ASIAN PATENT ATTORNEYS ASSOCIATION Recognized Group of Korea. Special Report to Anti-Counterfeiting Committee 2011, Manila, Philippines

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1 ASIAN PATENT ATTORNEYS ASSOCIATION Recognized Group of Korea Special Report to Anti-Counterfeiting Committee 2011, Manila, Philippines Korean Group Anti-Counterfeiting Study Committee Tae-Jun SUH Hoo-Dong LEE Sun CHANG Border Measures to Prevent the Importation of Counterfeit Products I. Introduction Following the global trend of increasing volume of goods traded across nations, right holders of intellectual property rights ( IPR ) around the world has become aware of the necessity of protecting their rights against counterfeits that are coming into their countries from overseas. In particular, as the Asia-Pacific region has become the center of the global manufacturing industry, the right-holders have recently more relied on the customs laws and regulations of many Asian countries and the enforcement measures available to protect their IPR in those countries, and are now more willing to take aggressive enforcement actions against infringers who import or export trademark infringing goods or counterfeits that violate their IPR. Korea is one of the Asian countries which have relatively more strict laws and regulations that provide effective and efficient enforcement measures against counterfeits coming into or out of Korea. We address herein the various issues related to the prevention of importation of counterfeits in Korea. II. Legal Grounds to Prevent the Importation of Counterfeit Products 1. Relevant Laws

2 The primary law addressing the importation of counterfeits is the Korean Trademark Act. Additionally, with respect to the import or export of counterfeits, a right holder can also obtain remedies under the Customs Duties Act. (1) Korean Trademark Act The Korean Trademark Act provides the exclusive right of the trademark owner to use a mark (Article 50) and proscribes, as trademark infringement, the use by third parties of identical or similar marks on identical or similar goods (Article 66 (1)1). In fact, the following acts are all deemed to constitute infringement of a trademark right (Article 66(1)1 to 4): (i) the act of using a trademark that is identical to another person's registered trademark on goods that are similar to the designated goods, or using a trademark similar to the registered trademark of another person on goods that are identical or similar to the designated goods; (ii) the act of delivering, selling, forging, imitating, or possessing a trademark identical or similar to a registered trademark with the intent to use or to let others use the trademark; (iii) the act of manufacturing, delivering, selling, or possessing instruments with the intent to forge or imitate, or to let others forge or imitate a registered trademark of a third party; and (iv) the act of taking advantage of, unfairly damaging, or diluting the distinctiveness or value of a registered trademark of a third party. Further, Article 2 (1)4-b defines "use of a trademark" to include the following: (i) the act of selling or delivering goods or their packaging on which trademarks have been used, or displaying, exporting or importing such goods or their packaging for the purposes of selling or delivering.; Based on the foregoing, the exportation or importation of goods on which trademarks have been used that are identical or similar to the registered trademark of

3 another amounts to trademark infringement under the Korean Trademark Act. In addition, under the Korean Trademark Act, the owner of a trademark may obtain injunctive relief (Article 65(1)) and/or monetary damages from infringers (Article 750 of the Civil Act). Where an injunction is filed, the trademark owner may also request the destruction of the infringing articles and other acts necessary for the prevention of infringement (Article 65(2)). The Korean Trademark Act provides provisions for presumption of damage amount including that the amount of damages is calculated as the number of articles sold multiplied by the profit per unit of the articles that the trademark owner might have sold in the absence of the infringement (Article 67). Also, criminal penalties may be imposed for trademark infringement in the form of a fine of up to 100 million Korean Won (approximately US$89,000) and/or imprisonment for up to seven years (Article 93). (2) Customs Duties Act Under Articles 235 through 237 of the Customs Duties Act, when goods are imported or exported, a customs office, on its own initiative or at the request of a trademark right holder, may investigate whether such goods infringe any trademark rights, etc. during the customs clearance process, and if such goods are deemed to infringe trademark rights, etc., the customs office may withhold customs clearance for the relevant goods. If a trademark right holder requests a customs office to withhold customs clearance, and the goods are held, the rights holder must file a lawsuit within 10 days from the receipt of the notice regarding withholding customs clearance in order to have the goods remain in detention, although the trademark right holder can obtain a further 10 day extension upon showing reasonable cause. A. Customs Regulations and Procedures in Korea The Korea Customs Service ( KCS ) is the primary enforcement agency at Korea s borders. Under the Customs Tax Law ( CTL ) and its implementing regulations ( Notifications for Import and Export Customs Clearance Procedures for Intellectual Property Rights, last revised in Notification No , effective April 1, 2010), the KCS plays an important role in protecting IPRs in Korea by curbing the flow of infringing goods at border areas. Among the various IPRs, the KCS mainly protects

4 trademark rights and copyrights through its recordation system. Any party seeking trademark protection through the KCS must record its trademarks with the KCS by submitting an application for "Report of Trademark Right" and other required documents. Only trademarks registered with the Korean Intellectual Property Office ("KIPO") can be recorded with the KCS. Recordation with the KCS becomes effective immediately after the date of the KCS' acceptance of the "Report of Trademark Rights." However, if parallel imports are prohibited, the recordation for the prohibition of parallel imports becomes effective after 30 days. The valid period of the KCS recordation is three (3) years from the recordation date. However, if the KIPO registration of the subject mark expires prior to the above three-year period, the KCS recordation will also expire with the mark s expiration at KIPO. Further, renewal of the KIPO registration of the subject mark will not automatically renew its KCS recordation. Rather, the KCS recordation must be separately renewed by filing an application for renewal, together with a new certificate of trademark registration proving the renewal of the subject mark with KIPO. The required documents for trademark recordation with the KCS are as follows: 1) Two copies of "Report of Trademark Rights"; 2) Any document or material proving that an exporters/importers has engaged in act(s) of trademark infringement (if available); 3) If the exclusive licensee manufactures and sells goods at issue entirely in Korea, any document or material proving the same; 4) Other documents or materials which may be used to distinguish between counterfeit and genuine goods (such as catalogues or photos showing the genuine goods, any document stating the ways to identify counterfeit goods from genuine goods, etc.) (if available); and 5) One (1) executed Power of Attorney ("POA") Once the KCS recordation becomes effective, the KCS begins monitoring the export or import of any goods bearing the recorded mark. If the KCS finds any suspicious shipments, its customs clearance is withheld for temporary detainment. The KCS then delivers notification of the temporary detainment to the importer and the owner of the recorded trademark. The period of the temporary detainment is seven (7) working

5 days (official holidays and Sundays excluded) from the date of receipt of the notification by the owner of the recorded trademark. During these seven days, the trademark owner can inspect the shipment in order to verify whether the shipment is genuine or counterfeit. If the trademark owner believes that the imported goods are counterfeit or otherwise infringing, a petition for further detainment can be filed with the KCS by depositing the required bond (120% of the declared price of the imported goods) in cash, bank guarantee or other security, together with evidence of infringement. After the above petition and required bond is filed with the KCS, the KCS then reviews the petition to determine whether the shipment should be further detained. If the KCS decides to continue detainment, both the importer and trademark owner is then notified. The additional detainment period is for ten (10) working days from the date of receipt of the notification by the trademark owner. However, if the trademark owner presents evidence of a court proceeding such as the filing of a main action within the above ten-day period, the KCS may continue to detain the shipment until the court s decision is rendered. Further, during the above additional ten-day detainment period, the importer may also challenge the detainment by submitting a petition for release, supporting evidence (of non-infringement), and a bond equal to 125% of the bond posted by the trademark registrant (i.e., 150% of the taxable value of the shipment). If such a petition is submitted by the importer, the trademark owner will also be notified and be allowed to submit additional evidence to support its claim. The KCS will then determine within fifteen days whether the importer's petition should be granted. Notwithstanding the above, if a civil action is pending between the trademark owner and importer, the KCS generally will not release the disputed shipment until the court's decision has been issued, absent any compelling reasons for the shipment s urgent release (e.g., where the disputed goods are perishable, such as meat). The CTL does not provide for any penalties against IPR infringers other than the possible seizure of infringing goods. However, under the CTL, the KCS is given a wide discretionary power to investigate infringing shipments at its own initiative without a specific petition or application from the trademark owner. Thus, when the KCS determines that a shipment clearly infringes trademark rights, the KCS may transfer the subject case to its internal investigation department or a prosecutor's office for further criminal proceedings. The infringing shipment would be detained at the

6 KCS until all criminal proceedings are concluded. Thus, if the trademark owner successfully establishes the infringing nature of the imported goods before the KCS (and the KCS recognizes the infringing nature of the goods), it may not need to proceed with the above procedures to prevent the KCS from releasing the shipment. Notwithstanding the above, it should be noted that the trademark owner will generally need to follow the above procedures, since the KCS generally finds it difficult to conclude whether infringement exists (particularly where the importer vigorously protests the seizure). Thus, the KCS generally does not take the initiative to transfer a case to its internal investigation department for criminal proceedings without persuasive evidence of infringement. III. Information Disclosed to Right-Holders In the course of the Korean customs enforcement actions, the scope of information that can be disclosed to right-holders are quite limited. Such information includes name of the importer, brand/trademark involved, quantity of goods that are suspicious of infringing the rights in the brand/trademark, origin and declared import value of the goods, etc. Information on exporter cannot be disclosed, but it may be obtained upon request on a case-by-case basis. In most cases, such exporter information may not be considered to be useful at all since exporters are usually indicated to be trading/shipping companies. In addition, when a customs case goes to a criminal trial, information on the outcome of the case cannot be disclosed to the right-holder by the reason of protecting privacy/personal information of the importer-defendant. As such, in order to obtain said information, the right-holder must submit an official request to the Prosecutor's Office together with a Power of Attorney, and must also show that it is an interested party to the subject case. IV. Exemption of Liability of Customs Officers According to the Notification on Customs internal regulations, customs officers are

7 exempted from liability for any damages that may have been caused by any wrongful seizure of goods. Moreover, in an affidavits submitted by a right-holder providing the results of its inspection on the goods, the right-holder is required to insert a language expressly exempting customs officers from such liability. V. Other Customs Efforts to Prosecute and Prevent IPR Infringing Goods The KCS sometimes takes a unilateral enforcement action (i.e., without giving prior notice to right-holders) to prosecute IPR infringing goods that were imported into Korea but were already distributed or sold in the domestic market or on Internet. Based on useful information provided by an informant about certain IPR infringing goods which are sold or offered for sale on Internet, the KCS may decide on its own discretion to commence an investigation into those infringing goods and the seller. In the course of its investigation, it may seek cooperation and assistance from the relevant right-holders for its further investigation. After gathering concrete evidence of the infringement, the KCS may report its investigation result to the prosecutors office and request for criminal indictment against the seller. In comparison with investigations by other enforcement authorities, the KCS has an advantage of having a record of the seller s import history that may be helpful to its investigation. However, as for those unilateral actions, the KCS seems to have a tendency of focusing only on big cases involving a large volume of counterfeit goods and thus, it is likely to be less inclined to bring unilateral actions to prosecute shipments containing a small volume of counterfeit goods. In addition to the foregoing, the KCS also employs preventative measures against IPR infringing shipments, which provides the right-holders with an opportunity to actively participate and cooperate in the customs enforcement actions through private organizations, such as Trade-related IPR Protection and Association (or TIPA ). Customs training is one example of the KCS s preventative efforts, which brings much attention from the right-holders. The KCS has delegated the responsibility for arranging and organizing customs trainings to TIPA. Once registered with TIPA, the right-holders can provide an educational training to participating customs officers on how to distinguish between genuine and counterfeit goods. Moreover, the KCS occasionally convenes a meeting with the relevant authorities and private entities, including right-holders, operators of Internet shopping mall websites and open market websites, to share information and enhance cooperation with

8 them. Starting from 2011, the KCS began holding an exhibition of commonly-seized counterfeits every other year, with support from the right-holders, to promote public awareness for the harmful effects of counterfeits imported into Korea as well as the importance of IPR protection. VI. Difficulties in Customs Enforcement 1) Overrun/Surplus goods Under an ordinary OEM/supply contract, all goods manufactured by the manufacturer must be supplied to the trademark owner, and any surplus goods manufactured in the course of the manufacturing process under the contract must be destroyed, or distributed or sold only after the trademark has been completely removed from the goods. If the manufacturer distributes or sells the surplus goods without removing the trademark, the trademark owner would be entitled to claim trademark infringement against the manufacturer under the Korean Trademark Act. Given that parallel imports are generally permissible in Korea except in very limited circumstances, it is almost impossible for the trademark owner to prohibit the manufacturer from distribution or sale of genuine goods even if it is unauthorized. In this regard, Korean courts have taken a position that unauthorized distribution or sale of goods by a licensee beyond the licensed territory stipulated in the license agreement should be considered as a breach of contract, not trademark infringement. Nonetheless, the position of the KCS on the issue of whether or not surplus goods are considered to be a violation of the Trademark Act has been that if the trademark owner submits an affidavit attesting its conclusion based on inspection that the goods contained in the subject shipment are surplus goods, it is willing to move forward with its investigation into the shipment with possibility of charging the importer with trademark infringement. 2) Travelers luggage and postal packages

9 One of the downsides of the Korean legal system allowing parallel imported goods has been the increasing number of instances where individuals and small business persons smuggling foreign brand goods with which Korean consumers are familiar in their luggage or via postal packages for sale in the domestic market. But, the KCS stance in this issue is to stop an abuse of the legal system by smuggling a large quantity of parallel imported goods into Korea in travelers luggage or via postal packages for any commercial purposes. Traveler s luggage is regulated under the CTL and Notification on Customs Clearance Procedures for Travelers Luggage. For the purpose of preserving the social order and protecting consumers, the KCS allows customs clearance of only a small quantity of non-commercial and personal goods i.e., one item per category of goods, but not exceeding two items in total, for each person. However, in case of goods which hinder public health and safety as well as social security, such as food, medical and pharmaceutical products, etc., the KCS is required to take necessary measures to prohibit customs clearance of those goods, irrespective of the quantity of goods. 3) Tran-shipments Korean law is silent on the issue of regulating shipments coming into Korea as an intermediate place to be shipped to another country. Thus, until when a shipment containing a large quantity of trademark infringing goods, which came into the territories of Korean customs from China in 2004, the KCS had difficulties in finding an appropriate legal basis or precedent to take an enforcement action against it. However, the KCS then believed that the issue of trans-shipments could be a serious problem and determined to take aggressive action to prohibit them from coming into the Korean territories by seeking the trademark owner s verification on the authenticity of goods in the subject shipment. Based on such verification, the KCS was able to successfully seize the goods and referred the matter to the prosecutors office to undertake prosecution against the importer thereby imposing criminal liabilities on it. As a consequence, the KCS is now more inclined to enforce necessary actions to prohibit and prevent trans-shipments of counterfeits or IPR infringing goods that are landed in Korea.

10 Furthermore, in line with its position on the trans-shipments issue, the KCS concluded in a past customs matter involving shipments in a bonded warehouse that relabeling of goods that are subject to a risk of infringing one s trademark rights in Korea should not be permitted but that the goods may be shipped to another country. VII. Korean Customs Seizures of IPR Infringing Goods The following is a list of the total seizures conducted by Korean Customs for the past 3 years: Year Number of Cases Sum of Money 2011 (Jan.- end of Sept.) 380 KRW 513 billion KRW 1.88 trillion KRW 1.25 trillion VII. Conclusion Border measures are an immeasurably important line of defense against the importation of counterfeit products into Korea. As such, there are those who will continually attempt to circumvent the laws and measures in order to import counterfeit goods. Considering the various issues that arise from such importation, the KCS will need to continue to work diligently to prevent counterfeits from entering the country.