Hello, I am attorney Shin Jun-seon from Cheongchul Law Firm.
In the previous blog, we examined legal responses to counterfeit products. This time, we would like to look into practical response measures focusing on the recent increase in disputes over technology theft with large companies.
Recently, a technology theft dispute regarding a nutritional supplement dispenser between startup AlgoCare and Lotte Healthcare was concluded through National Assembly mediation. This dispute began with AlgoCare's claim that their technology was stolen during the corporate due diligence process under the guise of investment review and ultimately concluded with Lotte Healthcare's withdrawal from its business. Around the same time, the OTT company Watcha also raised allegations of technology theft against LG Uplus during the merger and acquisition review process.
As such, technology theft arising during investment reviews, mergers and acquisitions, or joint ventures can lead to devastating damage for startups or small and medium-sized enterprises. To address these issues, the government has revised the Unfair Competition Prevention Act to strengthen sanctions. So, how can startups and small businesses protect their technology and respond?
[Question]
What are the key issues and response measures regarding technology theft?
[Answer]
1. Key Issues in Technology Theft Disputes
In technology theft disputes, the main issue usually revolves around whether the technology in question is 'a common industry technology or an original technology.' The accused company will argue that the technology is 'a universal function and design commonly provided in the media industry,' while the victim company will counter that it is an original technology developed through their own investment and effort. Therefore, from the victim's perspective, they must systematically store research and development data, documents related to technology development costs, and related documents from the time of launch to prove the originality of their technology.
Additionally, the process of providing technical information is also an important issue. In cases like the nutritional supplement dispenser, most instances of technology theft are likely to occur during the due diligence process for investment reviews or mergers and acquisitions. In this context, whether a non-disclosure agreement (NDA) was signed, the scope of provided technical information, and whether there was an agreement on its usage scope become crucial in the dispute.
2. Protection Measures under the Revised Unfair Competition Prevention Act
The recently revised Unfair Competition Prevention Act has significantly strengthened sanctions against technology theft. Under Article 14-2, Paragraph 6 of the revised law, in cases of intentional technology theft, damages may be recognized up to five times, and fines for the organized leakage of trade secrets by corporations have also been tripled.
Furthermore, according to Article 8 of the revised law, the Patent Office can set a period of up to 30 days to order the cessation of the relevant acts and future prevention measures regarding technology theft; failure to comply may result in a fine of 20 million won. During administrative investigations, parties may request the review and copying of relevant materials, which can also be utilized as evidence in future civil lawsuits.
3. Practical Response Measures
Preventing technology theft is more important than anything else. Especially during the investment attraction or merger and acquisition process, it is essential to sign a non-disclosure agreement (NDA) before providing any technical information. However, merely signing an NDA is not enough. The NDA must include binding clauses regarding the specific scope of confidential information, restrictions on the purpose of use, prohibition of provision to third parties, obligations for material return and destruction, and compensation for damages in case of violation. If the other party refuses to sign the NDA for various reasons, it is safer to withhold information provision.
Additionally, since there may be instances where investment or collaboration relationships fall through, it is advisable to coordinate the timing of providing key technical information until the other party's investment intention is specified or becomes binding, and to document the scope and purpose of the technical information being provided to prepare for potential disputes in the future.
If there is suspicion or confirmation that technology theft has occurred, various measures can be taken for recovery of rights. The victim company can report the other party for violating the Unfair Competition Prevention Act to the Fair Trade Commission, the Patent Office, and the Ministry of SMEs and Startups to receive corrective orders or mediation according to relevant laws. In particular, the Patent Office can issue corrective orders through administrative investigations conducted by the Unfair Competition Investigation Team or investigations by the technology and trademark police, and the Ministry of SMEs and Startups supports technology dispute mediation alongside administrative investigations of technology infringement. Therefore, effective response measures must be chosen according to individual cases.
In this process, civil lawsuits for recovery can be considered based on the revised Unfair Competition Prevention Act discussed earlier. Especially, materials secured during administrative investigations can now be used as evidence in civil lawsuits, and in cases of intentional technology theft, punitive damages of up to five times may be possible, making it crucial to fully utilize these protective measures from the revised law. However, specific litigation strategies may vary depending on the characteristics of individual cases and the extent of evidence obtained, so it is necessary to seek legal advice to explore the optimal solution.
4. Conclusion
When technology theft occurs, startups and small businesses suffer extreme damage such as loss of business opportunities and loss of time and cost. Therefore, preventive measures against technology theft are crucial, and if there are signs of suspected technology theft, prompt responses using relevant laws and systems are essential.
In fact, punitive damages for technology theft by a large corporation were recognized for the first time around 2021 in a case related to solar power generation equipment, leading to expectations for an expansion of rights protection for victim enterprises; thus, it is necessary to actively utilize the strengthened protective measures under the revised Unfair Competition Prevention Act.
Shin Jun-seon has extensive advisory and dispute resolution experience in various intellectual property rights disputes. If you need legal advice related to technology protection, from reviewing NDAs for technology protection to establishing response strategies in case of disputes, please feel free to contact us at any time.
