Secret Management of Trade Secrets in South Korea

1. Concept and Definition of Secret Management in South Korea

A trade secret refers to 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 secret. In other words, secret management is one of the requirements for recognition as a trade secret.

Secret management means that beyond merely maintaining information in a secret state, the information holder must make certain efforts to maintain the secrecy of such information. This has been the most contentious issue among trade secret protection requirements in practice, and is an important consideration for companies in protecting trade secrets in South Korea.

The existence of secret management requirements is also an important difference between trade secrets under the Trade Secret Protection Act and industrial technology under the Industrial Technology Protection Act. While trade secrets under the Trade Secret Protection Act require secret management requirements, industrial technology under the Industrial Technology Protection Act does not require non-public knowledge, secret management, or economic utility requirements. This is because the two laws have different protection targets and purposes.

2. Meaning of ‘Managed as Secret’ Information in South Korean Law

‘Managed as secret’ information refers to information actively managed by the information holder to maintain its secrecy. This means that beyond merely keeping information undisclosed, the holder is consciously and specifically performing management actions to maintain secrecy.

The core of the secret management concept is that information is protected under a certain management system. Through this, it objectively expresses that such information is an important asset to the holder and has the nature of not being leaked externally.

3. Trends in Relaxing Secret Management Requirements through Law Amendment in South Korea

Much legal doctrine has been accumulated regarding secret management among trade secret protection requirements. Recently, law amendments have been continuously made in the direction of relaxing secret management requirements to strengthen trade secret protection in South Korea.

The 2019 revision of the Unfair Competition Prevention Act changed the existing phrase ‘maintained as secret through reasonable efforts’ among trade secret recognition requirements to the more active expression “managed as secret”. This change reflects the legislative purpose of strengthening trade secret protection and alleviating the burden of proving secret management requirements in practice.

4. Significance of Deleting ‘Considerable Efforts’ Phrase and Change to ‘Managed as Secret’

Prior to the amendment, trade secrets had to be ‘maintained through considerable efforts’ to be recognized. This meant that proof of ‘considerable efforts’ became an important issue during litigation proceedings, and proving this was a significant burden for trade secret holders in South Korea.

Deleting the phrase “considerable efforts” and changing it to “managed as secret” in the amended law has significance in resolving the problem where previous precedents used different terminology from the legal provisions. Particularly, the fact that Supreme Court precedents used the expression ‘reasonable efforts’ instead of ‘considerable efforts’ became the catalyst for the amendment.

This amendment has important significance in that it significantly relaxed the secret management requirements for trade secrets, allowing companies to more easily obtain protection for their trade secrets in South Korea.

5. Some Degree of Effort Still Required in South Korea

Although the amended law deleted the phrase “considerable efforts,” the expression “managed as secret” itself is still interpreted to mean that trade secret holders need some degree of effort for secret management.

In other words, the law amendment did not completely abolish secret management requirements, and still means that holders must take certain measures to manage the information as secret. However, the important point is that the standards have been relaxed compared to before.

For example, if basic measures such as access restrictions, confidentiality agreements, and security facility construction are in place, secret management may be recognized under more lenient standards than before in South Korea.

6. Objective Standards and Practical Application Issues in Secret Management Determination

The standards of effort to be applied in determining secret management must be objective. However, in specific cases, various factors must be comprehensively considered.

In practice, most trade secret leakage crimes are committed by internal employees, and despite knowing whether information is maintained as secret within the company, they intentionally leak it and then dispute whether it was managed through “considerable efforts” to obtain immunity.

Additionally, determining whether leaked information is widely known in the industry (non-public knowledge) is not easy for investigative agencies or judges, creating a significant burden and being pointed out as one of the main causes for prolonged investigations and criminal trials in South Korea.

In past precedents, there were cases where ‘confidentiality’ (related to secret management) could not be recognized and thus not considered trade secrets when information was stored in unlocked glass cabinets or bookshelves in offices that external parties could freely access without restrictions.

7. Consideration of Company Characteristics Such as Large and Small Enterprises

When determining secret management, there may be differences in the level and degree of management required depending on company characteristics such as large companies and SMEs. While large companies can easily establish systematic and organized management systems, it may be practically difficult to require SMEs to have the same level of management as large companies due to cost and manpower constraints.

Therefore, it is considered that companies can manage in appropriate ways suitable to their characteristics. For example, if SMEs do not have the same computer security systems as large companies but manage secrets in ways appropriate to their company size, such as restricting access to core information and allowing only the minimum necessary employees to view it, secret management may be recognized.

8. Need for Relaxed Application Standards in Line with Amended Law Purpose

Considering the purpose of the amended law’s relaxation of secret management requirements, there is argument that courts should judge secret management efforts differently according to target-specific situations by relaxing application standards in line with the amended law’s purpose in specific cases.

This connects with the argument that while secret management requirements cannot be ignored considering the nature of trade secrets, practice that has judged these requirements too strictly needs improvement.

Particularly in cases of leakage by internal employees, applying secret management requirements excessively strictly to allow punishment avoidance when employees fully recognize the secrecy of information does not align with the purpose of trade secret protection systems in South Korea.

9. Problems with Strict Interpretation of Secret Management Requirements

The weight of secret management requirements in trade secret infringement cases has been high, and there have been considerable cases where protection could not be obtained as trade secrets because the secret management requirements presented by precedents were not met.

The concept of trade secrets ranges from simple business information to cutting-edge technical information, and unlike patent rights, it is difficult to accurately identify the substance of trade secrets from outside, and cases where secrecy is unclear internally or cannot be considered special management due to extensive sharing among internal workers have been problematic.

Such strict interpretation of secret management requirements has caused several problems. One critical view is that the weight of ‘secret management’ among trade secret requirements should be reduced or deleted altogether to simplify litigation processes.

This is based on the logic that particularly in cases of leakage by internal employees, since employees know that information is maintained as secret within the company, preventing punishment avoidance through disputes over ‘considerable efforts’ can be achieved.

10. Cases of Punishment as Embezzlement by Employees in South Korea

According to precedents, even when ‘secret management’ requirements are not met in trade secret infringement cases and thus do not fall under punishment under the Trade Secret Protection Act, if such information corresponds to ‘important business assets’, punishment as embezzlement by employees is possible.

According to precedents, materials that are not disclosed to unspecified numbers and were created with considerable time, effort, and expense by the employer can be recognized as ‘important business assets,’ and leaking such materials constitutes embezzlement by employees.

However, there are critical views on the concept of ‘important business assets’ itself. This can be seen as arising from attempts by courts to apply embezzlement by employee provisions to cases falling outside the protection scope of the Trade Secret Protection Act due to strict interpretation of ‘secret management’ requirements in the Trade Secret Protection Act.

It is notable that South Korean criminal practice has actively applied embezzlement by employee provisions to trade secret leakage cases.

11. Conclusion

Secret management requirements for trade secrets were significantly relaxed through the 2019 law amendment, but still require some degree of management effort. This change reflects legislative intent to strengthen trade secret protection while alleviating practical proof burdens.

However, in applying secret management requirements, flexible judgment considering individual case characteristics, particularly company size and characteristics, is still needed. Also, different approaches are needed for cases of leakage by internal employees versus external parties.

In the future, courts need to interpret secret management requirements more flexibly in line with the amended law’s purpose to effectively guarantee trade secret protection, and establish systematic and consistent legal principles in relation to embezzlement by employees violations in South Korea.

Kim & Park Law Firm recently won a case under new secret management requirements by arguing for secret management methods appropriate to company size in an SME’s trade secret protection case, particularly drawing court judgment that considered differences in secret management levels between large and small companies in South Korea.