Protecting the Rights of an SME Through Advisory on a Joint Patent Application Agreement

1. Overview of the Case

The client completed an invention through joint research with two large corporations, and in the course of pursuing a joint patent application for this invention, it sought advice from Law Firm Insight. After reviewing the draft joint application agreement prepared by the large corporations, the client was concerned that its substantive rights and interests were not sufficiently reflected. In particular, the core problem was that the client could be placed in a relatively disadvantageous position with respect to key provisions such as the patent application procedure, the right to work the invention (license), and the grant of licenses to third parties.

After closely reviewing the principal provisions contained in the draft agreement, Law Firm Insight identified the following key issues and prepared corresponding response measures.

Imbalance in equity structure and decision-making authority: The two large corporations jointly held a two-thirds share, and considering that they belong to a corporate group subject to cross-shareholding restrictions and that one company was the largest shareholder of the other, the two could in substance share identical interests, which could operate to the client's disadvantage. Accordingly, we sought to have the special nature of this relationship expressly stated in the contract, so that the client's rights and interests could be protected in advance.

1. Securing transparency in the application procedure: Given that, under a structure in which the large corporations lead the application procedure, the client might not be sufficiently aware of the progress, we advised adding a provision obligating the parties to share the status of the application's progress.

2. Easing restrictions on the right to work: So as not to excessively restrict the free working right of a joint patentee under Article 99(3) of the Patent Act, we sought to have exception grounds specified in the contract provisions and to have flexible working conditions reflected, taking into account the possibility of supplying other automobile manufacturers.

3. Licensing to third parties and distribution of royalties: Since the grant of a non-exclusive license under the Patent Act requires the consent of all co-owners, we had this clearly reflected in the contract, and we adjusted the provisions so that royalties would be distributed according to the share ratio but could be set differently by written agreement.

4. Confidentiality obligation and sanctions for breach: To prevent damage from leakage of the invention's content, we established a penalty provision for breach of the confidentiality obligation, while specifying that it constitutes a contractual sanction separate from damages, thereby putting in place a concrete preventive mechanism.

Based on the advice of Your Legal Team, the revised joint application agreement was reorganized so that the client's legal rights and substantive interests could be reflected in a balanced manner. In particular, by clearly stipulating key rights such as access to information on the application procedure, autonomy of the working right, fair distribution of royalties, and securing control over third parties, it became possible to prevent in advance any legal disputes or management risks that might arise in the future. This case can be regarded as a representative example showing what legal mechanisms a small or medium-sized enterprise needs in order to sufficiently secure its position in a contract with a large corporation during the technology cooperation process and to be guaranteed substantive rights.