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On August 20, 2019, an amendment of the Prevention of Divulgence and Protection of Industrial Technology Act (hereinafter “PITA”) was passed and shall come into effect on February 21, 2020. The new amendment is likely to affect technology companies as the scope of national core technology and industrial technology under PITA is broadly defined by the Ministry of Trade, Industry and Energy (MOTIE).
In particular, the amended PITA strengthens regulations that apply to companies in possession of national core technology and involve certain procedural requirements to ensure the protection of national core technology. The key points of the new amendment are outlined below.
1. Prior approval and notification required for foreign investment activity
Under the current law (before the amendment takes effect), any entity that possesses national core technology developed with R&D funding from the government must report to MOTIE prior to landing foreign investments, such as in transactions where a foreign person or entity intends to own 50% or more of its shares.
The amended PITA requires an entity to report foreign investment to MOTIE in advance even if the national core technology it possesses was developed on its own and not with government funding. As for entities that do receive government funding to develop its national core technology, they must now receive prior approval from MOTIE for foreign investment activities, rather than providing advance notice.
If MOTIE determines that a national core technology leak could seriously affect national security, it may order suspension, prohibition, or reinstatement measures against foreign investments.
Therefore, if a company desires to invest in a Korean technology company, it would be necessary for the investing company to (i) confirm whether the Korean company possesses national core technology, and (ii) be prepared (e.g., set out contract conditions) for any legal problems that may arise if suspension or other measures are ordered by MOTIE.
2. Heavier punishment to be imposed for technology leaks
Anyone who divulges national core technology to foreign countries is subject to imprisonment of up to 15 years or a fine of up to KRW 1.5 billion. However, since the current penalty does not have a minimum sentence or fine, in many cases, the actual penalty imposed on the offender is rather weak. In order to address this issue, the amendment will impose a mandatory sentence of a minimum of 3 years imprisonment and a fine of up to KRW 1.5 billion on offenders.
In other words, if national core technology is brought into a company by an employee who formerly worked at another company who owns the national core technology, it is likely that the company with the leaked technology will be subject to penalty in Korea.
Therefore, it is important to take care to prevent the inflow of national core technology from other companies.
3. Treble damages may be imposed for divulging and infringing industrial technology
The current law does not set out any provision on the amount of damages for damages caused by acts of infringement and divulgence of industrial technology. Thus, by principle, the infringer is only liable for actual damages.
However, the new amendment allows for the court to impose punitive damages not to exceed three times the amount of damages recognized as a result of intentional infringement of industrial technology, taking into consideration factors such as the strength of infringer’s position, willfulness, and the degree to which the infringer was aware of the risk of harm.
This regulation to strengthen damages also took effect in July 9, 2019 through the revision of the Patent Act and the Unfair Competition Prevention and Trade Secret Protection Act.
As a result, since treble damages may be imposed for infringement of technology, regardless of the type of technology, it is particularly important that companies pay attention to compliance and make sure that newly recruited employees who previously worked in other companies are not negligently bringing in materials from their former companies so as to cause their new employer to be associated with infringement activities.
Lee & Ko’s IP Practice Group is not only experienced in corporate compliance matters, but having represented the largest patent infringement cases and trade secret infringement cases in Korea, it has accumulated the skills and know-how in technology related litigation and providing counsel for technology related legal risks. If you would like more information on our services, please contact the attorneys listed below.
If you have any questions regarding this article, please contact below:
Un Ho KIM (unho.kim@leeko.com)
Sun Chang (sun.chang@leeko.com)
Tae H. Kim (taehyung.kim@leeko.com)
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