In this case, the Korea Fair Trade Commission (the “KFTC”) attempted to actively regulate the exercise of intellectual property (“IP”) rights in order to address abuse of market dominance in the medical device maintenance market and revive the business for new entrants to the market (“Independent Service Organizations” or “ISOs”). Representing a medical device company sanctioned by the KFTC for alleged abuse of market dominance (the “Plaintiff”), we successfully advocated the Plaintiff’s position before the court, ultimately securing favorable decisions from the Seoul High Court and Supreme Court.
The Plaintiff is a company engaging in sales of medical devices, including Computed Tomography (“CT”) and Magnetic Resonance Imaging (“MRI”) machines, both crucial for imaging diagnostics. These machines require regular maintenance, which is facilitated through the Plaintiff’s proprietary service software installed in the devices. The KFTC issued administrative actions against the Plaintiff, requiring it to offer service keys for free and imposing an administrative surcharge against it. The KFTC found that charging hospitals for service keys when they opted for maintenance services from the ISOs, rather than from the Plaintiff, impeded the business operations of the Plaintiff’s competitors, the ISOs, and hence, constituted an abuse of market dominance by the Plaintiff.
The main issues in this case were (i) whether a market-dominant business entity’s collection of royalties for its IP rights, specifically maintenance software, constituted a legitimate exercise of IP rights, and (ii) whether it could be considered a “normal trade practice” under competition law.
In light of the Plaintiff’s position as a market-dominant player whose business was vertically integrated from the upstream software licensing market and the downstream maintenance service market, the KFTC contended that offering essential maintenance software free of charge aligns with the normal practice from a competition law perspective.
In response, we countered that the collection of considerations by the IP right holder was within the legitimate scope of its rights. Further, the KFTC failed to substantiate any anti-competitive effects potentially arising from the collection of the fees that went against fair competition.
The Supreme Court held that an IP right holder’s right to receive compensation for the use of its work is one of its fundamental rights. The Supreme Court acknowledged the Plaintiff’s argument that collecting fees for service keys was not against normal trade practices, considering the legitimate scope of the right holder’s rights. The Supreme Court also accepted the Plaintiff’s claim that normal trade practice does not require free-of-charge provision of service keys. The Court elaborated that requiring free-of-charge provision of service keys as a normal trade practice would require demonstrating that for-fee provision of the service keys posed anti-competitive concerns, no matter the amount of fees charged. The KFTC failed to present relevant analysis with supporting evidence.
The Supreme Court decision articulated legal principles and standards for reviewing abuse of a dominant market position through the excessive exercise of intellectual property rights, which contradicts the permissible scope of an IP right holder’s rights and normal trade practices in the market.
The implications of this decision go above and beyond the Plaintiff’s service key policy worldwide – the decision will serve as a significant precedent for the medical device maintenance service market in the future. During the proceedings, we strongly demonstrated the necessity to protect the Plaintiff’s proprietary IP rights while also advocating for legal principles that we believe should set the framework for assessing normal trade practices from a competition law perspective. As a result, we successfully defended the Plaintiff’s IP rights and set a clear boundary against excessive regulatory action that infringes upon the law.
