Amendment to Unfair Competition Law

A bill to amend the Unfair Competition Prevention and Trade Secret Protection Act (the “UCPA”) was promulgated on April 17, 2018, and is scheduled to take effect on July 18, 2018.  The bill introduces significant amendments to the UCPA, namely stipulating store interior designs as business marks and making the unauthorized use of “ideas” an act of unfair competition, thereby substantially expanding the applicability of Subparagraph 1 (j) of Article 2 (“fraudulent use of another person’s product”) of the current (or pre-amendment) UCPA.

1. Details of the Proposed Amendments to the UCPA

(1)     Stipulation of Store Signs and Interior Designs as Business Marks

Subparagraphs (b) and (c) of Article 2 of the current UCPA define an “act of causing confusion of business entities” and an “act of harming distinctiveness/reputation of well-known marks,” respectively, as follows:

The current bill stipulates that “a mark indicating another person’s business” in items (b) and (c) above includes the “methods of selling products or providing services, or the overall appearance of a place of business such as signs and exterior/interior designs.” (Subparagraph 1 (b) and (c) of Article 2 of the amended UCPA)

In the so-called “red bean bread case,” the Supreme Court ruled that the overall images of a business, including the store’s outdoor signs, interior designs and store layout were equivalent to the “outcomes achieved through substantial investment or efforts” as set forth in Subparagraph 1 (j) of Article 2 of the current UCPA, and that the act of imitating the relevant business’s overall images amounted to an act of unfair competition under Subparagraph 1 (j) of Article 2 of the UCPA (Supreme Court Judgment 2016Da229058 dated September 21, 2016).  Based on the foregoing, even prior to the introduction of the present bill, at least an argument could be made that the “business’s overall appearance” should be entitled to protection pursuant to Subparagraph 1 (j) of Article 2 of the current UCPA. However, by expressly stipulating that the “business’s overall appearance” is included in the scope of the business mark under each of Subparagraph 1 (b) and (c) of Article 2 of the UCPA, the bill has removed any uncertainty which had existed under the current UCPA on this point

(2)     Unauthorized Use of Ideas as an Act of Unfair Competition

The amended UCPA introduces a new type of unfair competition: “an act of fraudulently using any information, including another person’s technical or business ideas with economic value, for one’s own or a third party’s business gains, or providing the same to a third party for use, in the course of business negotiation including business proposal, bidding or public offering, or actual transactions.”  However, this will not apply if the person provided with any idea was already aware of that idea at the time of being provided with the idea or if such idea is widely known within the same industry (Subparagraph 1 (j) of Article 2 of the amended UCPA).  The provision of Subparagraph 1 (j) in the current UCPA was moved to Subparagraph 1 (k) in the amended UCPA.

Under the current UCPA, ideas would have been protected pursuant to Subparagraph 1 (j) of Article 2 of the UCPA, only if such ideas amount to an “outcome achieved through substantial investment or efforts.”  This provision has been much criticized for being inadequate in restricting the acts of obtaining economic gains through unauthorized use of another person’s ideas given the practical difficulty in proving that such ideas are the “outcomes achieved through substantial investment or efforts.”  In response to such criticism, the amended UCPA introduces the above-proposed provision with an aim to actively protect novel or breakthrough ideas of small or venture businesses and developers and maintain fair trade order.

Although the amended UCPA excludes the unauthorized use of ideas from the acts subject to criminal punishment (Article 18 (3)), it provides for enjoinment of acts of unfair competition (Article 4) and the right to seek damages (Article 5).  It also stipulates that the Commissioner of the Korean Intellectual Property Office (KIPO) may conduct investigations or recommend corrective action (Articles 7 and 8).

(3)     Allowing Courts to Request KIPO to Furnish Investigation Records in Civil Lawsuits Seeking Money Damages

The amended UCPA stipulates three types of remedies for acts of unfair competition: a civil right to request prohibition and a right to seek damages (Articles 4 and 5); criminal punishment (Article 18 (3)); and administrative remedy (Articles 7 and 8). As for the administrative remedy, the Commissioner of KIPO may access the relevant business or manufacturing facilities for investigation to verify any act of unfair competition as defined in Subparagraph 1 of Article 2 of the UCPA (excluding items (h) and (k) in the amended UCPA); and, if any act of unfair competition is discovered, the KIPO Commissioner may issue recommendations for corrective action (Articles 7 and 8 of the amended UCPA). As the enforcement of such recommended corrective action was not compulsory under the current UCPA, the administrative remedy was rarely invoked in practice in relation to acts of unfair competition.

On the other hand, the amended UCPA adds a new provision (Article 14-7 of the amended UCPA) to the effect that “[i]n the event of a civil lawsuit seeking money damages under Article 5, the court may, if necessary, request the KIPO to forward the investigation records pertaining to the acts of unfair competition under Article 7 (including examination records of interested parties, reference witnesses or appraisers; stenographic records; and any other evidence for the trial).” This new provision institutionalizes the methods of presenting KIPO’s investigation records for the purpose of civil lawsuit seeking money damages.

2. Future Outlook and Recommended Courses of Action

Disputes are expected to increase in relation to the protection of “business’s overall appearance” including store signs and interior designs under the amended UCPA.  Whereas the overall appearance of the business was protected under Subparagraph 1 (j) of Article 2 of the current UCPA, now it is eligible for protection under items (b) and (c) and criminal punishment is available for such act of unfair competition.

Further, the amended UCPA stipulates that, if any idea with economic value is disclosed through business proposal, bidding, or open contest, any unauthorized use of such idea may constitute an act of unfair competition.  Interpretation of the phrase “another person’s technical or business ideas with economic value” in the legislation is likely to result in a significant controversy in practice and; with respect to actual disputes, the elements of “fraudulent use” are expected to be a cause for controversy as well.  It is, therefore, necessary to keep a close eye on the relevant developments in the years to come, including any case law on this point.

As companies are often provided with information relating to business proposals through various channels and simultaneously seek business opportunities by offering their own business proposals, they are advised to define accurate business processes and ensure continuous operation of a compliance system to prevent any such practice from evolving into a legal dispute down the road.  In addition, to prevent any dispute regarding the details of a proposal submitted by any other parties in connection with a bidding or an open contest, companies need to devise practical countermeasures by reviewing internal regulations or notices regarding such bidding or open contest.

Lastly, the current bill was introduced as part of an effort to strengthen protection of rights of micro-enterprises, small businesses and developers, and such trend is expected to continue in the near future.