instance on October 11, 2024. Although Company C filed an appeal, Lee & Ko, acting on behalf of the Company, initiated a claim against C seeking the transfer of the Subject Patent registration. The courts recognized that the application for the Subject Patent qualified as an “application filed by an unentitled person” and ruled in favor of the Company. The Company secured a complete victory at both the first instance and on appeal before the IP High Court. On June 5, 2025, the Supreme Court dismissed C’s appeal, thereby rendering the final the judgment. Following this decision, C withdrew its own appeal, making the case fully resolved. Lee & Ko’s IP Practice Group conducted a detailed analysis of the technical features of the Subject Patent, the Company’s technical data, as well as related email communications and messenger records. Based on this review, the team successfully proved that the Subject Patent was not B’s personal invention, but rather an employee invention by A, thereby securing a judgment ordering the transfer of the patent rights. Consequently, C’s claims for an injunction and damages for patent infringement were also dismissed. This case highlights Lee & Ko IP’s outstanding litigation capability, demonstrating how thorough technical examination and rigorous legal analysis can lead to a complete victory for the client.

Lee & Ko represented CJ ENM and TVING in the Korea Fair Trade Commission’s (“KFTC”) merger review of a transaction which CJ ENM sought to acquire control of Wavve by having its executives hold concurrent positions at Wavve, based on the premise of a future TVING-Wavve merger. Lee & Ko successfully secured conditional approval with corrective measures that minimize the impact on the business operations of the companies. In this case, the companies had a high market share in the subscription-based OTT market which is focused on pre-produced content. The KFTC, in line with its precedents in the OTT and media sectors, conservatively defined the relevant market in a manner disadvantageous to the companies. However, Lee & Ko utilized its deep understanding of the media sector and extensive experience in merger cases to persuasively present arguments addressing the KFTC’s concerns regarding the potential anticompetitive effects of the transaction. This resulted in the KFTC concluding that the transaction posed no concerns regarding (i) vertical overlap in the content supply and OTT markets and (ii) conglomerate effects between the OTT market and mobile telecommunications retail market. Lee & Ko proactively utilized the voluntary commitment procedure, which was recently introduced in 2024, to propose behavioral remedies that addressed the KFTC’s concerns regarding potential anticompetitive effects and minimize business disruptions to the companies. In close coordination with the KFTC, Lee & Ko effectively demonstrated the effectiveness of the remedies and timely secured the KFTC’s approval of the transaction. According to the KFTC, this case is particularly meaningful as it is the first instance where behavioral remedies were imposed utilizing the newly implemented voluntary commitment procedure.

19 lawyers from Lee & Ko have been selected in the '2025 Korea’s Top 100 Lawyers' researched by Asia Business Law Journal. Yong Seok Ahn and Kyu Wha Lee have also been recognized as one of the most influential lawyers in Korea, being named an “ICON” for their ability to provide valuable insights to the legal community based on their extensive experience. The lists of Korea’s Top Lawyers selected from Lee & Ko are as follows: Banking & Finance: Woo Young Jung, Yeo Kyoon Yoon Capital Markets: Jin Hong Kwon, Hyunjoo Oh Competition/Antitrust: Yong Seok Ahn, Hwan Jeong Corporate/M&A: Sanggon Kim, Ho Joon Moon, Kyu Wha Lee, Hyeong Gun Lee Dispute Resolution: Arbitration: Jinyoung Jung Dispute Resolution: Litigation: Won Seok Ko Employment: Sang Hoon Lee Insurance: Jin Hong Kwon, Jinyoung Jung IP: Jae Hoon Kim, Un Ho Kim Projects & Energy: Hun Ko, Dong Eun Kim Shipping: Jinyoung Jung, Woo Young Jung TMT: Hwan Kyoung Ko, Kwang Bae Park Asia Business Law Journal (ABLJ), an Asian regional law magazine, conducts research on thousands of domestic and foreign in-house counsel as well as lawyers at international law firms to select the Top 100 lawyers in Korea every year.

U.S. Companies Should Reassess Their Tax Strategies As cross-border licensing and settlement agreements become increasingly common and tax authorities intensify scrutiny of license fees, royalty payments, and other similar consideration (“Royalties”), understanding how Royalty payments are sourced for tax purposes is critical. This article highlights the Korean Supreme Court’s surprising decision recently issued, which redefines the sourcing rules for Royalties for registered patents under the Korea-U.S. tax treaty (“Treaty”), and outlines the potential implications for U.S. licensors receiving such Royalties from Korean payors/entities. Supreme Court Shifts Its Position on Sourcing of Royalties for Unregistered Patents in Korea On September 18, 2025, the Supreme Court (en banc) issued a landmark ruling (Supreme Court Decision 2021Du59908, September 18, 2025; hereinafter, the “Decision”) overturning long-standing case law on whether Royalties for patents not registered in Korea constitute Korean-source income under the Treaty. This Decision represents a significant departure from more than 3 decades of case law and may have major implications for U.S. licensors. From “Place of Patent Registration” to “Place of Use of Patent Technology” As a bit of background, the Decision arose out of a patent infringement dispute in the U.S. between a non-practicing entity (the “NPE”) holding patents related to semiconductor manufacturing and a Korean semiconductor manufacturer (the “Korean Company”). To resolve the dispute, the parties settled out of court, and the Korean Company and the NPE entered into a settlement and license agreement. The NPE agreed to drop the lawsuit in consideration of Royalties payments. The Korean Company, as the withholding agent, deducted 16.5% Royalties withholding tax (“WHT”) from the payment, pursuant to the Treaty. The NPE subsequently sought a refund of this WHT on the basis that the Royalties were not Korean-source income because none of the patents were registered in Korea. The tax authorities denied the refund, prompting the NPE to appeal to the Korean courts. At issue was the interpretation of “use” and how to determine the “place of use” under Article 6(3) of the Treaty. Under the Treaty, Royalty payments made by a Korean entity to a U.S. licensor are characterized as Korean-source income if the “use” occurs in Korea. Since 1992, the Supreme Court had consistently applied a “territorial approach” to patent rights, holding that patents not registered in Korea have no effect in Korea, and thus their “use” cannot occur in Korea under the Treaty (See, e.g., Supreme Court Decision 91Nu6887, May 12, 1992; Supreme Court Decision 2005Du8641, September 7, 2007; Supreme Court Decision 2012Du18356, November 27, 2014; Supreme Court Decision 2013Du9670, December 11, 2014; Supreme Court Decision 2016Du42883, December 27, 2018; Supreme Court Decision 2018Du36592, February 10, 2022; Supreme Court Decision 2019Du50946, February 10, 2022; Supreme Court Decision 2019Du47100, February 24, 2022) (collectively, the “Prior Precedents”). In this Decision, however, the Supreme Court (in a 10-3 decision) revisited and changed the interpretation of “use” to mean not the use of the patent right itself, but the use of the underlying technology protected by the patent. Accordingly, the Supreme Court held that even if a patent is not registered in Korea, Royalties paid for the patent technology used in manufacturing or sales activities in Korea constitute Korean-source income. Based on this reasoning, the Supreme Court expressly overturned the Prior Precedents. The Supreme Court remanded the case back to the Suwon High Court (the “Appellate Court”) for further review and proceedings consistent with this new legal principle, and it instructed the Appellate Court to review the place of use and determine the amount of Korean-source income, which should be subject to WHT. In light of the Decision, we expect that the primary disputes in the lower courts now will center on how to determine “use”—an issue on which the Decision unfortunately offered little concrete guidance—and on the appropriate methodology or allocation key to bifurcate the Royalty payments. However, the Decision also raises new questions, as it is not exactly clear on how to determine “use” when the place of patent registration is no longer solely determinative. For example, the Supreme Court indicated that if the underlying technology embodied in such patents is used by the Korean Company in manufacturing and sales in Korea, such income should be regarded as Korean-source income. But what if the underly technology were used in manufacturing in Korea, but the products were then sold in the U.S., where the patents are registered and thus have patent protections? How should the Royalty payments be apportioned? Observations and Possible Implications for U.S. Licensors How to determine place of “use” based on the Decision. We believe the Decision introduces more uncertainty by no longer treating the place of patent registration as dispositive under the Treaty. In cases involving actual licensing and use of patented technology, Royalty payments might be allocated based on methodology like manufacturing or sales location. However, applying this framework broadly becomes challenging when payments stem from U.S. patent litigation settlements. Korean companies often settle with U.S. NPEs to avoid litigation and injunctions that could block U.S. sales. These settlements typically do not involve actual use of licensed technology, making it hard to determine a “place of use.” From the taxpayer’s perspective, we believe such payments should all be characterized as U.S.-source income, as they relate to resolving patent infringement claims in the U.S. While the Korean tax authorities may attempt to argue that the underlying technology was “used” in Korea, courts would not be able to deny that the Royalty payments in such case should be primarily attributable to the Korean company’s (or its U.S. affiliate’s) sales in the U.S. Contract terms. Although the Decision does not formally place the burden of proving “place of use” on the U.S. licensor, in practice, such proof may be necessary to claim treaty benefits or a refund of WHT. Since relevant information may only be known by the Korean entity, we recommend that U.S. licensors include, in consideration for future tax withholding by the Korean entity, more robust provisions in future agreements prescribing that the Korean entity must provide substantive assistance and support to the U.S. licensor in seeking refund of WHT, including (to the extent commercially reasonable) detailed information on sales and use of products using the underlying technology. The alternative would be for U.S. licensor to insist on gross-up provisions for any Royalty WHT in the license agreements. Monitoring the case on Remand. In the Decision, the Supreme Court remanded the case back to the Appellate Court to determine place of use of patents and apportion the Royalty payments between Korean and foreign source-income. But if manufacturing facilities and sales are spread across multiple jurisdictions, it is unclear which metrics or methodology (e.g., gross sales, cost of goods manufactured, production volume, etc.) will be recognized by the Appellate Court, or even how to split lump-sum Royalty payments between manufacturing and sales. Therefore, close monitoring of these developments on remand will be essential to determine the next steps and future strategies for U.S. licensors seeking to claim refund of WHT. If you have any questions regarding this article, please contact below: Tom KWON ([email protected]) Jung Ho RYU ([email protected]) Steve Minhoo KIM ([email protected]) Philje CHO ([email protected]) Ye Jin OH ([email protected]) Kyu Bin KANG ([email protected]) For more information, please visit our website: www.leeko.com