This is an informal case summary prepared for the purposes of facilitating exchange during the 2025 WIPO IP Judges Forum.
Session 7: Calculation of Damages in IP Disputes
Intellectual Property High Court, Republic of Korea [2025]: Case No. 2022Na2206
Date of judgment: March 13, 2025
Issuing authority: IP High Court of Korea
Level of the issuing authority: Appellate Instance
Type of procedure: Judicial (Civil)
Subject matter: Patent, Enforcement of IP and Related Laws
Plaintiff: LS Cable Co., Ltd.
Defendant: Daehan Cable Co., Ltd.
Keywords: Patent Infringement, Calculation of Damage, Convoyed Sale, Ancillary Product, Marginal Profit, Variable Cost, Methodology for Marginal Profit Rate, Cost Stickiness Analysis
Basic facts: Plaintiff filed suit against Defendant, alleging that Defendant’s power cable joint kit product (hereinafter referred to as the “Joint Kit”) infringes Plaintiff’s Korean Patent Nos. 2 and 3. Plaintiff seeks injunctive relief and an order for the destruction of infringing goods pursuant to Article 126 of the Korean Patent Act. In addition, Plaintiff claims damages for lost profits not only from the Joint Kit but also from Bus Ducts (ancillary products) sold together therewith and from Installation Services (ancillary services) provided in connection therewith (partial claim in the amount of KRW 4 billion).
Held:
1. Patent Infringement: Recognized: The Court found that Defendant’s Joint Kit infringed (i) Plaintiff’s Second Patent under the Doctrine of Equivalents and (ii) Plaintiff’s Third Patent literally and under the doctrine of equivalents. The Defendant’s affirmative defense asserting that Defendant’s Joint Kit falls under the freely implementable technology (“free-to-use technology”) was rejected.
2. Injunctive Relief and Destruction Order: Granted
3. Claim for Damages: Damages are recoverable not only for the infringing Joint Kit, but also for the associated Bus Ducts and Installation Services, as all products and services functionally necessary to realize the intended purpose of the patent invention. It was reasonably foreseeable that, absent the infringement, the ancillary product sales and services would have been realized by the patentee.
Relevant holdings in relation to Calculation of Damages in IP Disputes:
1. Recognition of Damages Related to Ancillary Products and Services
The issue was whether the patentee may recover damages not only for the sale of the infringing product itself, but also for lost profits resulting from the sale of ancillary products—defined as goods that are independently traded and not integral components of the patented article—and ancillary services, such as installation, that are either provided at the time of sale or subsequently for consideration.
While the purpose of patent damages is to compensate the patentee for actual economic harm caused by infringement, it is equally important to prevent undue expansion of liability. Therefore, ancillary damages cannot be automatically deemed recoverable solely because they are associated with the sale or installation of the patented product. Such damages must be appropriately limited according to proper criteria.
If the ancillary product is sold or installed together with the patented item merely for reasons of commercial convenience—such as ease of procurement from a single vendor or benefits in post-sale maintenance—and such bundling reflects the seller’s business strategy rather than technical necessity, then the mere fact that sales and installation are carried out by the same party is insufficient to justify recognition of ancillary damages. Rather, the scope should be limited to cases where the ancillary product is functionally necessary to realize the patented invention’s intended purpose and is sold together with the patented product in a manner akin to “multiple components constituting a single product,” or where installation or construction by the seller of the patented product is essential to the functioning of the patented product and to the achievement of the patented invention’s purpose. Furthermore, it must be reasonably foreseeable in light of factors such as market share, the state of competition in the industry, availability of substitutes, and customary trading practices that, absent the infringement, the ancillary product sales or ancillary services would have been realized by the patentee. Only under these circumstances may the patentee’s lost profits from ancillary transactions be deemed proximately caused by the infringement and thus compensable.
Upon comprehensive consideration of the evidentiary record, the Joint Kit and the Bus Ducts are functionally integrated and commercially treated as a single set to safely deliver electrical power within buildings and other structures. Installation is performed by the seller, and both Plaintiff and Defendant, as competitors within the same industry, have engaged in sales and installation in the same manner. Given this commercial practice, it is reasonably foreseeable that, absent Defendant’s infringement, Plaintiff would have realized profits from the sale of the Bus Ducts and the provision of and installation services. Accordingly, Plaintiff’s losses relating to Bus Duct sales and Installation Services are deemed to be in a proximate causal nexus with Defendant’s infringing acts.
Therefore, in this case, under Article 128(4) of the Korean Patent Act, the profits obtained by the Defendant from both the infringing product (Joint Kit) and its functionally integrated ancillary product (Bus Ducts) / services (Installation) are presumed to constitute the damages sustained by the Plaintiff as a result of the Defendant’s patent infringement.
2. Application of Cost Stickiness in Marginal Profit Analysis
Marginal profit is calculated by deducting marginal costs from sales revenue. Marginal costs consist of variable costs and direct fixed costs (individual fixed costs). Among these, direct fixed costs are recognized as marginal costs only when certain strict conditions are satisfied; accordingly, marginal costs are composed predominantly of variable costs. Variable and fixed costs may be classified through either qualitative or quantitative analysis. Quantitative analysis employs empirical and statistical techniques to evaluate cost behavior in response to changes in operational activity. In this case, a court-appointed appraiser employed a cost stickiness analysis—a form of quantitative analysis—to assess cost behavior, which the Court accepted as one of the reasonable analyses of variable cost.
“Cost stickiness” refers to a phenomenon in which a given cost item does not decrease—or even increases—when the level of operational activity (e.g., sales revenue) declines. In other words, when the business enters a downward phase in terms of activity volume, and the cost under analysis remains unchanged or rises rather than decreasing proportionally, that cost is said to exhibit downward rigidity. From this behavioral pattern, costs that demonstrate stickiness in response to declining activity levels are classified as fixed costs, as they do not adjust downward in line with reduced operations.
Relevant legislation:
The Korean Patent Act, Article 128 (Right to Claim Damages, etc.):
(1) A patentee or an exclusive licensee may claim damages against any person who has intentionally or negligently infringed their patent right or exclusive license.
(2) In an action for damages under paragraph (1), if the infringer has assigned goods that were involved in the infringing act, the patentee or exclusive licensee may calculate the amount of damages as the sum of the following:
(i) The amount calculated by multiplying the quantity not exceeding the quantity of products that the patentee or exclusive licensee could have manufactured, less the quantity of products actually sold among the quantity of the products assigned (the quantity calculated by subtracting the quantity of products that the patentee or exclusive licensee could not sell due to any cause other than the infringement, where such cause other than the infringement prevented him or her from selling the products) by the profit per unit of the products that the patentee or exclusive licensee could have sold if not for such infringement;
(ii) The amount that the patentee or exclusive licensee would reasonably receive for practicing a patented invention, where there is any quantity exceeding the quantity of products that the patentee or exclusive licensee could have manufactured, less the quantity of products actually sold among the quantity of the products sold, or any quantity of products that the patentee or exclusive licensee could not sell due to any cause other than the infringement (the quantity calculated by subtracting the relevant quantity, where it is not deemed that the patentee or exclusive licensee was able to grant an exclusive or non-exclusive license for the patent of such patentee or to grant a non-exclusive license for the exclusive license of such exclusive licensee).
(3) [Repealed]
(4) In an action for damages under paragraph (1), the amount of profit earned by the infringer as a result of the infringement may be presumed to be the amount of damages suffered by the patentee or exclusive licensee.
(5) In an action for damages under paragraph (1), the patentee or exclusive licensee may alternatively claim as damages a reasonable royalty that would have been received for the use of the patented invention.
(6) Notwithstanding paragraph (5), if the actual damages exceed the amount of the reasonable royalty, the patentee or exclusive licensee may claim compensation for the excess amount. In such cases, if the infringer did not act intentionally or with gross negligence, the court may take that fact into account when determining the amount of damages.
(7) In a patent infringement action, if the court finds that damages have occurred but it is extremely difficult, due to the nature of the facts, to prove the amount of damages, the court may determine a reasonable amount of damages based on the entire tenor of the proceedings and the results of the evidentiary examination, notwithstanding paragraphs (2) through (6).
(8) If the court finds that the infringement of another’s patent right or exclusive license was intentional, the court may, notwithstanding paragraph (1), award damages up to three times the amount determined under paragraphs (2) through (7).
(9) In determining the amount of damages under paragraph (8), the court shall consider the following factors:
(i) Whether the infringer held a superior bargaining position;
(ii) The degree to which the infringer acted with intent or recognized the likelihood of harm;
(iii) The scale of damages suffered by the patentee or exclusive licensee as a result of the infringement;
(iv) The economic benefit obtained by the infringer through the infringing act;
(v) The duration and frequency of the infringing acts;
(vi) Any Criminal fines imposed for the infringement;
(vii) The financial status of the infringer;
(viii) The extent of the infringer’s efforts to remedy the harm caused.
*************************