Overview of Trade Secret Protection Law in South Korea

1. Importance of Trade Secret Protection and the Concept of Trade Secrets in South Korea

In modern business management, trade secret protection is an essential element for maintaining a company’s core competitiveness. The technological and management information possessed by a company is a core asset that determines the company’s value, and effective strategies to protect this information are crucial factors in determining corporate success in South Korea.

Companies must strategically choose whether to protect their core technologies as trade secrets or as intellectual property rights such as patents. Trade secrets have the advantage of being theoretically protectable indefinitely as long as their confidential state is maintained, making them an important protection mechanism in practice in South Korea.

South Korea’s Unfair Competition Prevention and Trade Secret Protection Act (hereinafter referred to as the “Unfair Competition Prevention Act”) defines trade secrets in Article 2, Paragraph 2 as “production methods, sales methods, and other technical or business information useful for business activities that are not publicly known, have independent economic value, and are managed as secrets.”

The types of trade secrets range from simple business information such as customer lists to cutting-edge technical information that can also be protected under patent law. However, unlike patent rights, trade secrets have an ambiguity in that their objective substance is difficult to accurately identify from outside in South Korea.

2. Requirements for Trade Secret Protection in South Korea

Non-public knowledge (Secrecy)

Non-public knowledge means that the information is not publicly known. In other words, the information must not be known to an unspecified number of people or the general public to be protected as a trade secret in South Korea. Information that is already publicly known is excluded from trade secret protection.

Given the nature of information, once it is leaked, it becomes difficult to distinguish and can be shared by multiple people, and it’s hard to determine who knows the information to what extent. Therefore, information that has already circulated in society is considered public property of society. If information is known to even just one unspecified person (outsider), there is a risk of losing non-public knowledge.

Marketing products that can be reverse engineered carries the risk of losing non-public knowledge. Even if non-public knowledge is satisfied because reverse engineering requires special technology or expertise and takes considerable time, the non-public knowledge can be lost the moment someone actually discovers and discloses the trade secret through reverse engineering.

Secret management

Secret management means that the information must be managed as a secret. In the 2019 revision of the Unfair Competition Prevention Act, the previously required phrase “by considerable effort” was deleted and changed to “managed as secret,” relaxing the requirement in South Korea.

This revision has significance in resolving the problem that precedents had been using different terminology from the legal language. Before the law revision, despite the fact that a significant portion of trade secret leaks occurred by internal employees, and internal employees knew better than anyone whether information was maintained as a secret, there was a problem where violations escaped punishment through disputes over whether secrets were managed “by considerable effort.”

Even under the revised law, it is interpreted that trade secret holders still need some degree of effort to maintain secrets. However, there are arguments that the judgment criteria should be relaxed in line with the revision’s intent in South Korea. Objective judgment criteria are important, and appropriate management methods suitable for company characteristics such as large corporations and SMEs can be considered.

Independent economic value (Economic utility)

Independent economic value means that the information must have independent economic value. The information must provide a competitive advantage. If information can be easily verified through simple analysis without much time or effort, it’s difficult to recognize it as having independent economic value.

The purpose of prohibiting trade secret infringement is to prevent infringers from obtaining unfair benefits or gaining an advantageous start over fair competitors, and to restore information holders to their original position. Judgment of economic utility tends to depend on the judgment results of non-public knowledge.

3. Trade Secret Protection Provisions under the Unfair Competition Prevention Act of South Korea

Beyond the definition of trade secrets, the trade secret protection provisions under the Unfair Competition Prevention Act enumerate six types of trade secret infringement acts in Article 2, Paragraph 3. This enumeration method helps avoid the risk of excessive regulation and ensures legal stability in South Korea.

Infringement acts can be broadly classified into acquisition and use/disclosure by unfair means and use/disclosure by unfair purposes (such as violation of confidentiality obligations).

The Unfair Competition Prevention Act provides both civil remedies and criminal penalties for trade secret infringement. Civil remedies include injunction claims (Article 10), damage compensation claims (Article 11), and credit restoration claims (Article 12).

Criminal penalty provisions are specified in Article 18, which defines the criminal elements for trade secret infringement. A notable point is that the Unfair Competition Prevention Act does not reference the infringement “acts” in Article 2, Paragraph 3, but instead enumerates separate criminal elements. This means that the criminal penalties in Article 18 and the trade secret infringement act types in Article 2, Paragraph 3 do not always match, and acts that do not constitute infringement may also be subject to criminal penalties.

Criminal penalty provisions have been continuously strengthened through the 2019 revision, expanding the types of punishable acts and increasing statutory penalties. In particular, acts punishable include acquiring, using, or disclosing trade secrets for the purpose of obtaining unfair benefits or causing damage to trade secret holders, unauthorized leakage of trade secrets outside designated places, and continued possession despite return requests.

4. Industrial Technology Protection Provisions under the Industrial Technology Protection Act of South Korea

The Industrial Technology Leakage Prevention and Protection Act (Industrial Technology Protection Act) is legislation designed to protect industrial technology and national core technology in South Korea.

Industrial technology refers to technology designated, notified, announced, or certified by relevant central administrative agency heads according to laws for enhancing industrial competitiveness or preventing leakage in their respective fields, among all methods or technical information necessary for the development, production, distribution, and use of products or services.

National core technology refers to technology with high technical and economic value in domestic and international markets or with high growth potential in related industries, which could cause serious adverse effects on national security and economic development if leaked overseas, and must be designated by the Minister of Trade, Industry and Energy after deliberation by the Industrial Technology Protection Committee.

Particularly, when an organization possessing national core technology developed with government R&D funding intends to export such technology to foreign companies through sale or transfer, it must obtain approval from the Minister of Trade, Industry and Energy. This is significant as it provides a legal basis for preventing legitimate technology leakage.

5. Comparison between Trade Secrets and Industrial Technology in South Korea

Secrecy (Non-public knowledge)

Trade secrets must have secrecy to be protected. In contrast, industrial technology under the Industrial Technology Protection Act does not require secrecy. Industrial technology is technology designated by administrative agency heads, and even if related technology is patented and partially disclosed, it remains subject to confidentiality obligations unless the entire technology is disclosed.

Management procedures

Trade secrets are information managed as secret by the decision of the holder. In contrast, industrial technology under the Industrial Technology Protection Act requires procedures of designation and notification by central administrative agency heads. National core technology involves designation and management procedures by the Minister of Trade, Industry and Energy.

Protection purpose and scope

The Trade Secret Protection Act focuses on protecting individual economic entities’ private interests, while the Industrial Technology Protection Act covers industrial technology of all research institutions including public institutions, with stronger public interest purposes such as enhancing national industrial competitiveness and preventing leakage.

Penalty levels

The penalty levels for infringement under both laws differ. The Industrial Technology Protection Act prescribes higher penalties than the Trade Secret Protection Act in some cases, stemming from the difference that the Trade Secret Protection Act aims to maintain fair commercial order while the Industrial Technology Protection Act serves national security purposes.

6. Conclusion

Trade secret protection is an essential element in modern business management, and South Korea’s Unfair Competition Prevention Act and Industrial Technology Protection Act each protect trade secrets and industrial technology from different perspectives. Companies must accurately understand and utilize the characteristics and differences of these laws to protect their core technologies and information.

Particularly with the 2019 revision of the Unfair Competition Prevention Act relaxing secret management requirements, the legal environment is changing, and companies must establish trade secret protection systems aligned with these changes in South Korea.

Kim & Park Law Firm has recently successfully handled numerous trade secret-related cases concerning corporate core technology protection, and has particularly provided advice on establishing trade secret protection systems for manufacturing companies in South Korea.