On January 18, 2024, Kim & Chang, representing Novartis, the patent holder of a transdermal administration method for rivastigmine related to the “Excelon Patch” (an Alzheimer’s disease treatment patch), obtained a favorable judgment from the Intellectual Property High Court (the “IP High Court”). The case centered on a Korean company accused of producing and exporting products that infringe upon Novartis’s process patent. Ultimately, the IP High Court ordered the defendant to cease all infringing activities and pay KRW 12.1 billion (about USD 10 million) in damages.
The Patent Act provides provisions for calculating damages when a patent holder is unable to prove the actual amount of damages caused by an infringement. If the patent holder can prove the occurrence of infringement, the amount of damages can be presumed. Article 128 allows for the calculation of damages under Paragraph 2, based on the quantity of infringing products sold and the profit per unit the patent holder could have earned in the absence of the infringement, or under Paragraph 4, based on the profit gained by the infringer through the infringement.
This decision is significant in that it addresses: (i) whether the aforementioned provisions for calculating damages can still be applied even if the patent holder, located abroad, did not directly practice the patent-at-issue in Korea but instead sold the patented products through its wholly-owned subsidiary, and (ii) whether the infringer’s profits from exporting products manufactured in Korea that infringe on the patent (i.e., profits from overseas sales revenue) can be recognized as the patent holder’s damages.
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Recognition of Damages Arising From Subsidiaries’ Losses Due to the Patent Infringement
The IP High Court determined that the damage calculation provisions of the Patent Act (Article 128, Paragraphs 2, 4 and 5) aim to alleviate the burden of proof on patent holders. Relying on a Supreme Court precedent (Supreme Court Decision 2006Da1831, October 12, 2006), the court found that to claim damages based on the Patent Act, it is sufficient to show only a possibility or likelihood of damages resulting from a competitive business relationship. In this case, the court concluded that there was evidence demonstrating the likelihood of damages to the plaintiff (Novartis) caused by the defendant’s patent infringement. Factors considered include the following: (i) Novartis granted the right to practice the patent to its wholly-owned Korean subsidiary, which sold products utilizing the patented technology in Korea, (ii) the plaintiff’s wholly-owned overseas subsidiaries also generated substantial profits from sales of the patented products, and the profits and losses of those subsidiaries directly affected the plaintiff’s own profits and losses, and (iii) since the defendant’s infringing products were clearly generic substitutes for the plaintiff’s products, it appears that the defendant’s domestic production and overseas export of the infringing products would have caused a decrease in the plaintiff’s product sales at the plaintiff’s overseas sales subsidiaries.
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Recognition of Infringer’s Profits from Overseas Sales Revenue as Damages
The IP High Court recognized that while patent rights are territorially limited to the registered territory, damages caused by infringement are not limited to the country of registration. Consequently, the IP High Court accepted the infringer’s overseas sales revenue as “profits obtained from the infringement” and recognized it as damages to the patent holder. By deducting additional costs for the sales of infringing products from the sales revenue of the infringing products sold overseas, the court calculated the damages as the “contribution margin,” thereby including the overseas sales revenue as part of the infringer’s profits obtained from the infringement (Article 128, Paragraph 4 of the Patent Act).
However, in relation to the application of the provision (Article 128, Paragraph 2 of the Patent Act) that calculates damages by multiplying the “per-unit profit” of the patent holder by the quantity of infringing products transferred by the infringer, the IP High Court concluded that unless special circumstances prove that the damages caused by the decrease in the sales of the plaintiff’s sales subsidiaries are identical to the damages suffered by the plaintiff, the per-unit profit of the sales subsidiaries cannot be used to calculate damages in this case.
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This decision has significant implications for both foreign patent holders and companies at risk of patent infringement. It broadens the scope of damages from patent infringement and allows foreign patent holders to actively exercise their patent rights through licensing agreements with subsidiaries in Korea. Additionally, it highlights the potential inclusion of overseas sales revenue in the calculation of damages. However, it is important to note that this IP High Court decision is currently pending appeal and awaiting a final decision from the Supreme Court.
