Commission recognizes unfair trade practice in parallel import case

South Korea

The Korean Trade Commission has ruled that the importation and sale of genuine Star Craft and Diablo computer games infringed the rights of HanbitSoft under the Unfair Trade Practices Act. The decision provides guidance for future parallel import cases in Korea, particularly those involving commission proceedings.

The petitioner, HanbitSoft, a manufacturer and distributor of computer games, is registered with the Korean Intellectual Property Office as the exclusive trademark licensee for the trademarks STAR CRAFT and DIABLO in Korea. HanbitSoft's licence agreement is with Blizzard Entertainment, a US company.

The respondents, two local companies, BNT Co Ltd and New Ington Interactive, began to import and sell Star Craft and Diablo computer games in Korea independently. HanbitSoft filed an administrative proceeding with the Korean Trade Commission claiming that this infringed its rights as the exclusive trademark licensee.

The commission set out the following criteria for determining whether a parallel import should be banned for the purpose of Article 4(1) of the Unfair Trade Practices Act:

  • whether the local right-holder has a valid, registered IP right;

  • whether the local right-holder has any relationship or affiliation with the foreign trademark owner;

  • whether the local right-holder manufactures and distributes the subject goods;

  • whether the quality of the locally produced goods is similar to the parallel goods; and

  • whether the local right-holder has developed independent goodwill as a result thereof.

The commission ruled that HanbitSoft met all of the five elements as follows:

  • HanbitSoft is registered as the exclusive trademark licensee for the trademarks STAR CRAFT and DIABLO in Korea.

  • The register shows that HanbitSoft is not a subsidiary, affiliate or import agent of Blizzard Entertainment.

  • HanbitSoft has obtained master CDs from Blizzard Entertainment and has used them to manufacture the computer games in question at a factory in Chungjoo on an OEM (original equipment manufacturer) basis.

  • The quality of HanbitSoft's locally produced goods is different from the parallel goods imported and sold by the respondents, in that HanbitSoft's goods are not only available in Korean, but also come with a special 'teen version' suitable for users under the age of 15, whereas the respondents' parallel goods lack any such elements.

  • HanbitSoft has established its own website and call centre, and has made other substantial investments to advertise and promote the games in question, all of which strongly suggest that it has developed its own independent goodwill.

Having made the foregoing determinations, the commission ordered the respondents to cease and desist importing the Star Craft and Diablo games into the Korean market.

This case is significant as it is the first commission decision concerning parallel imports that may infringe an exclusive licensee's trademark rights. As the Unfair Trade Practices Act only recently took effect, it is anticipated that more actions against unlawful parallel imports will be brought before the commission in the near future.

Jay Young-June Yang, Kim & Chang, Seoul

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