Enforcing Prohibitions on Parallel Imports into South Korea: A Case Study

The Korean courts have historically shown reluctance in enforcing prohibitions on the importation of non-counterfeit grey-market products into South Korea. This can present challenges for international brands and distributors seeking to protect their intellectual property rights in the Korean market. However, proactive legal counsel in Korea can help brands develop strategies to safeguard their interests. Some strategies are well-known, while others arise from unique experiences garnered from conducting business in Korea. For additional information on Korean Intellectual Property Law, please see: IPG Legal’s Korean Intellectual Property Law Archive.

A notable example of this legal landscape can be found in Simmons Korea v. Karahan (Case No. 2009Ga Hap 125399 decided December 10, 2010). This case highlights the complexities surrounding parallel imports and trademark protection in South Korea. The case was handed down by the Seoul Central District Court.

Protecting your Brand and Distributor from Grey Market Imports into South Korea

Case Summary: Simmons Korea v. Karahan

In this case, Simmons Korea sought to prohibit Karahan, a parallel importer, from importing Simmons-branded beds from abroad. Simmons Korea had been manufacturing beds under the Simmons name in South Korea under a license from the global brand owner, Simmons USA. However, Simmons USA did not hold an equity stake in the Simmons Korea entity, which complicated the issue of trademark rights.

The central issue in the case was whether the importation of Simmons beds from the United States by Karahan constituted an infringement on the Simmons trademark. The Seoul Central District Court ultimately ruled in favor of the parallel importer, allowing the importation of the beds.

Court’s Reasoning in the Simmons Korea Parallel Importation Case

The court referred to the regulation titled “Notice on Treatment of Import and Export for the Protection of Intellectual Property” issued by the Korean Customs Service. This regulation outlines that the parallel importation of non-counterfeit goods into South Korea does not infringe upon the trademark rights of the trademark holder under the following circumstances:

1. When the Korean trademark registrant and foreign trademark registrant are the same entity, an affiliated entity, or an agent of the holder, except when an exclusive licensee manufactures the goods domestically.

2. When the Korean trademark registrant and foreign trademark registrant are not the same, but the domestic registrant or an exclusive licensee imports and sells only genuine goods manufactured by the foreign trademark registrant.

The Korean court’s reasoning hinged on the fact that while Simmons Korea had a domestic manufacturing license to use the Simmons trademark, it was not deemed to fall under the exception typically applied to exclusive licensees. Although Simmons Korea’s products were similar in quality to those of Simmons USA, the court ruled that Simmons Korea and Simmons USA were effectively considered separate entities under South Korean law, and that the public did not distinguish between the two brands in the Korean market.

The court in Korea emphasized that:

• Simmons Korea did not independently develop the technology for the “pocket springs” used in their mattresses, a key differentiator in the product’s quality.

• The beds imported by Karahan from the U.S. were not counterfeit; rather, they were genuine products manufactured by Simmons USA.

• Despite being a separate legal entity, Simmons Korea was treated similarly to Simmons USA by Korean consumers, suggesting a “division” of trademark rights between the two entities.

As a result, the Korean court held that the parallel importation did not infringe the trademark rights of Simmons USA under South Korean law. This decision highlights the significance of understanding how the Korean courts perceive domestic and foreign relationships in relation to trademark rights and parallel imports.

Korean Antitrust/Competition Considerations

In addition to trademark law, Korean courts have also been willing to impose sanctions for attempts to prohibit the import of grey-market goods under the Korean Antitrust/Competition Laws. Such legal interventions aim to ensure that market competition is not unduly restricted, a reminder that businesses seeking to protect their intellectual property rights in Korea must navigate both the IP and antitrust regulatory environments.

Strategies to Protect Your Brand in Korea

While this case reflects a trend of leniency toward parallel imports, proactive legal strategies can still be employed to protect your brand in South Korea. Effective legal counsel can guide businesses in securing exclusive distribution rights, negotiating licensing agreements, and leveraging antitrust laws to prevent unfair competition. A nuanced approach that considers the local legal landscape, consumer perceptions, and competition law is essential for successfully navigating the Korean market.

by Sean Hayes

Sean Hayes is a distinguished attorney and co-chair of the Korea Practice Team at IPG Legal. With extensive experience in Korean law, Sean is uniquely positioned to offer insights into the complexities of South Korean intellectual property, franchise, distribution, and competition law.

Sean is notable for being the only non-Korean to have worked as an attorney for the Constitutional Court of Korea, where he contributed to shaping legal precedents in one of the world’s most dynamic legal systems. He was also one of the first non-Korean individuals to join the faculty of a Korean law school, further cementing his expertise in both practical and academic legal spheres.

His deep understanding of the intersection between Korean law and international business has made him an invaluable resource for companies seeking to navigate South Korea’s complex legal and regulatory landscape. His team at IPG Legal offers strategic counsel in matters related to trademark law, antitrust issues, and intellectual property protection, assisting businesses with protecting their brands and ensuring compliance with South Korean laws.

If you would like a consultation with Sean Hayes from IPG Legal, please schedule a call at:  Schedule a Call with Attorney Sean Hayes.