KIM&CHANG
IP Newsletter | Spring 2014
PATENT
Historic USD 6 Million Award for In-Service Inventions Confirmed on Appeal
On February 6, 2014, the Korean High Court affirmed the Seoul Central District Court's award of about USD 6 million for in-service inventions to a former Samsung Electronics ("Samsung") employee. More precisely, the award was for 10% of the royalties earned by Samsung from the in-service inventions. Neither party has filed any further appeals. Thus, the decision is now final.
The former employee (plaintiff) conducted research on HDTV signal processing during his 4-year employment with Samsung (defendant) from 1991 to 1995. During this time, the employee focused his efforts in image compression technology, closely related to the development of HDTV, and conceived a number of creative inventions directed to image compression. All of the inventions were patented under the name of Samsung and almost all were adopted as MPEG standards. After leaving Samsung, the employee received about USD 220,000 from the company as compensation for his in-service inventions. However, the employee subsequently filed a lawsuit against Samsung in 2010 demanding fair compensation, claiming that Samsung is profiting enormously from royalties derived from his inventions which were adopted as international standards.
At the district court level, the Seoul Central District Court rendered a decision in 2012 awarding the employee about USD 6 million as fair compensation for Samsung's profits derived from the royalties received until December 31, 2007. This was on top of the USD 220,000 Samsung had already paid to the employee (Seoul Central District Court, 2010 KaHap 41527, rendered November 11, 2012). In the decision, the court recognized that Samsung had received about USD 62.6 million in royalties for the employee's inventions and calculated a compensation amount of about USD 6 million. This equaled about 10% of the royalties Samsung had received. Significantly, the district court rejected Samsung's argument that (i) the employee relinquished his right to claim additional compensation by accepting the USD 220,000, and (ii) the statute of limitations for claiming compensation had expired.
Particularly notable aspects of this case were the amount of compensation awarded for the in-service inventions and the inventor compensation rate applied by the High Court. Specifically, in its decision to award compensation for the royalties earned by Samsung from January 1, 2008 to the expiration of the patent terms (exact amount undisclosed), the High Court indicated that the 10% compensation rate used by the district court was fair. While the High Court did not provide any specific guidance or rationale regarding the compensation rate, the High Court affirmed the district court's 10% rate which had been calculated based on the following factors:
The royalties obtained as a result of the in-service inventions being included in the MPEG standard pool represented Samsung's profits;
The employee had substantial theoretical research and practical experience relating to the patents' underlying technology prior to his employment at Samsung;
The patents were developed based on the employee's creativity;
From Samsung's standpoint, substantial profits were generated from the added value attributable to the adoption of the employee's inventions as international standards; and
Samsung's incentive guidelines during the relevant time stated that if the applicable royalty income is over 5 billion KRW (about USD 5 million), compensation for the inventor would be 10% of the royalty income.
In view of the large award amount, companies are encouraged to review their in-service remuneration policies to reduce the risk of invention remuneration liabilities and future litigations.
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Mikyung CHOE
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Jack Eui-Hwan JUNG
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