Hello, this is Attorney Lee Young-kyung of Cheongchul Law Firm.

On October 30, 2026, the Korea Fair Trade Commission (KFTC) announced its decision to issue a corrective order (an order to prevent recurrence) and impose a surcharge of KRW 420 million on Company A, a mid-sized manufacturer of automotive powertrain components, for misappropriating the technical information of its subcontractor, Company B, and filing and registering a patent on it solely in Company A’s own name.

The KFTC described this as the first case in which it recognized intangible ‘information’, such as analysis results and know-how obtained by analyzing and testing prototypes, as technical data under the Fair Transactions in Subcontracting Act (하도급법), and sanctioned its misappropriation, rather than limiting technical data to tangible materials such as documents or drawings. Any prime contractor that felt safe because it never received a drawing or a file should read this carefully.

Cheongchul Law Firm is made up of attorneys specializing in fair trade and subcontracting law, with experience both representing the KFTC in having the legality of its dispositions upheld in court and representing numerous companies in KFTC investigations, hearings, and litigation. This article is based on the KFTC press release (distributed October 30, 2026); the names of the companies have been anonymized.

The Disposition at a Glance

● Prime contractor: Company A, a manufacturer of automotive powertrain components (mid-sized company)

● Subcontractor: Company B, a small company commissioned to develop and manufacture the part; Company C, the supplier slated to replace it

● Violation: Company A reverse-engineered, without authorization, the ‘optimal core hardness value that achieves the required strength’, which Company B had derived during development and kept confidential, and then filed (February 1, 2020) and registered (July 2, 2021) a patent on it solely in its own name

● Provision applied: Article 12-3(3) of the former Fair Transactions in Subcontracting Act (now Article 12-3(4)) (구 하도급법 제12조의3 제3항, 현행 제4항)

● Disposition: corrective order (order to prevent recurrence) + surcharge of KRW 420 million

● Significance: the first case to recognize intangible information (analysis results and know-how) as technical data and sanction its misappropriation

1. How the Case Unfolded

According to the press release, Company B, drawing on its existing know-how that core hardness needs to be set higher than usual when heat-treating the part, measured and recorded the core hardness value in its inspection reports in addition to the hardness criteria Company A had specified, and managed it separately. Company A, by contrast, never directly managed a core hardness target or required Company B to comply with one at any point in the development process.

2. Why the KFTC Found the Conduct Unlawful

(1) Information received for quality verification was used to secure a patent

The KFTC held that it was unlawful to take the samples and inspection reports received during product development for the purpose of checking readiness for mass production, together with the technical substance learned from them, and use them to secure a patent in Company A’s own name, beyond the agreed purpose of acquisition, namely quality verification. In other words, even if the information was obtained through a legitimate channel, using it outside that purpose can constitute misappropriation.

(2) Intangible information also recognized as technical data

The KFTC recognized that not only documents and drawings but also intangible information, such as analysis results and know-how that can be learned by analyzing and testing prototypes (samples), qualifies as technical data under the Fair Transactions in Subcontracting Act. The technical data at issue in this case was the ‘optimal core hardness value’ that Company B had derived through considerable time, effort, and expense and had kept confidential.

(3) Risk of the subcontractor being stripped of the foundation of its competitiveness

The KFTC found the conduct highly improper because Company A’s patent filing threatened to deprive Company B of technical data that formed the very foundation of its competitiveness, impairing its future development and business.

3. Why the ‘We Discovered It Through Our Own Experiments’ Argument Failed

Company A argued that it had derived the core hardness value through its own independent experiments and analysis. The KFTC, however, considered the following circumstances together and concluded that the value could not be regarded as independently discovered or acquired.

● Company A never managed the core hardness value at any point during the development process

● The invention disclosure prepared for the patent filing quoted Company B’s sample test results verbatim

● Company A had free access to the heat-treatment inspection reports it had received

This finding shows that, when asserting independent development during an investigation, what matters is what the internal research records and the documentation of how the invention came about actually look like.

4. Relevant Provisions – Article 12-3 of the Fair Transactions in Subcontracting Act (Paragraph 3 of the former Act, Paragraph 4 of the current Act)

[Statutory text] Article 12-3 of the former Fair Transactions in Subcontracting Act (Prohibition on Demanding Technical Data, etc.) (구 하도급법 제12조의3) (3) A prime contractor shall not unfairly engage in any of the following acts with respect to a subcontractor’s technical data it has acquired: 1. Using the data for itself or for a third party

[Statutory text] Article 2(15) of the former Fair Transactions in Subcontracting Act (구 하도급법 제2조 제15항): “Technical data” means data on manufacturing, repair, construction, or service-performance methods that have been kept confidential through reasonable efforts, and other data prescribed by Presidential Decree that are useful for business activities and have independent economic value. The Enforcement Decree of the Act includes information relating to intellectual property rights such as patents, as well as information such as research data and R&D reports that are technically useful for the subcontractor’s production and business activities and have independent economic value.

5. Questions Corporate Staff Facing a Subcontracting Act Investigation Often Ask

Q1. We never received any documents such as drawings. Can this still be technology misappropriation?

In this case, the KFTC held that intangible information, such as prototype analysis results and know-how, can qualify as technical data. Whether or not you received a file from the subcontractor is not, by itself, grounds for comfort.

Q2. What happens if samples and inspection reports received for quality testing are used for another purpose?

The KFTC found it unlawful to use materials received for the purpose of checking readiness for mass production, and the information confirmed from them, for a patent filing outside the agreed purpose of quality verification. Use beyond the purpose of acquisition was the central issue.

Q3. If we developed the technology together with the subcontractor, may the prime contractor file the patent?

In this case, the problem was that, despite the development partnership, Company A filed solely in its own name without consulting the subcontractor. Note that the mere fact of joint development did not justify a sole-name filing. The appropriate filing structure needs to be reviewed case by case.

Q4. If we argue that we discovered it through our own research, will that be accepted?

Company A made the same argument, but it was undermined by the facts that it had never directly managed the core hardness value and that its invention disclosure quoted the other party’s test results verbatim. Understand that a claim of independent development must be supported by objective records.

6. Prime Contractor Self-Check Checklist for Technical Data Misappropriation

7. Cheongchul Law Firm’s Subcontracting Act and Technology Misappropriation Investigation Practice

Cheongchul Law Firm is made up of attorneys specializing in fair trade and subcontracting law, with experience both representing the KFTC in having the legality of its dispositions upheld in court and representing numerous companies in KFTC investigations, hearings, and litigation. Our services include:

● Responding to investigations into Subcontracting Act violations (including demands for and misappropriation of technical data) and drafting responses to written information requests

● Representation at KFTC hearings and drafting written opinions

● Representation in litigation to revoke corrective orders and surcharge dispositions

Technology misappropriation cuts across development, procurement, and intellectual property functions, so it is easy to miss when only one department is reviewed. Corporate personnel who have received notice of a Subcontracting Act investigation or need an internal review are welcome to contact Cheongchul Law Firm.