UNFAIR COMPETITION PREVENTION LAW CASE:

[Closely related companies considered one entity and therefore entitled to use the same mark in their respective company names.]

(Korean Supreme Court rendered January 28, 2016; Case No. 2014 DA 24440)

1. Facts

In 1959, Mr. Kim Soo-keon established a coal briquette-manufacturing corporation called DAESUNG Briquette Co., Ltd.  Over the years the company grew into a conglomerate known as “DAESUNG Group” whose businesses included a range of gas and energy services and products. The companies in the conglomerate were closely related.  For example, employees working for the conglomerate businesses were all recruited through DAESUNG Group and said employees were frequently exchanged between the subsidiary companies.

Mr. Kim Soo-keon died in February 2001.  On June 30, 2001, the companies in the DAESUNG Group were divided between Mr. KIm’s three sons with the intent of giving each son full financial control over his group of companies.  Despite this fact, the Korean government deemed the companies to be one entity pursuant to the Monopoly Regulation and Fair Trade Act (the “Monopoly Regulation Act”).  In addition, after the division, the sons continued to use the DAESUNG mark within each of their respective set of companies.

After the division of the DAESUNG Group, the oldest son, Mr. Kim Yong-dae, owned the following companies (hereinafter ‘Plaintiffs’):  DAESUNG Industrial Co., Ltd., DAESUNG Industrial Gas Co., Ltd., DAESUNG Celtics Co., Ltd., and DAESUNG Measuring Co., Ltd.  On October 1, 2009, the youngest son, Mr. Kim Yong-hoon, established DAESUNG Holdings Co., Ltd. (written in Korean characters, hereinafter ‘Defendant’).  In the following year on October 4, 2010, he expanded the name to include DAESUNG Holdings Co., Ltd., written in English.

The Plaintiffs filed a lawsuit against the Defendant with the Seoul Central District Court seeking for claims that the Defendant should not use the trade name and should compensate the damages they suffered, on November 21, 2012.    

2. Seoul Central District Court Case No. 2012 GAHAP 98305

• Argument by the Plaintiffs

The Plaintiffs alleged that the Defendant did not have the right to use the marks “DAESUNG” and “Holdings” in his company name for the following reasons.  First, the Plaintiffs claimed that the mark “DAESUNG” was well known as being associated with its companies.  And second, the word “Holdings” gives the impression that the Defendant’s company was the parent company and that all other company’s bearing the name “DAESUNG” were subordinate to the Defendant’s company.  The Plaintiffs claimed that this violated Article 2(1) of the Unfair Competition Prevention and Trade Secret Protection Act (the “Unfair Competition Prevention Act”) which states: “Acts of unfair competition means any of the following acts (ii) an act of causing confusion with another person's commercial facilities or activities by using signs identical or similar to another person's name, trade name, emblem or any other sign widely known in the Republic of Korea as an indication of commerce.”

In the lawsuit the Plaintiffs claimed that the use of the marks “DAESUNG” and “Holdings” by the Defendant was detrimental to its companies.  The Plaintiffs claimed damages in the amount of approximately US$ 50,000 for each of its four companies.  The Plaintiffs also petitioned the court for a cease and desist order in relation to these marks.  

Seoul Central District Court’s Decision:

In a written decision dated June 21, 2013, the Seoul Central District Court rejected the Plaintiffs’ argument.  The Court held that the DAESUNG mark was well-known in Korea as a result of the success of the DEASUNG Group.  Both the Plaintiffs and the Defendant benefited from the fame of the DAESUNG name.  The Court determined that it must examine the names of the Plaintiffs and the company owned by the Defendant in their entirety, particularly in light of the Korean government’s decision to deem them one entity under the Monopoly Regulation Act.  The Court held that there was no evidence to suggest that the DAESUNG mark was well-known only in relation to the Plaintiffs.  And further the Court stated that the Plaintiffs and the company owned by the Defendant were not similar in terms of sound, appearance and meaning.  

3. Appeal by the Plaintiff to Seoul High Court

Seoul High Court’s Decision 

The Plaintiffs appealed the Seoul Central District Court decision to the Seoul High Court on July 26, 2013 (Case No. 2013 NA 44845).  The Seoul High Court rejected the appeal and upheld the lower court’s decision specifically agreeing that:

• the Plaintiffs cannot claim ownership of the DAESUNG mark as it is not well-known only in relation to the Plaintiffs,

• the Plaintiffs and the Defendant companies all fall under the same group according to the government’s decision pursuant to the Monopoly Regulation Act, and

• the parties have been disputing the right to use this mark in other court cases.

The Seoul High Court concluded that the act of the Defendant using the mark does not fall under Article 2(1)(ii) of the Unfair Competition Prevention Act and since the companies belong to the same group then consumers and traders recognize that these companies are closely related and therefore there is no confusion.  

4. Appeal by the Plaintiffs to the Korean Supreme Court

The Plaintiffs filed a further appeal with the Supreme Court on April 1, 2014.  The Supreme Court rejected the Plaintiffs’ appeal in a decision dated January 28, 2016 (Case No. 2014 DA 24440).  The legal principle and decision from the Supreme Court are as follows: 

Legal Principle: 

In determining whether Article 2(1)(ii) of the Unfair Competition Prevention Act applies, the Court examined the following issues: (i) when dealing with companies in the same industry, the appearance, sound, and meaning of the company names must be considered objectively, independently and in their entirety, and (ii) given the circumstances, whether general consumers would be confused or misled as to the source of the business.  

Decision:

The decision of the Supreme Court stated that:

• There was no evidence that it was solely the activities of the Plaintiffs that made the DAESUNG mark famous,   

• There was no evidence that the Plaintiffs alone inherited the right to use the DAESUNG mark,

• The Defendant did not obtain illegal profits and did not receive a “free ride” on the reputation of the Plaintiff, and

• When comparing the Defendant company names with the Plaintiffs names, the Court determined that based on the appearance, sound and meaning of the respective names, that consumers would not be confused by the source of the business. 

Accordingly, the act of the Defendant using the “DAESUNG” and “Holdings” marks do not constitute a violation of the Unfair Competition Act, Article 2(1)(ii).  

5. Comments 

In our opinion, the Plaintiffs were unsuccessful for two reasons.  First, after the June 30, 2001 division of the DAESUNG Group between the sons, the Defendant was permitted to use the DAESUNG mark in his company name.  We believe that the Plaintiffs would have had a much more compelling case and they sought to prohibit the Defendant from using the DAESUNG mark as soon as the parent company was divided.  And second, the fact that the Korean government had deemed that the companies belonging to the Defendant and the Plaintiffs were in fact one entity under the Monopoly Regulation made it impossible for the Plaintiffs to later argue otherwise.  The Plaintiffs should have appealed this government decision immediately and fought to have the companies deemed independent of one another.  

Copyright ⓒ BOOK CHON, 2016