Hello, this is Attorney Eom Sang-yoon from the law firm Cheongchul.

Today, we will discuss the limitations on the use of shared trade secrets in relation to a case where a contractor leaked the client’s trade secrets.

[Question]

We signed a subcontract agreement and NDA with the client, but does using the jointly developed trade secrets arbitrarily during the contract execution constitute a violation of trade secrets?

[Answer]

The Unfair Competition Prevention and Trade Secret Protection Act ("Unfair Competition Prevention Act") specifically defines 'violation of trade secrets' as follows (Article 2, Paragraph 3).

However, different from patent law and other intellectual property laws, the Unfair Competition Prevention Act does not provide specific provisions regarding the use and disclosure scope of shared trade secrets. For example, Article 99, Paragraph 3 of the Patent Act states, "In cases where patent rights are shared, each co-owner may utilize the patent invention without obtaining the consent of the other co-owner, except in cases where a special agreement has been made through contract," which raises the question of whether one co-owner can use shared trade secrets without the consent of other co-owners.

In this regard, the court ruled in a case where a contractor delivering exclusive facilities to the victim company established a separate corporation to deliver those facilities to another company, stating that although the Unfair Competition Prevention Act does not have regulations regarding the use of trade secrets between co-owners, unlike patents and copyrights, if trade secrets among co-owners were allowed to be used freely without any restrictions, there would be a risk of losing the properties of trade secrets (non-disclosure and economic utility). It was ruled that since the defendant company had entered into an NDA (Non-Disclosure Agreement) and bore obligations towards the victim company, and since leaking trade secrets to third parties would seriously undermine the efforts of the victim company, who are co-holders of the trade secrets, thus cannot be regarded as a legitimate act of use, the act of leaking shared trade secrets to a third party constitutes a 'violation of trade secrets' (Suwon High Court 2021 No. 69).

This ruling was affirmed by the Supreme Court (2023 Do 4058). In other words, unlike patents and copyrights, it is explicitly recognized that a violation of trade secrets can occur among co-owners of trade secrets.

According to this legal principle, using or providing trade secrets to a third party without the consent of co-owners may constitute a violation of trade secrets, and the affected company can make requests for prohibition (Article 10) or claims for damages (Article 11) under the Unfair Competition Prevention Act.

Companies with numerous subcontract transactions must prepare effective measures to protect their trade secrets, as they are inevitably in situations where they must provide or share trade secrets with contractors and other business relationships beyond merely complying with the Subcontracting Act. It is advisable to consult with experts and take precautions to ensure that the company's critical information assets are not unjustly infringed upon.

The law firm Cheongchul is composed entirely of attorneys from major law firms, such as Kim & Chang, Kim & Chang, Taepyeongyang, Sejong, and Yulchon, as well as from corporate legal teams. Rather than relying on a single attorney, specialized attorneys who are experts in related fields form a team to respond. Cheongchul provides comprehensive solutions beyond merely resolving specific issues, focusing on achieving what the client desires through legal consulting. If you need assistance in achieving your goals, do not hesitate to contact Cheongchul.