Increasing Industrial Technology Leakage and Legal Measures against It – Focusing on Currently Amended Laws

 

Abstract

Development of new and groundbreaking technology may promise an astronomical amount of profit, but this usually requires a lot of time and investment. To avoid this problem, quite a few companies are attempting to acquire such technology in a much easier and more secretive way, by stealing from companies that already own valuable technology. Divulgence of technology is occurring more frequently and laws have been legislated to prevent, protect against, and penalize related crimes.

The two major laws legislated in Korea are the Unfair Competition Prevention and Trade Secret Protection Act and the Act on Prevention of Divulgence and Protection of Industrial Technology. They are complementary legislations in that they both provide protection for technology and supplement each other rather than showing overlaps. They were also both amended recently. Other countries, for example, the United States, Japan, and China, all have their own legislations to deal with this problem. No one method could be the answer for all, but there are things we could learn from and adopt to our system.

 

I. Introduction

We are living in a world where new technology is pouring out every day. The development of new technology and its commercial viability are directly related to not only the national economy but also to the strength of a country. But developing new technology requires a tremendous amount of investment and time, which is why enterprises constantly seek ways to obtain technology the easier way – stealing from rival enterprises that already have them. Since the impact of technological advancements and leakage of new technology on a country is so extensive, several laws have been legislated to deal with these problems.

This article will be covering two major Acts, the Unfair Competition Prevention and Trade Secret Protection Act and the Act on Prevention of Divulgence and Protection of Industrial Technology, and their current amendments, as well as other countries’ legal approaches and their implications.

 

II. Current Status of Industrial Secret Leakage

According to the National Intelligence Service, 166 foreign industrial technology leakages were caught between 2012 and 2017, and 22 out of 166 were leakages of national core technology. The number goes up dramatically when domestic thefts are included. As Korean firms are showing outstanding performances in the fields of semi-conductor, display, automobile, shipbuilding, they are especially becoming the targets of technology theft. The leakage is most commonly done in the form of ‘leakage of technology’ itself (42 percent), followed by ‘employee poaching’, i.e. recruiting key technical professionals from competitors (27.3 percent). In 2017, seven workers were caught trying to transfer 5,130 files on OLED (Organic Light-Emitting Diode) technologies from a subcontractor of Samsung Display to a Chinese company. Workers were promised a salary three times higher than their current salary. In another case where 13 workers succeeded in leaking the Samsung Display’s ‘smartphone edge-panel’ technology to a Chinese company, the estimated damage to be caused to Samsung Display for the following 3 years is expected to be 6.5 trillion won.[1]

While both major firms and small or medium-sized firms are suffering from theft issues, the latter is suffering far more greatly, according to a research conducted by the Intellectual Property Office. While 9.6 percent of the major firms replied having experienced trade secret theft, the response of smaller firms was 53.4 percent.[2] In fact, the damage of industrial espionage on small and medium-sized businesses in 2017 alone was over 100 billion won, with the average being 1.3 billion won.[3] In 2014, an automobile inspection equipment manufacturer faced an existential crisis due to technology leakage. The company’s technology management director had simply notified that he would be moving to a competing company in China, but despite his promise not to reveal any technology, the director gave away most of the essential technologies and sensitive information. At the time, this specific technology was held only by a few German, Japanese, and American firms. The manufacturer was the only Korean company that had succeeded in developing the technology, and it had taken the company ten years to produce the equipment. With the information the director gave away, the competing Chinese company succeeded in manufacturing the product in less than five months.[4]

 

III. Related Laws and Current Amendments

1. Unfair Competition Prevention and Trade Secret Protection Act

(1) Background

The law was originally enacted as the Unfair Competition Prevention Act in 1961, and the Trade Secret Protection part was later added in 1991. This was because legislators viewed trade secret theft to be a type of unfair competition.[5] The Unfair Competition Prevention and Trade Secret Protection Act (hereinafter referred to as the ‘Trade Secret Protection Act’), was amended to provide the definition of ‘trade secret’ as well as the civil and criminal liabilities for its infringement. Ever since, several more amendments have been made regarding the scope of protection and statutory punishment.

(2) Main Contents

According to the Trade Secret Protection Act, the term “trade secret” means information, including the production method, sales method, useful technical or business information for business activities, that is not known publicly, is the subject of efforts to maintain its secrecy, and has independent economic value (article 2.2). The same article also defines “infringement of trade secret” and provides a list of acts that are regarded as infringements, and each act may be subject to the victim’s right to request “the prohibition of infringement” (article 10) or liability for damages resulting from infringement (article 11).

(3) Current Amendments

The most recent amendment was introduced on January 8^th, 2019 and enforced on July 9^th of the same year. It changed the definition of “trade secret”, removing the word “reasonable” (the previous definition used to require “reasonable efforts to maintain the secrecy”), thereby alleviating the requirements for what constitutes a trade secret. Now a firm only has to prove that some kind of effort was put into keeping secrets, rather than a “reasonable” effort (article 2-2).

Second, articles on the assessment of damages was added (article14-2). The added article not only lists factors the court should consider in determining the amount of compensation, but also states that the compensation amount can be up to three times the actual damage in case of intentional infringements. Also, the amendment specifies the penalty provision (article 18) in more detail. This was in an attempt to adjust the imbalance between civil liability and criminal liability, as the original text of the article was too vague in defining what acts are subject to criminal liability.

Lastly, the penalty for infringement became more onerous. The previous law stipulated “punishment by imprisonment with labor for not more than ten years or by a fine not exceeding 100 million won.” The amended law states “imprisonment for not more than 15 years and fine not exceeding 1.5 billion won.” This amendment reinforces the sanctions on violation and is in line with the increasing economic impact of current leakages.[6]

2. Act on Prevention of Divulgence and Protection of Industrial Technology

(1) Background

Although there existed several laws covering industrial technology leakage, they were insufficient to deal with the problem in its entirety. With the issue of trade secret leakage becoming more prominent, the need for a new law that could provide comprehensive protection and establish an institutional framework for industrial technology became evident. One major problem was that there were no laws protecting research institutes, universities, etc. holding industrial technologies. To meet those needs, the Act on Prevention of Divulgence and Protection of Industrial Technology (hereinafter referred to as the ‘Protection of Industrial Technology Act’) was enacted in 2004.

(2) Main Contents

The Protection of Industrial Technology Act is similar to the Trade Secret Protection Act in that they both provide protection for industrial technology. However, they differ in the purpose of legislation. The latter mainly focuses on the civil and criminal liability of infringers and protection of trade secret possessors through means of relief such as compensation for damage. Meanwhile, the former focuses on prevention of leakage through establishment and management of national core technology. The two also differ in their scope of application, as only the former can penalize technology theft from research institutes or universities.

The Act defines the term “national core technology” as “technology which has high technological and economic values in the Korean and overseas markets, brings high growth potential to its related industries and is feared as a technology to exert a significantly adverse effect on national security and the development of the national economy in the event that it is divulged abroad” (article 2-2).

(3) Current Amendments

The most recent amendment was made on August 20^th, 2019 and is going to be enforced from February 21^st, 2020. The essential features of the amendment are the expansion of protective action and regulation of industrial technology, reinforcement of sanction and remedy for infringement, and prevention of information leakage during judicial proceedings.

Enterprises possessing national core technology and individual professionals dealing with such technology will be forced to sign contracts regarding job changes and non-disclosure agreements (article 10-1). Any firm possessing core technology will also have to either notify the Ministry of Industry in advance or receive prior approval in order to be merged into or acquired by a foreign company (article 11-2).

Similar to the Trade Secret Protection Act, in case of intentional infringement of industrial technology, the court may award aggravated damages of up to thrice the actual damage amount. In addition, the penalty for leaking technology overseas changed from “imprisonment with prison labor for no more than 15 years or a fine not exceeding 1.5 billion won” to “imprisonment with prison labor for more than 3 years or a fine not exceeding 1.5 billion won”(article 36.1). Penalty for domestic leakage changed from “imprisonment with prison labor for no more than seven years or by a fine not exceeding seven hundred million won” to “imprisonment for no more than ten years or a fine not exceeding one billion won” (article 36.2). To prevent information leakage during the trial process, the amended law enforces criminal penalty for those taking advantage of information inevitably disclosed during trial (article 22-4).[7]

3. Other Related Laws

There are many other laws covering technology leakage, either directly or indirectly. Other laws directly related to technology protection are the Defense Technology Security Act and the Act on Support for Protection of Technologies of Small and Medium Enterprises. Indirectly related laws are as follows: the Invention Promotion Act, the Foreign Trade Act, Regulations on the Management, etc. of National Research and Development Projects, the Defense Acquisition Program Act, the Act on the Promotion of Mutually Beneficial Cooperation Between large Enterprises and Small and Medium Enterprises, the Military Secret Protection Act, the Intellectual Property Act, and the Criminal Law.[8]

All these laws being under the management of different ministries, problems of inefficient enforcement, overlapping protection policies, and waste of budget occur continuously. Therefore there is an imperative need for a government’s unified policy and establishment of a control tower.

 

IV. Foreign Cases

1. Japan

In Japan, the Cabinet Secretariat and Naicho, Japan’s central intelligence investigation center, direct policies related to trade secret theft. Recently, these government agencies have been preparing against leakage by suppressing the outsourcing of Japanese companies and bringing in the production base to Japan, and thereby reinforcing domestic production. The representative law dealing with the issue is the Unfair Competition Prevention Act, regulating both civil and criminal liabilities for divulgence. One major difference of this Act from the Korean legislation dealing with the same issue is that the former sets different penalties for crimes committed by individuals and by groups of people.

2. The US

America, a country possessing world-class technology and economy, has constantly been the target of fierce economic espionage acts both inside and outside the country. According to the House of Lords Report of 2014, the national loss from technology leakage to overseas countries is about 1-3 percent of the GDP[9]. Thus, the government views trade secret divulgence to be a national security problem and actively employs a government-led industrial security plan, while also maintaining a close cooperation system with the private sector. The United States legislated the Uniform Trade Secrets Act (UTSA) and the Economic Espionage Act (EEA) to deal with this problem.

USTA aims to efficiently protect the trade secrets of American corporations and establish the criteria of and remedy for confidential data theft. It was first adopted by 47 states in May, 2013 and is now adopted by all states except New York and North Carolina as of June 2019. Meanwhile, EEA was legislated in 1996 to regulate criminal remedies for the act of leakage. The law regulates penalization, exemption of prohibition, forfeiture of proceeds of crime, secret maintenance and its relation with other laws. The penalty is far more onerous than that of Korea. Similar to Japan, these Acts treat leakage crimes differently depending on the number of offenders involved.

3. China

China has been very lenient towards industrial technology coming in from other countries regardless of their illegality. At the same time, China rigorously handled the leakage of Chinese technology. However, the Chinese Unfair Competition Prevention Act is mainly focused on keeping the market order within China, preventing the tyranny of public enterprises and monopolization of businesses, and maintaining the official authority of supervisory institutions.

4. Implications for Korea

Despite the recent amendments, fine is still relatively low, especially compared to that of the United States. In penalizing leakage overseas, fine should be increased further so that employees are aware of the fact that economic recovery is impossible when committing technology theft. Second, like America or Japan, we should also distinguish divulgences committed by an individual from those committed by a group. If multiple people were to systematically work together to commit leakage crimes, they should be punished more severely. This is needed because when trade secrets are disclosed by a group of workers, a far greater amount of technology can be leaked with much more ease, and therefore the need for prevention is greater.

 

V. Conclusion

This article has covered the issue of increasing industrial technology leakage, and how big the damage can be. Also covered in this article are laws enforced to cope with this problem, i.e. the Trade Secret Protection Act and the Protection of Industrial Technology Act, and their current amendments. Although legislators continue to find ways to improve the law in order to better handle the issue, current legislations fail to adequately protect trade secrets when compared to the laws of other countries. Efforts to learn from those examples and establish adequate policies better equipped to meet market demands are required.

 

References

Kim, Yong-Sup, “A study on the Scope of Act on Prevention of Divulgence and Protection of Industrial Technology and Trade Secret Act”, Hongik Law Review, Vol. 19.4 (2018). pp.589-622.

Lee, Soon-ok, “A Study on the Effective Method for the Prevention of Industrial Secrets Leakage”, Joongang Law Review Vol.21.1, (2019). pp.39-80.

Kim, Jae min, “[Industrial Technology Leakage, why it is repeated ①] Cases of Industrial Technology Leakage Becoming Smarter, More Advanced.” Newslock, 9 May 2019, http://www.newslock.co.kr/news/articleView.html?idxno=18375.

Nam, Sang wook. “‘Promise of Salary 5 times higher, Just Bring the Technology’ Falling for temptations of Foreign companies”, Hankookilbo, 17 Sept. 2019, https://www.hankookilbo.com/News/Read/201909171134391964.

Lim, Bo Kyung, “Introduction to of Intellectual Property Area Amendments (Enforced 2019. 7. 9.)”, 29 Mar. 2019, http://www.lawtimes.co.kr/Content/Article?serial=151923

Lee, Seok Hee, “’Amendment of Act on Prevention of Divulgence and Protection of Industrial Technology”, 20 Sept. 2019, m.lawtimes.co.kr/Content/Article?serial=155892.

Moon, Hee-Tae, “Recent Trends and Countermeasures of Trade Secret Protection From Criminal Justice Perspective – Focused on the Case and Infringement Cases in Korea and Japan-“, Comparative Criminal law Review Vol.20.3 (2018). pp.165-189.

Jeong, Ju Ho, “Comparative Legal Study of the Punishable Provision to Prevent Outflow and Conserve Industrial Technologies : Focus on the US, Japan, and China”, Korean National Security and Public Safety Association Review Vol.4 (2017). pp.8-31.

 

 

 

[1] Kim, Yong-Sup, “A study on the Scope of Act on Prevention of Divulgence and Protection of Industrial Technology and Trade Secret Act”, Hongik Law Review 19.4 (2018). pp.589-622.

[2] Lee, Soon-ok, “A Study on the Effective Method for the Prevention of Industrial Secrets Leakage”, Joongang Law Review Vol.21.1 (2019). pp.39-80.

[3] Kim, Jae min. “[Industrial Technology Leakage, why it is repeated ①] Cases of Industrial Technology Leakage Becoming Smarter, More Advanced”, Newslock, 9 May 2019, http://www.newslock.co.kr/news/articleView.html?idxno=18375.

[4] Nam, Sang wook, “‘Promise of Salary 5 times higher, Just Bring the Technology’ Falling for temptations of Foreign companies”, Hankookilbo, 17 Sept. 2019, https://www.hankookilbo.com/News/Read/201909171134391964.

[5] Kim, Yong-Sup. “A study on the Scope of Act on Prevention of Divulgence and Protection of Industrial Technology and Trade Secret Act”, Hongik Law Review, 19.4 (2018), pp.589-622.

[6] Lim, Bo Kyung. “Introduction to of Intellectual Property Area Amendments (Enforced 2019. 7. 9.)”, 29 Mar. 2019, http://www.lawtimes.co.kr/Content/Article?serial=151923

[7] Lee, Seok Hee. “’Amendment of Act on Prevention of Divulgence and Protection of Industrial Technology”, 20 Sept. 2019, m.lawtimes.co.kr/Content/Article?serial=155892.

[8] Moon, Hee-Tae, “Recent Trends and Countermeasures of Trade Secret Protection From Criminal Justice Perspective – Focused on the Case and Infringement Cases in Korea and Japan-“, Comparative Criminal law Review Vol.20.3 (2018). pp.165-189.

[9] Jeong, Ju Ho, “Comparative Legal Study of the Punishable Provision to Prevent Outflow and Conserve Industrial Technologies : Focus on the US, Japan, and China”, Korean National Security and Public Safety Association Review Vol.4 (2017). pp.8-31.

 

jinyoung_74@naver.com