In recent years, South Korea has emerged as one of the most innovative economies in the world, topping the Bloomberg Innovation Index in 2014, which ranks countries based on six tangible metrics of innovation.

One of the key metrics defined by Bloomberg as fundamental to innovativeness is the country’s ability to earn patents. Korea topped this list, with Samsung claiming the second biggest patent portfolio of any company in the world. 

Patents do have a critical role to play in protecting and encouraging innovation. When used appropriately, they create incentives for investing in research and development, because companies can have confidence that their proprietary ideas and technologies will be protected under the law.

But newly issued government guidelines on intellectual property have the potential to disrupt and dilute the entire innovation ecosystem.

In December 2014, the Korean Fair Trade Commission issued new guidelines for examination of improper exercise of intellectual property rights that define a “standard technology” to include proprietary technology that has become the “de facto” standard in an area. Under this new framework, any technology that becomes widely adopted ― even without the owner’s knowledge or active promotion as such ― could be subject to compulsory licensing and other constraints on the grounds that they are “essential” or “standard.”

The intention of the FTC in issuing these guidelines is undoubtedly to protect consumers and galvanize ever greater levels of innovation. Specifically, the provisions relating to standard-essential patents in the new guidelines provide useful rules governing licensing of true SEPs, and can help prevent “patent holdup” and other abuses by SEP holders. These SEPs-related provisions are also consistent and compatible with the best practices around the world.

However, other aspects of the guidelines prescribe misguided policies. For one, the FTC has failed to meet the very high bar for imposing such constraints in traditional antitrust policy. But more importantly, the biggest losers from the adoption of this new IP policy will be Korea’s homegrown high-tech innovators.

Korean companies are not followers; they are leaders. These new rules effectively erode the ability of leading patent owners to control how to utilize their own rights, impeding a company’s ability to make critical strategy decisions related to the deployment of their proprietary IP. Korea’s existing champions are thereby disincentivized from continuing to invest heavily in research and development, and smaller companies are discouraged from inventing alternatives to proprietary patents that are not under compulsory licensing requirements. This expected outcome will result in legal uncertainty by making the genuine proper exercise of patents improper.

What’s more, Korea is currently home to a plethora of research centers of the world’s leading multinationals, including IBM, which is the world’s biggest patent holder, Microsoft, Google, Siemens and BASF. These companies are major sources of foreign investment and play a critical role in cultivating a robust talent pool in high-tech R&D. These new rules call into question whether Korea will respect the IP rights of foreign-based innovators and could ultimately threaten Korea’s image as a desirable destination for the very investment that helps sustain the country’s innovative prowess.

Beyond weakening Korea’s innovation ecosystem at home, the new rules open a Pandora’s box of new challenges in the global marketplace. The fact that Korea has adopted these regulations effectively gives “license” for other countries to do the same. As a standard-bearer in competition law, Korea’s adoption of such ill-defined rules could lead to a domino effect in the adoption of protectionist industrial policies.

The spread of antitrust requirements that could block companies from exercising valid differentiating patent rights will have a tremendous impact on Korea’s own companies in their overseas dealings. Indeed, Korean companies have already started to feel the negative impact of the misapplication of such rules in other markets. The Federation of Korean Industries has recently spoken out about the difficulties Korean companies face in China where competition law is applied in the name of domestic growth.

By adopting these new guidelines, Korea’s regulators have tried to fix something that simply was not broken. These regulations will ultimately weaken Korea’s innovation ecosystem and create new challenges for Korea’s leading companies at home and abroad. The new rules on de facto standards are a de facto setback for Korea’s role as the world’s most innovative economy.

By Lee Gyoo-ho

The writer is president of the Association of Content Property for Next Generation and a professor at Chung-Ang University School of Law. The views reflected in the article are his own. ― Ed.