Navigating the New Landscape of Patent Infringement Damages in South Korea

In the current era of global technological hegemony competition, the importance of patents as core corporate technological assets cannot be overstated. However, when painstakingly developed technology is infringed upon without authorization, or when a company faces allegations of unintentionally infringing another party's patent rights, the potential legal and economic risks can be staggering. Notably, the issue of calculating damages in patent infringement disputes is entering a new phase, driven by recent amendments to the Korean Patent Act and evolving court precedents. The system for compensating patent infringement damages, once criticized for its "slap-on-the-wrist" penalties, is rapidly changing to achieve the dual goals of providing substantial relief for damages incurred and effectively deterring infringement. With the imminent era of up to five times punitive damages for willful infringement, this topic is no longer just a concern for legal experts but has become a critical corporate management agenda.

This column provides an in-depth analysis of the legal basis and fundamental structure of the Korean patent infringement damages system. We will closely examine the primary methodologies for calculating damages and their associated issues, the background and current status of statutory and punitive damages provisions, the implications of recent case law trends, and offer concrete, practical response strategies that companies must understand and implement.

The Structure of Article 128 of the Patent Act

When an infringement of a patent right or an exclusive license occurs, the rights holder can claim civil damages based on the infringer's intent (willfulness) or negligence (Patent Act Article 128(1)). The Korean Patent Act, in principle, aims for 'compensation for actual damages,' meaning making the rights holder whole for the losses actually suffered due to the infringement. However, accurately proving damages resulting from the infringement of intangible assets like patent rights is practically very difficult. Therefore, Article 128 establishes the following multi-layered provisions for presuming and calculating damages to alleviate the rights holder's burden of proof and facilitate effective remedies:

(1) Presumption of Damages Based on the Rights Holder's 'Lost Profits' (Article 128(2), (3))

Basic Principle: This is the most direct method, viewing damages as the profits the patentee (or exclusive licensee) could have earned by selling the relevant volume had the infringer not sold the infringing products. The law principally presumes damages as: "Quantity of goods transferred by the infringer" × "Profit per unit quantity of the rights holder's product."
Key Issues & Significance of the 2020 Amendment: Previously, the prevailing interpretation limited the application of this provision to the scope of the patentee's actual production capacity. For example, if a patentee could only produce 10,000 units annually, but the infringer sold 50,000 units, the patentee could only claim damages based on the lost profits for 10,000 units. This was criticized for inadequately protecting rights holders who effectively lost their market due to the infringer's large-scale sales. The 2020 amendment to the Patent Act addressed this by deleting the provision limiting damages by production capacity (former Article 128(3)). This opened the door for patentees to initially apply the lost profits presumption under Article 128(2) even to sales volumes exceeding their production capacity. Of course, the infringer can still argue for a reduction in damages by specifically proving that the patentee could not have sold the excess quantity due to 'reasons other than the infringing act,' such as insufficient production capacity or market conditions. However, the amended law significantly shifts the burden of proof towards the infringer, providing a stronger basis for the rights holder to claim damages based on the infringer's total sales volume. Practically, the rights holder must clearly calculate their profit margin (typically contribution margin or operating profit margin) and argue their ability to cover the entire infringing sales volume based on market dominance, marketing capabilities, etc. Conversely, the defendant must present specific counter-evidence (e.g., market saturation, existence of competing products, limitations in the rights holder's sales force), leading to anticipated fierce disputes.

(2) Presumption of Damages Based on the 'Infringer's Profits' (Article 128(4))

Basic Principle: When it is difficult for the rights holder to prove their own 'lost profits,' this provision offers an alternative, presuming the rights holder's damages to be the "amount of profit gained by the infringer through the infringing act." It also implies stripping the infringer of unjust enrichment and transferring it to the rights holder.
Key Issues & Burden of Proof: The most significant feature of this provision is its effect on shifting the burden of proof. Once the infringer's profit is calculated, the court presumes this amount to be the rights holder's damages. To rebut this presumption, the infringer must prove, often through detailed accounting data, that the rights holder's actual damages were less than the infringer's profits, or that a portion of their profits was unrelated to the patented invention. Supreme Court precedent (e.g., Case No. 2005Da75002) firmly establishes this principle. In practice, calculating the infringer's profit is a highly complex issue. It is generally based on 'net profit,' calculated by deducting not only variable costs directly incurred in producing and selling the infringing product from total revenue, but also reasonably allocated fixed costs (e.g., depreciation, general administrative expenses). Fierce disputes often arise over the scope of deductible expenses and allocation methods. If the infringer refuses to submit accounting records or submits them incompletely, the court may estimate the profit margin favorably for the rights holder or even consider the entire revenue as profit.

(3) Calculation of Damages Based on a 'Reasonable Royalty' (Article 128(5), (6))

Basic Principle: This method can be applied when the patent right is infringed, but the rights holder finds it difficult to prove direct sales losses (e.g., a non-practicing entity), or for the portion of infringing sales exceeding the rights holder's production capacity under the 'lost profits' calculation (1). The law guarantees an amount "reasonably receivable" for the practice of the patented invention (commonly a royalty) as the minimum baseline for damages.
Key Issues & Significance of the 2019 Amendment: Previously, the law referred to the "amount ordinarily receivable," raising concerns that it might be unduly constrained by past low license rates or industry averages. The 2019 Patent Act amendment changed this to the "amount reasonably receivable," granting courts the discretion to determine a flexible and realistic royalty rate by comprehensively considering all relevant circumstances, rather than adhering to a uniform standard. These circumstances include the technical value and economic contribution of the patent, the existence of alternative technologies, the remaining patent term, characteristics of the relevant industry, the infringer's expected profit scale, and even a hypothetical negotiation scenario between the parties. Supreme Court precedent (e.g., Case No. 2003Da15006) also affirms the need to consider such diverse factors. Practically, the rights holder must assert a high royalty rate supported by objective data demonstrating the superiority and market value of their patent (e.g., technology valuation reports, analysis of comparable technology licenses, expert opinions). The defendant, conversely, will attempt to lower the royalty rate by arguing the patent's limited contribution or the availability of easy alternatives. Furthermore, Article 128(6) clarifies that even when claiming damages based on lost profits (Article 128(2)), the rights holder can additionally claim a reasonable royalty under Article 128(5) for the portion of the infringer's sales volume exceeding the rights holder's production capacity, aiming for full compensation of damages.

(4) Court's Discretionary Award of a 'Substantial Damage Amount' (Article 128(7))

Basic Principle: This is a supplementary provision allowing the court, based on the overall arguments and the results of evidence examination, to recognize a substantial amount of damages at its discretion when calculating damages according to the three methods above (Sections (2), (4), (5)) proves extremely difficult.
Practical Application: When the requirements for the preceding provisions cannot be met due to lack of evidence, this serves as a basis for the court, guided by principles of equity, to determine a reasonable damage amount within appropriate limits, considering all circumstances of the case (e.g., manner, duration, and scale of infringement, relationship between the parties, partially proven damage indicators). While it acts as a safety net ensuring minimum relief for the rights holder, it suffers from low predictability. Therefore, from the rights holder's perspective, it is generally advisable to focus efforts on proving damages under the first three provisions.

Introduction and Enhancement of Punitive Damages

(1) Absence of Statutory Damages

Unlike other intellectual property laws in Korea, such as the Copyright Act (up to KRW 50 million or 15 million), Trademark Act (up to KRW 100 million), and Design Protection Act (up to KRW 100 million), the Korean Patent Act currently does not include a provision for statutory damages. Statutory damages allow rights holders to claim compensation within a legally defined range instead of proving the actual amount of damages, alleviating the burden of proof for those facing difficulties in quantification. However, the absence in patent law likely reflects the practical challenges of setting a uniform statutory cap, given the wide variance in the value of patented technologies and the scale of potential harm from infringement. Therefore, patent holders must rely on the provisions of Article 128, as explained above, to assert and prove (or have presumed) their damages. (Note: China's Patent Law allows for statutory damages up to RMB 5 million if proving damages is difficult).

(2) Punitive Damages: Beyond Treble to Quintuple (Article 128(8), (9))

The most dramatic change in the Korean patent damages system is undoubtedly the introduction and strengthening of punitive damages.

Background for Introduction (2019, Up to 3x): Historically, damages awarded by Korean courts for patent infringement faced persistent criticism for being significantly lower than the amounts claimed. According to statistics from the Korean Intellectual Property Office (KIPO), the median damage award in patent infringement lawsuits between 2016 and 2020 was approximately KRW 100 million, merely one-seventh of the median award in the United States during the same period (approx. KRW 6.57 billion). This low level of compensation could send the wrong signal to malicious infringers—that infringement might be more profitable than innovation—thereby undermining incentives for technological advancement. Consequently, the 2019 Patent Act amendment introduced punitive damages, allowing courts to increase the damage amount determined under paragraphs (1) through (7) (i.e., the actual damages) by up to three times if the infringement is found to be 'willful'.
Factors Considered (Article 128(9)): When determining the punitive multiplier (from above 1x up to 3x or 5x), the court must carefully consider the following seven factors:
1. Whether the infringer abused a superior position or relationship.
2. The degree of awareness of willfulness or the likelihood of causing damage (level of bad faith).
3. The scale of damage incurred by the infringed party due to the infringing act.
4. The economic benefits gained by the infringer from the infringing act.
5. The duration, frequency, etc., of the infringing act.
6. Any criminal penalties imposed on the infringer besides fines for the infringing act.
7. The infringer's financial status.
8. The extent of the infringer's efforts to remedy the damage.
Enhancement (Effective August 2024, Up to 5x): Even after the introduction of treble damages, the problem of technology theft persisted, leading to a societal consensus that stronger sanctions were necessary. Accordingly, the revised Patent Act, passed by the National Assembly in late 2023 and effective from August 2024, increased the upper limit for punitive damages in cases of willful infringement to a maximum of five times the actual damages. This surpasses the US level (3x for patents) and aligns with some of the highest punitive measures globally, similar to China. This enhancement is expected to profoundly impact judicial decisions on willful patent infringement and corporate risk management strategies.
Actual Application Examples: Lower court rulings under the 3x damages regime have already emerged. In 2023, the Busan District Court found willfulness where the defendant ignored the plaintiff's repeated warnings and negotiation requests, continuing infringement for seven years. The court ordered damages of approximately KRW 850 million, which is 1.5 times the calculated actual damages (approx. KRW 570 million) (Busan Dist. Ct. Case No. 2023Gahap42160). In another reported case, damages corresponding to the period of willful infringement (approx. KRW 87.93 million) were doubled and included in the total award. These cases show that courts, while cautious in applying punitive damages, do not hesitate to enhance awards when clear willfulness is proven. With the advent of the 5x damages era, this enhancement multiplier is likely to increase further.

Recent Case Law Trends and Evolving Interpretations

Recent trends in Supreme Court precedents, lower court decisions, and legislative changes consistently point towards strengthening the substantive protection of patent rights and holding infringers more strictly accountable.

Active Interpretation of Damage Presumption Provisions: Aligning with the intent of the 2020 amendment, courts are expected to demand stricter proof from infringers attempting to rebut damage presumptions based on the patentee's production capacity limitations or market factors. The tendency to broadly recognize potential lost sales opportunities as damages may strengthen.
Clarification of Burden of Proof for Infringer's Profits: Regarding the presumption of infringer's profits (Article 128(4)), the Supreme Court continues to reaffirm the principle that the infringer must pay the full presumed amount unless they specifically prove that their profit or the rights holder's actual damage was less. This is a reasonable interpretation that places the burden on the infringer, who has better access to the relevant information.
Increased Flexibility in Calculating 'Reasonable' Royalties: Courts are moving away from rigid adherence to past royalty rates and demonstrating efforts to calculate 'reasonable' royalties by comprehensively considering the specific circumstances of each case. This enables damage awards that better reflect the true value of the patent.
Strengthened Evidence Gathering Systems and Increased Utilization: The duty to specify the manner of practice (Patent Act Article 126-2), introduced in 2019, compels alleged infringers to disclose their specific implementation details, providing crucial information for determining infringement and calculating damages. Additionally, the enhanced document production order (Patent Act Article 132) empowers courts to order the submission of materials necessary for damage calculation, such as the infringer's accounting books, substantially aiding rights holders previously hampered by information asymmetry. The active use of these systems increases the accuracy of damage calculations and the likelihood of punitive damages being applied.
Discussions on Introducing Korean-style Discovery: Discussions are currently underway at the legislative and governmental levels regarding the introduction of a Korean-style discovery system, which would significantly enhance parties' evidence-gathering powers in litigation. If implemented, this could lead to broader evidence disclosure from the early stages of litigation, improving the transparency and predictability of damage calculations and maximizing the effectiveness of the 5x punitive damages system.

Practical Strategies for Businesses

In this rapidly changing environment for patent infringement damages, companies must move beyond passive responses and establish and execute more sophisticated and proactive IP strategies.

[Strategies for Patent Holder (Rights Holder) Companies]

Thorough Evidence Gathering and Management: Damage litigation ultimately boils down to evidence. Collect as much objective data as possible regarding the infringer's sales volume, revenue, pricing, cost structure, profit margins, etc. (e.g., market research reports, public disclosures, news articles, whistle-blower information). Actively utilize court mechanisms like document production orders, requests for inquiry, and expert appraisals when necessary. Systematically manage your own production capacity data, sales records, marketing materials, and cost/profit margin calculations to support 'lost profit' claims.
Proactive Steps to Prove 'Willfulness': Upon detecting potential infringement, immediately issue a formal warning letter (e.g., via certified mail) clearly specifying the patent number, notifying the infringer of the infringement, and demanding cessation. Such official notice serves as strong evidence of the infringer's 'willfulness' in subsequent litigation. Continued infringement after receiving a warning further strengthens the case for bad faith.
Develop an Optimal Damage Claim Strategy: Based on a comprehensive assessment of your company's situation (e.g., whether practicing the patent, production capacity, market position) and the available evidence, choose the most advantageous calculation method under Article 128, or employ a combined strategy, such as claiming 'lost profits + reasonable royalty.' For non-practiced patents, focus on proving the technology's innovativeness, market impact, and lack of alternatives to secure a high 'reasonable royalty.' Collaboration with technology valuation experts and accounting professionals is crucial here.
Use Preliminary Injunctions for Early Pressure and Negotiation Leverage: Full damages litigation can be lengthy. If infringement is clear and urgent, applying for a preliminary injunction can halt the infringing activity early, creating leverage for favorable settlement terms or strengthening your position in the main lawsuit.

[Strategies for Companies Accused of Infringement (Defendant)]

Proactive Infringement Risk Prevention (FTO Analysis & Design-Around): Before developing and launching new products, conduct a Freedom to Operate (FTO) analysis by searching relevant patents and obtaining expert review to identify and avoid potential infringement risks. If a design-around is feasible, meticulously document the process. This can serve as favorable evidence against 'willfulness' later. In the era of 5x damages, claiming ignorance ("I didn't know") is unlikely to suffice.
Immediate and Careful Response to Warning Letters: Never ignore or neglect a patent infringement warning letter. Doing so can be a decisive factor in establishing 'willfulness' or at least 'reckless disregard' in court. Immediately consult with internal legal teams and external experts to thoroughly review the patent's validity (potential for invalidation), infringement (claim construction), and the possibility of design-around, then decide on a response strategy.
Mount an Active Non-Infringement or Invalidity Defense: If there are grounds to contest the infringement claim, develop non-infringement arguments or actively defend by filing an invalidity action against the patent. A successful invalidity ruling eliminates the basis for damage liability entirely.
Defend Against Damage Calculations and Refute 'Willfulness': If litigation is unavoidable, challenge the rights holder's asserted damage calculation methods and provide specific accounting data to demonstrate that your actual profits were significantly lower. Emphasize factors that reduce the patent's contribution to the product's value (e.g., highlighting the importance of other technical features or marketing efforts) to decrease the base damage amount. Crucially, present evidence that you were unaware of the patent, made efforts to avoid infringement, or had a reasonable basis for interpreting the claims as non-infringed, to prevent a finding of 'willfulness' or at least reduce the punitive multiplier.
Maintain a Cooperative Litigation Attitude and Explore Settlement: Cooperate sincerely with court requests for information. Demonstrating efforts to cease infringement and prevent further harm, even if infringement is found, can positively influence the court's discretionary judgment. Considering the costs and uncertainties of prolonged litigation, keeping the door open for early settlement at a reasonable level may be prudent.

Conclusion

Korea's patent infringement damages system is transitioning beyond mere 'compensation for lost profits' into a new dimension of 'strong retribution against malicious infringement.' The full implementation of the punitive damages system, allowing for up to five times actual damages, will fundamentally reshape the landscape of domestic patent disputes. IP risk management is no longer solely the domain of the legal department but has become a core management imperative demanding the direct attention of top executives.

This is an era presenting both new challenges and opportunities for rights holders seeking fair compensation for their technological innovations and for implementers aiming to conduct business freely while respecting others' rights. Only those companies that accurately read these shifting tides, collaborate closely with legal and technical experts, and establish proactive, strategic IP management systems will secure sustainable growth amidst fierce technological competition.

Based on the clear recognition that "patent infringement can no longer be a cost-effective strategy," we hope Korean companies will lead the way in fostering a healthy culture of technological competition. Pine IP Firm remains committed to being a steadfast IP partner for our corporate clients, providing insightful analysis and practical solutions.