The Patent Act in South Korea recently underwent a significant amendment that may have great impact on patent litigation. Effective June 30, 2016, discovery in patent litigation has been expanded by an expansion in the scope of orders to submit evidence, including a new provision for in camera review of alleged trade secrets; and increased sanctions for non-compliance in discovery requirements.

Expanded Scope of Discovery Orders

Article 132(1) of the amended Patent Act now allows the court to order the submission of “materials necessary for proving infringement and/or assessing damages caused by the infringement,” instead of the former provision for “documents” only. Patent infringement case evidence covered by courtordered discovery now effectively includes all forms from video, photographs to any digitized materials.

Article 132 of the Patent Act ordered for “documents necessary for assessing damages caused by the infringement” and Article 344(2) of the Civil Procedure Act applied to “any documents relevant to an issue of fact” to be disclosed prior to the amendment. Article 349 and 350 of the Civil Procedure Act also allowed the court to presume the moving party’s statement as true given a party fails to comply with the disclosure order. However, these provisions were not always effective in facilitating discovery as the movant generally couldn’t prove the existence or control of the document concerned; when there is a claim of trade secrets, judges tended also to be reluctant to impose orders and sanctions.

In camera review, therefore, weakens the favour a trade secret claim enjoys in defying a discovery order by giving the court more authority and discretion to evaluate whether the claim is justifiable. On top of the existing Article 132(1) allowance for a party in control of the requested materials to refuse compliance on “justifiable grounds,” for example on the claim of trade secret, the amended Article 132(2) now allows the court to order for the disputed materials to be reviewed in chambers, and specifically removes from “justifiable grounds” any alleged trade secrets that are needed to prove infringement or damages. To balance the protection for trade secret, the Article requires the court to limit the amount of disclosure of trade secret deemed to prove infringement or damages, as well as limit the disclosure to specific persons such as outside counsel only.

“Now the defendant cannot refuse to the court’s order to submit information simply by asserting that the information constitutes a trade secret,” says Wonil Kim, a partner at Yoon and Yang in Seoul. “The expanded discovery under the amended Patent Act is expected to significantly strengthen the patent holder’s position in patent litigation. On the other hand, the accused infringer will face more burden.”

 

 

 

Increased Sanctions

The cost of non-compliance of discovery orders have been raised through Articles 132(4) and (5), which authorize the court to 1) presume as true the movant’s assertions as the contents of the requested materials should the counterparty fail to produce the requested materials on justifiable grounds; 2) presume as proved the movant’s allegations of fact that would have been established through the contents of the requested material given it is difficult for the movant to make specific statements about the content of the requested materials, and there is no other available evidence.

These sanctions broaden the types of materials that can be requested as they do not require the requesting party to make specific statements concerning the content of the materials, while significantly increasing the penalties for non-compliance by inducing the counterparty to actively refute an allegation by producing evidence against it. These sanctions are also more punishing than sanctions historically available in non-patent civil lawsuits.

Dong-Jin Choy, an attorney at Lee International in Seoul, welcomes the amendment, saying it’s especially beneficial to small and medium-sized businesses. “Two of the key issues to resolve in patent litigation are the determination as to whether there has been infringement, and if so, the determination as to damages. Before the amendment, the law did not provide a satisfactory manner by which a patentee could obtain the necessary information to prove infringement and damages. With the amendment, there is now a mechanism by which the patentee may gain access to the infringer’s information because now the infringer risks incurring potentially painful sanctions if such information is not provided. This has leveled the playing field somewhat in terms of the burden of discovery between the small inventor and the large corporation,” he explains.

Discovery What?

While the amendments pose various changes to a more institutionalized and expansive discovery procedure, discovery in South Korea and many Asian jurisdictions is far from comprehensive compared to common law jurisdictions as well as the United States. This comparison lies in broad terms in the difference between civil and common law systems.

A formal system of pre-trial discovery or disclosure is a characteristic generally found in common law jurisdictions, whereby each party to litigation may request disclosure of relevant evidence in the control, custody or possession of other parties. All parties are obligated to disclose all such relevant documents, including those that are harmful to their own case, and are allowed to inspect their counterparty’s evidence. Discovery typically takes place between the close of pleadings and opening of trial, and is an institutionalized process mandated to take place within a certain period of time. This also means the role of the litigators in enforcing and facilitating discovery is more active relative to the court, which usually only plays prominent role at the request of litigators when faced with non-compliance or claims of trade secrets.

Formal pre-trial discovery puts forth the belief that the truth can be better ascertained by bringing all evidence to the attention of the court, while putting in place checks and balances such as “privilege” whereby a client may prohibit certain confidential communications from forced disclosure on the basis of protecting professional duty of confidentiality and promoting broader public interest. For example, clients are in general cases ensured the right by law to communicate in confidence with their lawyers, doctors and priests, without fear that such communication forcefully revealed to third parties in litigation.

Unlike common law jurisdictions, civil law jurisdictions typically don’t have formal pre-trial discovery. Without a mandated procedure for parties to disclose and review both (or more) sides of information, the burden to uncover evidence falls largely on the litigators, and when even creative methods to obtain information fail, to persuade the court of the need for a discovery order.

In other words, discovery is a procedure existing only within the authority and discretion of the court, and the need to provide specific description and reasoning of relevance of the requested materials can be a major hindrance to obtaining evidence given the requesting party cannot be certain of even existence of a certain evidence without formal disclosure. The lack of a formal discovery process also means there is often no defined time frame for which a piece of evidence might be expected to be revealed, creating extra difficulty for litigation teams to plan out the course of legal action.

In a similar vein, civil law countries did not develop their notion of privilege in relation to the concept of discovery. Rather, they generally recognize the protection of confidentiality of communications between some professionals and their clients through notion of “professional secrecy obligation” to allow for the open communication necessary for the accomplishment of certain professional tasks.

“This does not mean, however, that not having a pretrial discovery system indicates a qualitative deficiency in Korea’s legal system,” says Choy. “From a practical point of view, there are advantages to not having a pretrial discovery system in the context of litigation between unevenly-matched litigants. Discovery in the US is well-known for its exorbitant cost. In Korea’s case, it could be argued that not having a pretrial discovery system may be beneficial since it gives the inventor and small businesses a better chance to have his or her case heard before the court as opposed to a system where he or she may effectively be precluded from going to trial due to the inability to marshal the financial resources to bear the costs of discovery.”

Jung Hyon Jun, a partner at Lee & Ko in Seoul, sees the issue of limited discovery with more urgency. “Korea, China and Japan are very active in filing patent applications, accounting for over 50 percent of world-wide patent applications, yet patent holders are still having difficulty in protecting and enforcing patents in these jurisdictions,” she says. “One of the key reasons is that the patent holder cannot easily obtain evidence of infringement. As the technology of the patents becomes more complex and specialized, it becomes increasingly difficult to collect evidence from sources other than from the infringing party [without proper discovery procedures].”

But Jun acknowledges a well-rounded discovery system rests upon an effective mechanism to protect the trade secrets of the disclosing party. “Currently, the civil procedure systems in East Asia, including Korea, do not sufficiently provide such mechanism,” says Jun. “One of the biggest issues is that the court does not distinguish the roles and responsibilities of counsel from those of its client. Thus, all documents produced to counsel can be accessed by its client. Also, court proceedings where only counsel is present are not practiced. The lack of such protective mechanisms will be a significant obstacle to the introduction of a comprehensive US-style discovery in East Asian countries.” Before the relevant protective measures are defined, pushing forward with more expansive discovery may in turn harm businesses and hamper innovation.

Are We Going Fishing Now?

If most Asian countries fall on one side of the discovery procedure spectrum, the US, as many would agree, falls on the opposite end. While formal discovery procedures can make litigation more transparent and well-informed, the US, with one of the most comprehensive and expansive discovery systems globally, has come under fire for being costly and wasteful. Tools at the litigator’s disposal include request for answers to interrogatories, request for production of documents, request for admissions and depositions; subpoenas can be used to summon non-parties, and non-compliance can be escalated for court assistance by filing a motion to compel discovery.

Not only may responding to discovery request be timeconsuming and expensive, one may also be bombarded with information that requires significant review costs, tactic abusers of the system often use to burden the counterparty so as to coerce a settlement. In what is known as “fishing”, a party may pose speculative and fairly open-ended discovery requests that are marginally relevant to the case to strain resources of the counterparty; abusers may also turn in an overwhelming amount of information to burden or distract the counterparty from making prudent examination of truly relevant evidence.

The explosion of digital information such as emails and electronic documents on computer systems further exacerbates this problem by increasing the cost to filter out relevant materials and process data into a coherent narrative, fueling popularity of e-discovery solutions as well as pushing courts around the world to consider measures to regulate e-discovery from behaviour to data policies.

Some have also argued that overly expansive discovery puts disproportional burden on the less resourceful or affluent party, creating lopsided advantage to parties that can muster the technology and manpower to tackle onerous discovery requests and overdose the counterparty with information.

“In the US, in litigation between an inventor or small business against an alleged infringing corporation, the inventor or small business cannot hope to match the resources of a large corporation. He or she will either settle or give up, and will rarely get to trial,” says Choy.

While South Korea’s amendment is welcomed by some practitioners and is far from resembling the expansiveness of US discovery, how the new discovery procedures will play out will largely depend on real action in the courts, whose impact are still unclear.

“It has yet to be seen how the expanded discovery procedures are actually applied in court practices,” says Kim. “One of the challenges to the future success of the expanded discovery is to set up the standard of burden of proof that the patent holder must bear before the court orders the accused infringer to submit materials. Depending on such standard, the discovery under the amended Patent Act could get closer to the US-style discovery.”

This possibility remains slim, says Choy, noting the US discovery system we know today is the result of major civil procedural reforms in the early 20th century that unified litigation procedures in federal courts across different states.

Choy cautions against extrapolating South Korea’s development to a vastly different judicial system. “The US Federal Rules of Civil Procedure, adopted in 1938, changed completely the way litigation in general was conducted in federal courts, at least in terms of discovery. The 2016 Amendment to Korea’s Patent Act does not come close to this change in terms of impact, applies only to patent litigation and is narrowly focused. Greater and more expansive change must occur before US-style problems such as those suggested by the phrase ‘fishing expeditions’ begin to emerge.”

On the other hand, the lack of formal pre-trial discovery as well as the incoherent national discovery mechanisms based largely on judges’ discretion means deposing parties in foreign jurisdictions remain cumbersome and confusing for most national practitioners. For example, apart from using the Federal Rules of Civil Procedure and corresponding state laws to authorize the taking of foreign depositions, US litigants can also pursue depositions before a consular officer or pursuant to letter rogatory through the Hague Convention on the Taking of Evidence Abroad.

However, only Singapore and South Korea are parties to the Hague Convention, while major US trade partners like Japan, Taiwan, Thailand, Malaysia and the Philippines are not. China is a party to the convention in a limited capacity by strictly prohibiting depositions. The letters rogatory process usually takes months and yields only the submission of written questions for a judge to convey to the deponent, while the deposition notice has no power to compel against a non-party witness. Depositions before a consular officer often requires much planning ahead of time with many administrative boundaries in the limits of embassies or consular offices.

In fact, many employees and executives of South Korean companies have difficulty understanding the rationale of discovery (“Why should we give weapons to my enemies?” is one of the questions Jun has faced), nor are they familiar with their obligation to preserve materials that may be used as evidence when a lawsuit is filed, or even before formal filing, resulting in destruction or alternation of materials.

“Recently, in response to the increased number of patent litigations and other offensive actions by competitors and non-performing entities (NPEs), Korean companies are taking steps to raise awareness of the US discovery procedure,” says Jun. “Some of the inhouse counsel at Korean companies are leading the reformation of document management policies. Inhouse counsel in a company with a business plan to enter into a market with a discovery system must seriously consider such issues.”

As trade continues to be more globalized and technology makes discovery increasingly data-heavy with the potential of automation, it has yet to be seen how the tides of domestic and international litigations will turn, and with them, the processes that facilitate justice.