KFTC Going After Anti-Competitive IP Licensing Practices

Once again this year, Korea’s antitrust authority, the Korean Fair Trade Commission (KFTC), has come to aggressively regulate the use of intellectual property rights (IPRs). The KFTC is currently investigating a major international company such as Dolby for possible antitrust violations.

At a parliamentary audit session on October 15, 2018, the chairman of the KFTC stated that the KFTC has already conducted a field investigation into Dolby’s possible abuse of market power. It has been alleged that Dolby has used its superior market position, which compels many Korean tech companies including Samsung Electronics to adhere to unfair licensing contracts for the use of AC-3 technology. The AC-3 technology has become an international standard technology used for most audio and TV systems.

According to the KFTC, once changes take place in terms of unfair terms, it can be expected that many Korean licensees will be able to engage in a legal dispute against Dolby. This is because these licensees would not need to worry about Dolby ending an existing contract for AC-3.

Dolby is not the only company that has come under much scrutiny. In December 2016, the KFTC imposed penalties of over US$900 million on Qualcomm when discovered that

“the company abused its monopoly of standard-essential patents (SEP) to engage in unfair transactions.”

It was discovered that the company refused to license SEPs to its competitors, which the KFTC deemed to be seen as coercion of customers into unfair licensing agreements.  The KFTC also issued an order for the company to take an action, requiring that the company

“be sincere in contract negotiations with companies such as Intel, MediaTek, and Samsung Electronics that produce modem chip sets.”

Monopoly Regulation and Fair Trade Act (the “MRFTA”)

The unpinning regulation that supports the KFTC’s activity is The Monopoly Regulation and Fair Trade Act (the “MRFTA”). Article 59 of the MRFTA states:

 “This Act shall not apply to any act which is deemed the justifiable exercise of rights under the Copyright Act, the Patent Act, the Utility Model Act, the Design Protection Act, or the Trademark Act.”

In an attempt to introduce more specific regulations in December 2014, the KFTC promulgated the Review Guidelines on Unfair Exercise of Intellectual Property Rights (IPRG). The Guideline primarily regulates enterprises with market power, and the IPRG includes new SEP-related regulations, exhibiting an abuse of patent rights by an SEP holder. Further amendments were made in March 2016, removing ‘de facto standard’ from the definition of standard technology, defining SEPs in regard to FRAND-oriented patents, and enhancing regulations on unfair refusal to grant a license.

Licensing and Competition Law

With regard to transferring technology and licensing practices, the Guideline lists types of unfair use of IPR such as unfair collaboration with other enterprises in terms of determining, maintaining and altering royalty; imposing discriminatory royalty rates depending on the licensee; demanding unfair royalty which also includes royalty for the portion where the licensed technology is not in use; imposing royalty by including the period after the expiry of patent rights; and unilaterally deciding or altering the method of calculating royalty without disclosing relevant information in the contract.

In terms of refusal to license, the Guideline sees an action unfair if: there is collaboration with competing enterprises to refuse to grant a license to particular enterprisers without justifiable reasons; unfair refusal of granting a license to particular enterprisers, and refusal to grant a license for an unjust purpose.

It is also notable that the IPRG also addresses possible unfair licensing practices in the context of patent pools, cross-licensing and technology standards.

Other developments

A new KFTC knowledge-industry division under the anti-monopoly bureau was established for investigating into exercises of IPRs, particularly in the ICT field and other leading technology areas. As such, the KFTC is likely to create more cases by actively enforcing activities, it is expected that more companies will be under close scrutiny of the KFTC, and issues that have never been heard of will likely to arise in courts.

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