Specialist Chapter: Courts in South Korea Zero in on Regulation of Trademark Usage in Promotional Material

In summary

Recent court decisions are expected to serve as important criteria for addressing future trademark infringement cases. Courts consider various factors to determine whether using a trademark on a product provided as a free promotional material without the permission of the trademark owner constitutes trademark infringement. When evaluating whether the provision of a product constitutes the use of a trademark under the Trademark Act, a comprehensive assessment is required.

Discussion points

• Interpreting court precedents regarding potential trademark infringement arising from providing a product as a free promotional material
• Key factors to consider in determining whether the provision of a product qualifies as trademark use under Korean law

Referenced in this article

• Trademark Act
• Seoul Central District Court Decision No. 95Kahab3529
• Korean Supreme Court Decision No. 98Hu58
• Seoul Western District Court Decision 2019 No. 694
• Korean Supreme Court Decision No. 2021Do2180

South Korea’s Trademark Act stipulates that an infringement of trademark rights is punishable by a term of imprisonment of not more than seven years or a fine not exceeding 100 million won.^[1] Under the Trademark Act, the term ‘infringement of trademark rights’ refers to the unauthorised use of a trademark that is identical or similar to a registered trademark on goods that are identical or similar to those designated for the trademark. Further, ‘use of a trademark’ covers, among others, the act of:

• displaying a trademark on goods or packaging; and
• transferring or delivering goods or packaging on which a trademark is displayed, or exhibiting, exporting, importing or engaging in any other acts for that purpose.^[2]

However, due to the lack of a precise definition of ‘goods’ in the Trademark Act, there have been varied interpretations regarding the scope of the above provisions. Consequently, Korean courts have held inconsistent views on whether an act of providing goods free of charge for promotional purposes constitutes the use of a trademark; however, a recent landmark ruling by the Korean Supreme Court addressed this matter, setting standards that are anticipated to serve as the basic principles for similar disputes.

Court precedents

Non-recognition of trademark use

On 24 October 1995, the Seoul Central District Court rendered Decision No. 95Kahab3529, in which a provision of free promotional materials was not recognised as constituting the use of a trademark. The case involved Party A, who was the owner of the registered trademark ‘CASS’ (for which T-shirts were the designated goods) and filed for an injunctive order against Party B, the owner of the registered trademark ‘CASS’ (for which beverages were the designated goods). The key issue was whether Party B had engaged in trademark infringement by distributing T-shirts bearing the ‘CASS’ trademark to its employees free of charge as promotional material for its beer products.

The Seoul Central District Court determined that the T-shirts distributed by Party B, given free of charge exclusively to selected individuals who were involved in the relevant business operation for the purpose of advertising or promoting the sale of the products, should be regarded as an advertising medium, rather than independent goods. Consequently, the Court concluded that the act did not constitute trademark infringement

The Korean Supreme Court made a similar interpretation in its Decision No. 98Hu58.^[3] In this case, Party D filed for a cancellation action against Party C’s registered trademark ‘WINK’, alleging non-use of the trademark for a period of three years. During that period, Party C only used the trademark on a photo book provided as a promotional gift to its customers who had purchased its movie magazine, ROADSHOW. The Korean Supreme Court held that using a trademark on promotional materials distributed free of charge to customers for the purposes of promoting products, sales or customer services, or for similar objectives (ie, giveaways), cannot constitute use of a trademark under the Trademark Act. The Court clarified that such use can only be recognised when a trademark is used on goods that possess independent exchange value and are considered objects of a commercial transaction. Consequently, the Court deemed that Party C’s use of the ‘WINK’ trademark had not met the necessary criteria under the Trademark Act to constitute use of a trademark, ruled in favour of Party D and cancelled Party C’s trademark.

The determination of whether an act constitutes use of a trademark under the Trademark Act should consider whether a product has the potential for being commercially traded when the trademark was affixed or displayed on it, rather than focusing solely on whether the product bearing the trademark was actually traded in the market; otherwise, the use cannot be accurately evaluated as such trade is an incidental circumstance that follows the use of a trademark.

The aforementioned rulings do not offer explicit explanations for the rationale behind not recognising the exchange value of the promotional materials in question or the determination that they could not serve as independent objects of trade; however, as these rulings specifically addressed cases involving promotional materials (T-shirts and photo books, respectively) that were distinct from the trademark owners’ primary objects of trade (beer and magazines, respectively), the courts appear to have determined that the promotional materials did not possess exchange value and could not be considered independent objects of trade. These determinations likely stemmed from the fact that the availability of the promotional materials was limited to a specific group of individuals and the likelihood of those individuals engaging in any subsequent trade of the corresponding products in the market was low.

Recognition of trademark use

In Korean Supreme Court Decision No. 2021Do2180,^[4] the Court reviewed whether the provision of products bearing another party’s trademark for free constituted trademark infringement. The first-instance case was that the defendant had manufactured 1,000 towels displaying a trademark without the permission of the trademark owner. The defendant sold 200 towels to some trading partners and provided 100 towels as promotional items to other trading partners. The Seoul Western District Court considered the act of selling 200 towels to be trademark use and found the defendant guilty of trademark infringement; however, regarding the 100 towels provided as promotional items, the Court dismissed the trademark infringement charges.^[5]

In Decision No. 2021Do2180, the Korean Supreme Court overturned the Seoul Western District Court’s decision and reached a different conclusion. The Korean Supreme Court determined that, based on the appearance, quality and trading status of the towels produced by the defendant, all of the towels should be considered products with exchange value and independent objects of trade. The Court emphasised that even if some of them were provided as free gifts or promotional items, it could not be disregarded that the act of displaying the trademark on the towels or transferring the towels bearing the trademark constituted trademark use under the Trademark Act. Accordingly, the Court ruled that both the act of selling 200 towels and the act of providing 100 towels as promotional items constituted trademark infringement.

Unlike previous cases where promotional materials were distinguished from the primary traded products, in this case, the promotional materials were not distinguished from the products that had already been traded and had a history of actual trading. The Korean Supreme Court has recognised that promotional materials possess exchange value as they had previously been traded in the market and, consequently, the Court has acknowledged the possibility for such materials to be further distributed as objects of trade.

Criteria for determining use of a trademark

Court precedents have yielded varying conclusions regarding whether the provision of free promotional items qualifies as trademark use; however, they all rely on a common criterion for judgment, namely whether the provided product possesses an exchange value and can serve as an independent object of trade.

Nevertheless, it can be challenging to definitively determine whether a particular product, when considered alone, possesses exchange value and can serve as an independent object of trade. Unless a product is obsolete or subject to special circumstances that render it legally prohibited from trade, negating its exchange value and potential as an object of trade becomes difficult.

In the cases discussed above, although a ‘CASS’ T-shirt may possess inherent exchange value and commercial value, its distribution was limited to individuals involved in promoting the main product: beer. Therefore, the likelihood of recipients reselling it to third parties was deemed to be significantly low. Similarly, the ‘WINK’ photo book was exclusively provided to consumers who had purchased the ROADSHOW magazine and its content primarily consisted of photos of actors. As a result, it was difficult to acknowledge the potential for recipients redistributing it as a commercial product.

In contrast, in Korean Supreme Court Decision No. 2021Do2180, the products in question had already been sold on the market; therefore, it was highly likely that the trading partners who had received the same towels as promotional items would commercially trade them in the future. This factor led the Court to conclude that the provision of the towels constituted trademark use, even though it was done solely for promotional purposes.

In light of the above, when determining whether the provision of a specific product qualifies as trademark use, it is essential to consider not only the physical characteristics, type and quality of the product itself, but also the product’s trading history, the relationship between the provider and the recipient, and the potential for distribution following the provision of the product.

Footnotes