Hello, I am Attorney Eom Sang-yun from Cheongchul Law Firm.

Today, we will discuss whether the use of a trade secret by a joint holder without the consent of another holder constitutes an infringement under the Unfair Competition Prevention and Trade Secret Protection Act ("Unfair Competition Prevention Act").

[Question]

If a joint holder of a trade secret uses the trade secret without the permission of another holder, does this constitute an infringement of the trade secret against the other co-holders?

[Answer]

The Unfair Competition Prevention Act does not provide any regulations regarding the use of trade secrets among trade secret holders, unlike patent law and copyright law. The Suwon District Court ruled that 'since there is no separate agreement determining the ownership, the principle of co-ownership under the Civil Code applies, and each co-owner can use and benefit from the entire co-owned property according to their share ratio,' and therefore determined that the use of trade secrets by a co-holder cannot be considered as unfair use (Suwon District Court 2018Gohap586).

However, in the appeal of the above case, the Suwon High Court judged that 'disclosing trade secrets without the explicit or tacit permission of another joint holder constitutes an infringement of trade secrets as defined in Article 18, Paragraph 2 of the Unfair Competition Prevention Act,' and overturned the judgment of the first instance, and this judgment was upheld in the Supreme Court (Suwon High Court 2021No69, Supreme Court 2023Do4058). In other words, the court concluded that (i) if the use is allowed without any restrictions among trade secret holders, it poses a risk of losing the trade secret's confidentiality and economic value, (ii) the equipment in question is not general-purpose equipment but is specialized equipment of the victim company, and the defendant company received payment worth 138.4 billion won for manufacturing and delivering it, (ii) the defendant company is bound by a confidentiality obligation regarding this technology through an NDA, (iv) even if the defendant company disclosed this to a third party, which is its shell company, it allowed unauthorized individuals to acquire the trade secret without any restrictions, significantly undermining the victim company's efforts to maintain its trade secrets, making it difficult to regard the use as a legitimate act of trade secret use. Therefore, the court concluded that the use without the permission of another co-holder could constitute an infringement of trade secrets under the Unfair Competition Prevention Act.

This ruling is evaluated as establishing a new legal principle regarding whether infringement can occur among joint holders of trade secrets. Since there is a fundamental difference between publicly disclosed rights such as patents and copyrights, and trade secrets which are characterized by non-disclosure, it is understood that the court's stance is that using a trade secret without the permission of another co-holder should be viewed differently than patent or copyright infringement.

The Unfair Competition Prevention Act has no provisions regarding the infringement of trade secrets among co-holders, and it appears that the prevailing view in case law and academia is that it is closer to 'co-ownership' as is the case with patent rights and copyright. However, in the case of trade secrets, it is challenging to apply the same principles as those for publicly disclosed rights, and applying the principles of co-ownership as with patents and copyrights could lead to the loss of the core attributes of trade secrets. Therefore, the appellate court ruling in question is seen as a judgment that highlights the differences between trade secrets and other intellectual property rights. 

However, this ruling was made based on the established factual circumstances, so it is difficult to generalize this principle uniformly, and one must consider the possibility that different judgments may arise in each case.

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