Are you a company looking to expand into the Korean market? If so, you’ll need to be familiar with Korean license agreements. These agreements are critical for protecting your company’s intellectual property and ensuring a smooth entry into the Korean market. But navigating Korean laws and regulations, understanding the different types of license agreements, and negotiating key provisions can be a daunting task. That’s why we’ve put together this comprehensive guide to Korean license agreements 101. 

In this article, we’ll explore the different aspects of Korean License Agreements that foreign companies need to know before signing a Korean license agreement.  This includes the key Korean laws and regulations affecting license agreements, the differences between exclusive and non-exclusive license agreements, the most important provisions in a Korean license agreement, and how to protect your intellectual property in the Korean market. 

So, whether you’re new to the Korean market or looking to expand your presence, read on to ensure that you’re fully prepared to negotiate a successful Korean license agreement.

Korean laws and Regulations Affecting License Agreements

In South Korea, there is no specific law that targets the international license agreement in Korea.  It is generally regulated by Korean contract law and intellectual property laws.

One of the most important areas of Korean law affecting license agreements is competition law. In Korea, the Fair Trade Commission (FTC) is the regulatory body responsible for enforcing competition law. The Korean competition law, i.e. the Korean Monopoly Regulation and Fair Trade Act, prohibits anti-competitive agreements, and abuse of market dominance in the area of a licensing business.

In terms of anti-competitive agreements, Korean competition law prohibits agreements that restrict competition, such as price-fixing and market-sharing. Such agreements are considered illegal if it restricts the fairness of the license agreement and business. Korean competition law also prohibits vertical agreements that have an anti-competitive effect, such as exclusive dealing, resale price maintenance, and tying.  

Foreign companies must ensure that their license agreements comply with Korean competition law to avoid potential legal and financial consequences. Therefore, it’s important to work with legal counsel familiar with Korean competition law to ensure that the license agreement complies with all relevant laws and regulations.

Exclusive vs. non-exclusive Korean license agreements

When considering a Korean License Agreement, foreign companies have the option to choose between an exclusive and non-exclusive agreement. Understanding the differences between these two approaches is essential to make the right decision for their business.

Exclusive Korean License Agreement

An exclusive Korean License Agreement grants the Korean licensee the exclusive right to use the licensed technology or intellectual property in a defined field or territory. This means that the licensor cannot license the same technology or intellectual property to any other licensee in the same field or territory during the term of the agreement. An exclusive license can be beneficial for the licensee because it provides a competitive advantage by limiting competition in the market.

However, an exclusive Korean License Agreement can also limit the licensor’s ability to generate revenue by licensing the same technology or intellectual property to other potential licensees. This approach can also limit the potential market for the technology or intellectual property, which can reduce the potential for growth.

Non-Exclusive Korean License Agreement

A non-exclusive Korean License Agreement grants the Korean licensee the right to use the licensed technology or intellectual property in a defined field or territory, but the licensor retains the right to license the same technology or intellectual property to other licensees. This approach can be beneficial for the licensor because it provides a broader market for the technology or intellectual property and increases revenue potential.

However, a non-exclusive Korean License Agreement can also reduce the Korean licensee’s incentive to invest in the technology or intellectual property because they may face competition from other licensees. Additionally, a non-exclusive agreement may not provide a competitive advantage in the market.

When choosing between an exclusive and non-exclusive Korean License Agreement, foreign companies should consider the potential benefits and drawbacks of each approach and align them with their business objectives. For example, if the foreign company’s goal is to enter the Korean market quickly and efficiently, an exclusive agreement may be the best option. However, if the company’s goal is to maximize revenue potential and expand its market, a non-exclusive agreement may be more suitable.

Key Provisions in a Korean License Agreement

A Korean License Agreement is a legal contract that defines the terms and conditions for the use of intellectual property, technology, or other proprietary assets between a foreign company and a Korean company. Understanding the key provisions in a Korean License Agreement is essential for foreign companies to protect their intellectual property and maximize their benefits.

License Grant and Scope

The License Grant and Scope provision specifies the licensed intellectual property, the scope of the license, and any limitations on the license. This provision is essential because it defines the licensed technology or intellectual property’s scope and limits, ensuring that both parties have a clear understanding of their rights and obligations.

Territorial Restrictions

Territorial Restrictions in a licensing agreement refer to a provision that limits the geographic area where a licensee can sell or distribute the licensed products or services. These restrictions may be imposed by the licensor to protect their own market share or to comply with their own contractual obligations with third parties.

However, territorial restrictions in a licensing agreement could potentially violate the Korean competition law if they are found to have the effect of restricting competition. The Korean competition law prohibits any agreements or concerted actions that substantially restrict competition in a particular market. This includes agreements that partition markets, fix prices, or limit production or supply.

In determining whether territorial restrictions violate the Korean competition law, the Korea Fair Trade Commission (KFTC) will consider factors such as the market share of the parties involved, the extent and duration of the restrictions, and the competitive conditions in the relevant market. Therefore, licensors should be cautious when imposing territorial restrictions in a licensing agreement and ensure that they do not create anti-competitive effects. 

Improvements

An improvements clause is a provision that allows the licensee to make improvements or modifications to the licensed technology or intellectual property. This clause specifies the ownership of any improvements or modifications made by the licensee during the term of the agreement. 

The improvements clause in a license agreement can potentially violate the Korean competition law if it restricts competition by preventing licensees from developing their own products or improvements that compete with the licensor’s products. Under the Korean competition law, restrictive agreements that limit competition are prohibited, including those that involve exclusive dealing, tying, and resale price maintenance.

To avoid potential violations of the Korean competition, licensors should ensure that their improvements clause is drafted in a manner that does not unreasonably restrict competition and the Korean licensee’s business and that it is narrowly tailored to protect their legitimate business interests.

There was a legal case of improvements clauses being scrutinized under Korean competition law. In a high-profile case in 2016, the Korea Fair Trade Commission (KFTC) fined Qualcomm $854 million for violating competition law by imposing unfair licensing terms and refusing to license its standard-essential patents to competing chipmakers. One of the issues raised by the KFTC was Qualcomm’s use of an improvements clause in its license agreements, which required licensees to grant back any improvements they made to Qualcomm’s technology. The KFTC found that this clause unfairly restricted competition by discouraging licensees from developing their own technologies and competing with Qualcomm.

This case illustrates the importance of ensuring that license agreements comply with Korean competition law. 

Royalty Payments

The Royalty Payments provision specifies the payment terms for using the licensed technology or intellectual property. The provision typically includes the royalty rate, payment schedule, and methods of payment. This provision is essential for the foreign companies to ensure that they receive fair compensation for the use of their intellectual property.

Minimum Royalty Clause 

A minimum royalty clause is a provision in an exclusive license agreement that requires the licensee to pay a minimum amount of royalties to the licensor regardless of the actual amount of sales made by the licensee. This clause is commonly included in license agreements to ensure that the licensor will receive a minimum amount of revenue from the licensed technology or product.

Under Korean competition law, a minimum royalty clause in an exclusive license agreement may be scrutinized for potential anticompetition violations. In particular, if the minimum royalty clause is deemed to have an anticompetitive effect, such as creating a barrier to entry or reducing competition, it may be found to be illegal.

To mitigate these risks, licensors should carefully consider the potential antitrust implications of including a minimum royalty clause in their license agreements. They should also consider alternative ways to structure their agreements, such as providing extra support or investment.

It is important to note that the legality of a minimum royalty clause may vary depending on the specific circumstances of the case, including the relevant market conditions and the bargaining power of the parties involved. Therefore, licensors should seek legal advice and conduct thorough due diligence before including a minimum royalty clause in their license agreements.

Term and Termination

The Term and Termination provision specifies the length of the license agreement and the conditions under which either party may terminate the agreement. This provision is critical because it defines the duration of the license agreement and the circumstances under which it may be terminated.

Representations and Warranties

The Representations and Warranties provision requires the parties to make specific representations and warranties regarding their rights to use the licensed technology or intellectual property. 

The Representation and Warranties clause in a license agreement is crucial when dealing with a Korean licensee. This clause establishes the responsibilities and liabilities of both parties, with the licensor guaranteeing the validity of their intellectual property and the Korean licensee confirming their ability to perform the agreed-upon obligations. In an international context, this clause is particularly important because of differences in legal systems and the potential for cultural misunderstandings. The inclusion of a robust Representations and Warranties clause can help to mitigate these risks and ensure a smooth and successful licensing relationship with a foreign licensee.

Indemnification

The Indemnification provision requires one party to indemnify the other party for any losses, damages, or liabilities resulting from the use of the licensed technology or intellectual property. This provision is critical to ensure that foreign companies are protected from any potential legal disputes arising from the use of their intellectual property.

The clause should clearly outline the Korean licensee’s obligation to indemnify the licensor for any damages, losses, or claims resulting from the licensee’s use of the licensed intellectual property. It should also include provisions for the licensor’s cooperation in the defense of any claims. An indemnification clause is particularly important when dealing with a Korean licensee, as legal proceedings in Korea can be costly and time-consuming. The clause can help ensure that the foreign licensor is not held responsible for any legal disputes or issues that arise from the Korean licensee’s use of the licensed intellectual property.

Governing Law and Jurisdiction

Governing Law and Jurisdiction clause is an important provision in international license agreements that specifies which law will govern the interpretation and performance of the agreement, and which court or arbitration forum will have jurisdiction in the event of a dispute.

It is important to carefully consider the governing law and jurisdiction clauses in an international license agreement with a Korean company, as they can have a significant impact on the outcome of any disputes that may arise.

When choosing between an exclusive and non-exclusive Korean License Agreement, foreign companies should consider the potential benefits and drawbacks of each approach and align them with their business objectives. For example, for the perspective of US licensors, it would be advisable to specify US law as the governing law and US court as the exclusive jurisdiction, as that would minimize the risk of disputes and ensure that any disputes are resolved in a timely and cost-effective manner. However, if the Korean licensee has no business or assets in the US, it would be better to designate the Korean court as the jurisdiction, because it would be more time and cost-effective to enforce the US court judgment later in Korea.  

Protecting Your Intellectual Property in a Korean License Agreement

Intellectual property is a valuable asset that foreign companies must protect when entering into a Korean License Agreement. This includes patents, trademarks, copyrights, trade secrets, and other forms of intellectual property that are critical to the company’s success. Therefore, it is important to have measures in place to protect intellectual property in a Korean License Agreement.

Registering Intellectual Property

The first step in protecting intellectual property in a Korean License Agreement is to register it with the Korean Intellectual Property Office. This includes registering patents and trademarks. Registering intellectual property provides legal protection and can prevent infringement by other parties.

Confidentiality and Non-Disclosure Agreements:

Foreign companies can protect their trade secrets by including confidentiality and non-disclosure agreements (NDAs) in the Korean License Agreement. NDAs are legal contracts that protect confidential information from being disclosed or used without permission. They are especially important in the technology industry, where the exchange of confidential information is common.

When drafting an NDA for a Korean licensee, it is important to understand the cultural and legal differences between Korea and the United States. For example, in Korea, the concept of “good faith” is not as well-defined as it is in the United States, so it is important to clearly define what constitutes a breach of the NDA.

It is also important to clearly define the scope of the confidential information that will be covered by the NDA. This can include trade secrets, confidential business information, and any other proprietary information that is not already publicly available.

In addition to defining the scope of the NDA, it is important to clearly outline the consequences of a breach. This can include monetary damages, injunctive relief, and termination of the license agreement.

Finally, it is important to include provisions that address what happens to confidential information at the end of the agreement. This can include provisions for the return or destruction of confidential information, as well as ongoing obligations to maintain confidentiality after the agreement has ended.

Monitoring and Enforcing Intellectual Property Rights:

Foreign companies must monitor and enforce their intellectual property rights in Korea to prevent infringement. This includes conducting regular audits, monitoring the market for infringement, and taking legal action against infringers when necessary. It is important to have a strong legal team in place to enforce intellectual property rights in Korea.

Language in Korean License Agreements: Pitfalls and Best Practices

Language barriers can be a significant challenge when negotiating and drafting a Korean license agreement. Even seemingly minor differences in wording can lead to misunderstandings that could have a significant impact on the agreement’s outcome. Therefore, it’s essential to pay close attention to language and ensure that the terms of the agreement are accurately reflected in both the English and Korean versions.

To avoid language-related pitfalls in Korean license agreements, It’s critical to use a bilingual Korean lawyer who is fluent in both Korean and English and has extensive experience in drafting an International license agreement for both Korean and US companies.  

Also make sure that all terms used in the agreement are well-defined and unambiguous, and avoid using overly technical language or jargon that may not be easily understood by the other party. Instead, use plain language to clearly convey the agreement’s terms.

In addition to following these best practices, it’s also essential to be aware of common language-related pitfalls in Korean license agreements. These may include misunderstandings due to differences in legal terminology or cultural nuances, as well as differences in the interpretation of terms that may not have a direct equivalent in the other language.

By being mindful of these challenges and taking steps to mitigate them, foreign companies can ensure that the language in their Korean license agreements accurately reflects the intended terms and avoid potential misunderstandings that could jeopardize the agreement’s success.

Conclusion

In this blog post, we’ve covered the major points you need to know about Korean license agreements as a foreign company looking to enter the Korean market. From the key laws and regulations that govern these agreements to the important provisions that should be included, we’ve explored the various factors that can impact the success of your agreement.

We’ve also discussed the differences between exclusive and non-exclusive agreements, ways to protect your intellectual property, and language barriers that can arise in the negotiation process.

It’s important to remember that negotiating and drafting a Korean license agreement can be complex, but with the right knowledge and preparation, foreign companies can successfully navigate the process.

If you’re looking for legal advice on your licensing agreement with a Korean company, let our team of legal professionals guide you through the process and help you achieve a successful outcome.