Korea Update: The National Assembly Passes a Bill to Partially Amend the Invention Promotion Act

On January 9, 2024, the National Assembly has passed a bill to partially amend the Invention Promotion Act (the “Amendment”). The Amendment will take effect six months after promulgation.

The major changes in the Amendment can be summarized as (i) the automatic transfer of employee inventions (Article 13), and (ii) the rules on production orders and protective orders for calculating compensation for employee inventions (Articles 55-8, 55-9, and 58(1)).

Automatic Transfer of Employee Inventions

According to the current Invention Promotion Act, if a company has reserved its rights to employee inventions and an employee of the company makes an invention, the rights to such employee invention are deemed to transfer to the company when the employee reports the invention to the company and the company notifies the employee of the transfer of rights (Articles 13(1) and 13(2) of the current Invention Promotion Act). Therefore, under the current law, companies have the duty to notify employees of the transfer of all rights that they wish to acquire, which increases the burdens on companies. Furthermore, due to the uncertainty in who owns the employee invention during the period between the completion of the invention and the company’s notification of the transfer of rights, there was a risk of improperly transferring the rights in the invention to a third party by the employee prior to the company’s notification of the transfer. The Korean Supreme Court has held that an unauthorized transfer of rights in an employee invention may constitute the employee’s breach of duty (Supreme Court Decision 2012Do6676, rendered on November 15, 2012).

To address these concerns, the Amendment sets out that, if a company has reserved its rights to employee inventions and an employee of the company makes an invention, the rights to such employee invention automatically transfer to the company at the time the employee completes the invention (Article 13(1) of the Amendment).

Key Takeaways

Under the Amendment, companies are no longer obligated to notify the transfer of rights for each employee invention that they wish to acquire, thereby significantly reducing the burdens on companies.

As the transfer of rights will occur immediately upon the completion of invention, it is expected that the risk of improper transfer of rights by the employee, which could occur during the period between the completion of invention and the company’s notification of the transfer of rights, will be greatly reduced.

However, this new provision only applies when the company has reserved its rights in employee inventions in advance (e.g., by contract or employment rules setting out the employer’s right to acquire employees’ patents or the employees’ obligation to assign or grant an exclusive license to the patents to the employer, etc.). Therefore, it is necessary for the companies to reserve their rights in employee inventions in advance through contracts or employment rules.

Rules on Production Orders and Protective Orders for Calculating Just Compensation for Employee Inventions

The current Invention Promotion Act does not provide rules on production orders or protective orders covering documents or information relevant for calculating the compensation for employee inventions, so document production has followed the rules under the Civil Procedure Act. However, it has been uncertain whether the company’s refusal to produce documents on the ground that they constitute trade secrets qualifies as a reasonable ground for refusal under the Civil Procedure Act (Article 344 of the Civil Procedure Act).

To address this issue, the Amendment introduces a statutory provision on production orders, so that documents necessary for calculating the compensation for employee inventions could be produced to the extent possible even when they constitute a party’s trade secrets (Article 55-8 of the Amendment). At the same time, the Amendment also introduces provisions on protective orders so that the party producing documents would not suffer unreasonable harms from indiscriminate disclosure of trade secrets in the litigation (Articles 55-9 and 58(1) of the Amendment).

Furthermore, the Amendment clarifies that (i) trade secrets cannot be the grounds for refusing to produce documents (Article 55-8(3) of the Amendment), and (ii) if a party fails to comply with an order to produce documents, “the court may accept as true the assertion of facts that the party requesting production seeks to prove by production of the documents (Article 55-8(5) of the Amendment).

Key Takeaways

Following the enforcement of the Amendment, it may become difficult for companies to refuse to produce documents necessary for calculating the compensation for employee inventions on the grounds that they are trade secrets.

Therefore, companies should consider the risk of disclosing trade secrets in litigation and carefully review in advance the possible scope and method of production, whether to seek protective orders in parallel, etc.

If the document that needs to be produced is a contract between the company and a third party (e.g., patent assignment agreement, license agreement, etc.), it may be necessary to provide prior notice to such third party or obtain prior consent.

Burden of Proof for Calculating Just Compensation

Although there have been discussions on amending the method of calculation and shifting the burden of proof for determining just compensation for employee inventions under Article 15 of the current Invention Promotion Act, Article 15 has not been amended this time. Therefore, the legal principle remains unchanged that the employee bears the burden of proof for the company’s gain from enjoyment of exclusivity and for just compensation under the current Invention Promotion Act.

By Yulchon, Korea, a Transatlantic Law International Affiliated Firm.

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