7 Types of Unfair Competition Practices and Corporate Response Strategies in South Korea: Comprehensive Legal Guide

1. Definition and Legal Framework of Unfair Competition in South Korea

Unfair competition practices refer to acts that improperly exploit or harm another party’s achievements, reputation, or competitive position. In South Korea’s modern business environment, where technological innovation and brand value have become core competitive advantages, protecting these intangible assets has become essential for corporate survival.

The Unfair Competition Prevention and Trade Secret Protection Act (hereinafter referred to as the “Unfair Competition Prevention Act”) systematically regulates such unfair competition practices in South Korea. The unfair competition practices defined under this law are considered acts that go beyond simple imitation to infringe upon market fairness and creativity, serving to protect companies so they can operate in a fair competitive environment.

Article 2 of South Korea’s Unfair Competition Prevention Act specifically enumerates unfair competition practices and clearly presents the establishment requirements and judgment criteria for each type. The 2014 amendment introduced new provisions regarding the misappropriation of others’ achievements, significantly expanding the scope of protection.

2. Purpose and Importance of South Korea’s Unfair Competition Prevention Act

South Korea’s Unfair Competition Prevention Act was enacted to create a fair competitive environment for industrial development and protect technological innovation. This law aims to protect rights holders and consumers from unfair practices among competitors and to encourage creative business activities.

While it is important for companies to strengthen their competitiveness through differentiated trademarks and product designs, they must not compete through unfair methods or imitate other companies’ work. In modern society, particularly with rapidly changing trends, disputes related to unfair competition practices involving the improper use of others’ achievements frequently occur in various forms.

Acts that mislead consumers by falsely representing origin or quality are also frequently problematic unfair competition practices. Such acts harm fair market order and infringe upon consumers’ right to choose.

3. Seven Major Types of Unfair Competition Practices

Under South Korea’s Unfair Competition Prevention Act, unfair competition practices are classified into the following seven major types:

First, product source confusion involves using indications or similar indications that represent another’s product, causing general consumers to mistake the product as belonging to another party.

Second, business source confusion involves causing confusion about business entities by imitating or using similar names to another’s trade name, signboard, advertising name, website domain, etc.

Third, famous trademark dilution involves using identical or similar marks to another’s well-known trademark or identification mark, thereby damaging the reputation and uniqueness of that trademark.

Fourth, misleading indication involves making false or exaggerated representations about origin, ingredients, manufacturing methods, functions, etc., causing consumers to perceive differently from reality.

Fifth, agent’s unauthorized trademark use occurs when agents, distributors, commissioned manufacturers, etc., who were authorized to use a trademark, continue to use it without permission after contract termination.

Sixth, domain name cybersquatting involves preemptively registering domains identical or similar to another’s trademark, trade name, or personal name to prevent the legitimate rights holder from using the domain.

Seventh, product design imitation involves substantially imitating and manufacturing or selling products with similar appearance, packaging design, UI composition, etc.

4. Product Source Confusion: Criteria and Assessment

Product source confusion is one of the most frequently occurring types of unfair competition practices in South Korea. This refers to acts of using indications or similar indications that represent another’s product, causing general consumers to mistake the product as belonging to another party.

Typical examples include imitating trademarks or logos, or using packaging or names similar in appearance to genuine products. This is regulated as unfair competition because it causes consumer confusion about product origin.

For product source confusion to be established, first, another’s product indication must be widely recognized domestically in South Korea. The degree of “wide recognition” is not an absolute standard; it is sufficient if it is known to a considerable degree in the relevant product’s trade field.

Additionally, the indication used must be identical or similar to another’s product indication, and this must create the possibility of confusion among general consumers or traders about the product’s origin. The possibility of confusion does not require actual confusion to occur; the potential for confusion is sufficient.

Companies need to continuously monitor whether products similar to their brands are being used in the South Korean market. This monitoring has become increasingly important as sales through online marketplaces and social media have increased.

5. Business Source Confusion and Practical Response

Business source confusion involves imitating or using similar names to another’s trade name, signboard, advertising name, website domain, etc., causing customers to confuse it with a specific company’s business in South Korea.

This frequently occurs through online marketing, offline signboards, and app store registration names. It is particularly common in the franchise industry and online platform services in South Korea, making it important to conduct preliminary searches for similar name usage and establish legal response systems.

The establishment requirements for business source confusion are similar to those for product source confusion, but differ in that the protected subject is not product indications but business marks. Business marks refer to trade names, trademarks, emblems, and other marks indicating another’s business, and these must be widely recognized domestically in South Korea.

In practice in South Korea, problems arise when registering businesses with trade names similar to brand names, or using designs similar to famous companies’ logos. Additionally, setting competitors’ trade names or brand names as keywords in search advertising to expose one’s own ads may also constitute business source confusion.

6. Famous Trademark Dilution: Requirements for Establishment

Famous trademark dilution involves using identical or similar marks to another’s well-known trademark or identification mark, thereby damaging the reputation and uniqueness of that trademark in South Korea. This results in weakening the trademark’s distinctiveness and identification power, even without causing source confusion.

For famous trademark dilution to be established, the trademark must first qualify as a “famous trademark” in South Korea. A famous trademark means a trademark that is remarkably recognized domestically, referring to the degree of being widely known to general consumers.

Additionally, the infringer must use marks identical or similar to the famous trademark, and such use must create the risk of damaging the famous trademark’s distinctiveness or reputation. An important point here is that dilution can be established even without the possibility of confusion.

Marketing that implies or evokes associations with famous brands, and keyword advertising settings fall under this category. For example, using names similar to famous luxury brands to conduct business in completely different industries can still constitute famous trademark dilution in South Korea.

Companies must implement monitoring and legal measures to prevent their famous trademarks from being diluted by third parties in South Korea. This requires regular market monitoring along with active exercise of rights.

7. Misleading Advertisements and Relationship with Fair Labeling Act

Misleading indication involves making false or exaggerated representations about origin, ingredients, manufacturing methods, functions, etc., causing consumers to perceive differently from reality in South Korea.

For example, expressions like “100% domestic raw materials” become problematic when they differ from facts, and this frequently occurs in SNS advertisements, YouTube sponsored content, and false reviews. Recently, with the activation of influencer marketing and viral marketing in South Korea, these problems have become more serious.

Misleading indication can be applied concurrently with South Korea’s Act on Fair Labeling and Advertising. While the Unfair Competition Prevention Act and the Fair Labeling Act differ in the legal interests they protect and regulatory methods, both laws can be applied to false and exaggerated advertising.

The Fair Labeling Act primarily focuses on administrative sanctions (fines, corrective orders, etc.), while South Korea’s Unfair Competition Prevention Act provides both civil remedies (damages, injunctions, etc.) and criminal punishment. Therefore, companies should establish internal content creation guidelines and conduct prior verification of the accuracy of representations.

8. Agent’s Unauthorized Trademark Use

Agent’s unauthorized trademark use occurs when agents, distributors, commissioned manufacturers, etc., who were authorized by trademark owners to use their trademarks, continue to use the trademarks without permission even after contract termination in South Korea.

In such cases, consumers are likely to still mistake them for genuine products, so this is recognized as unfair competition in South Korea. This is a problem that frequently occurs in franchise businesses and the distribution industry, with typical cases being continued use of existing trademarks for business operations even after contractual relationships have ended.

To prevent such unfair competition practices in South Korea, contracts should clearly specify the scope of trademark use and include specific provisions prohibiting trademark use after contract termination. Additionally, when contracts actually terminate, it is important to take follow-up measures such as recovering signboards, packaging materials, and advertisements bearing the trademark.

Contracts should also include damage compensation clauses for violations to ensure effectiveness, and regular monitoring should be conducted to check for unauthorized use after contract termination in South Korea.

9. Domain Name Cybersquatting: Resolution Methods

Domain name cybersquatting involves preemptively registering domains identical or similar to another’s trademark, trade name, or personal name to prevent the legitimate rights holder from using the domain in South Korea. Subsequently demanding monetary compensation or inducing search traffic through similar brands is also problematic.

Regarding domain preemption in South Korea, both the Internet Address Resources Act and the Unfair Competition Prevention Act provide provisions for resolving domain disputes. In particular, Article 12 of the Internet Address Resources Act provides for domain name dispute mediation procedures.

Companies should definitely check for domain preemption before launching new brands in South Korea and secure major domains in advance. This should consider not only major extensions like .com, .co.kr, .kr but also new generic top-level domains (New gTLDs).

When domain disputes occur in South Korea, mediation procedures through the Korea Internet & Security Agency (KISA)’s Domain Name Dispute Resolution Committee can be utilized. This procedure has the advantage of being faster and less expensive than court litigation.

10. Product Design Imitation: Scope of Protection

Product design imitation involves substantially imitating another’s product appearance, packaging design, UI composition, etc., to manufacture or sell similar products in South Korea. Even if the product is not a registered design, if general consumers experience visual confusion between the two products, it is judged as unfair competition.

For product design imitation to be established in South Korea, the product design must first be created through another’s creative efforts or investment. Simply functional or common designs are difficult to protect.

Additionally, the imitating product’s design must be substantially identical or similar to the original product’s design, and this must create the possibility of confusion among general consumers.

Recently in South Korea, app screen compositions and package color combinations are also included, with the scope of protection expanding. Particularly with the growing importance of UI/UX design in digital environments, app and website screen compositions are also included in product design and receive protection.

Companies should secure differentiated designs and concepts from the early stages of product development in South Korea. For this, it is important to document the design development process and preserve materials that can prove creativity.

11. Penalties and Sanctions for Unfair Competition Violations

Disadvantages from unfair competition practices in South Korea are divided into civil, criminal, and administrative sanctions, which can cause enormous losses from a corporate perspective.

First, damage compensation liability arises. Companies that commit unfair competition practices become liable for damages suffered by victim companies in South Korea. At this time, damage amounts can be calculated by selecting from ordinary profit-loss differences, equivalent usage fees, or infringer’s profits. South Korea’s Unfair Competition Prevention Act includes damage estimation provisions and punitive damages (up to 3 times), which can significantly increase compensation amounts.

Next, product sales prohibition and recall orders can be issued. Courts in South Korea can order measures such as sales prohibition, advertising cessation, display removal, and inventory recall for products, advertisements, packaging, etc. that committed unfair competition practices. This interrupts companies’ production and distribution lines, causes significant distribution losses, and can realize impacts equivalent to business suspension.

Additionally, intangible losses such as credibility and brand image damage occur. When companies become involved in legal disputes due to unfair competition practices in South Korea, corporate credibility rapidly declines and relationships with consumers and business partners are damaged. Particularly when unfair competition cases are disclosed through internet or media reports, considerable time and costs are required for brand value recovery.

For criminal punishment in South Korea, according to Article 18 of the Unfair Competition Prevention Act, one can be sentenced to up to 10 years in prison or fines up to 200 million KRW. Particularly severe punishment is possible for trade secret violations.

12. Corporate Prevention Strategies and Response Plans

For companies to prevent unfair competition practices and respond effectively in South Korea, comprehensive strategies are necessary.

First, in the prevention stage, intellectual property portfolios should be systematically established. Related rights such as trademark rights, design rights, and copyrights should be actively filed and registered to establish legal protection foundations in South Korea. Additionally, it is important to check for infringement of others’ rights in advance through prior rights investigations before brand launches.

Establishing regular market monitoring systems is also essential. Continuous surveillance should be conducted through online marketplaces, social media, search engines, etc. to check for similar products or imitation activities in South Korea. For this, professional monitoring services can be utilized or internal dedicated organizations can be operated.

In terms of contract management, intellectual property protection clauses should be clearly stipulated in contracts with distributors, retailers, manufacturers, etc. in South Korea. Particularly, specific clauses regarding trademark use prohibition after contract termination, trade secret protection, and non-compete agreements should be included.

When unfair competition practices are discovered in South Korea, rapid and systematic responses are necessary. First, evidence collection and preservation should be prioritized, followed by consideration of step-by-step responses such as sending warning letters, negotiation, civil litigation, and criminal complaints.

Particularly in online environments in South Korea, rapid posting cessation can be requested through reports to platform operators or temporary measure applications. Additionally, actively utilizing intellectual property infringement reporting systems of search engines and portal sites is also effective.

Atlas Legal has accumulated experience in providing long-term advice and dispute resolution related to unfair competition practices occurring in various industries including fashion, entertainment, gaming, food service, pharmaceuticals, and online commerce in South Korea. In particular, we have experience successfully resolving numerous leading dispute cases where the application of provisions regarding misappropriation of achievements introduced in 2014 was at issue, and have also effectively resolved various domain dispute cases related to famous brands and celebrities in South Korea.