[Law Amendment] Statutory Non-Exclusive License for Co-Owners Working the Patented Invention Before an Auction Request (Effective 2022.04.20)

The amended Patent Act took effect on April 20, 2022, and the changes call for attention in practice.

The amendment to Article 122 of the Patent Act is somewhat difficult in theory. As the KIPO material above shows, the amendment is based on Supreme Court Decision 2013Da41578. That decision held that, notwithstanding the special provisions of Article 99 of the Patent Act on jointly owned patents, a co-owner may at any time, absent special circumstances such as a contract, request partition of a jointly owned patent right, and that the partition may take the form of selling the jointly owned patent right through an auction or similar means and dividing the proceeds according to each co-owner's share.

Given the various characteristics of jointly owned patent rights, this Supreme Court decision is controversial. As in the example shown in the KIPO material, when the co-owners' interests conflict, a co-owner who does not work the patent and therefore earns nothing from it may request partition, receive proceeds equal to its share, and have the patent right sold by auction or similar means. The other co-owner, who has been working the patent, may then suddenly find itself infringing the patent right of the successful bidder.

Recognizing this controversy, the amended Patent Act provides that a co-owner who was working the patented invention before the auction request is granted a statutory non-exclusive license.

In my view, the problem is still not resolved by this provision. The question is whether it is fair that a co-owner who lawfully obtained the patent right and has been running a business under it should be stripped of the right through the unilateral sale attempt of another co-owner with conflicting interests, and then become a non-exclusive licensee paying substantial consideration to the new owner who won the auction.

An even greater problem is that the successful bidder may be a competitor, or, even if it is not, may be in a position to become a potential competitor, so the continuity of the business efforts made so far cannot be guaranteed.

The best approach would be to prevent such extreme disputes through contract terms under which, even if only one co-owner works the patent, profits are shared with the non-working co-owner according to factors such as each party's contribution to the invention. Even where a conflict of interest leads to an extreme outcome such as an auction, however, it would seem appropriate to give the co-owner a priority right to win the auction.

In that case, I believe it would be consistent with the purpose of joint patent ownership to protect the existing co-owner's rights by allowing the co-owner to participate in the competitive bidding and, if the co-owner is not the highest bidder, giving it a priority opportunity to rebid at an amount higher than the highest bid.

Under this approach, third parties other than the co-owners would still have the opportunity to win the auction, while a co-owner willing to pay more than the highest bidder could keep its patent, which I believe would achieve an overall balance.

Despite the amendment to Article 122, it would be more advisable to prevent unexpected damage to the business by agreeing in advance, before filing a jointly owned patent application, on special terms such as how profits from the patent will be shared and whether one owner may dispose of the right without the other owner's consent.

LNB IP Law Firm