Trade Secret Legal Issues in South Korea: Breach of Trust and Joint Ownership

1. Relationship with Breach of Trust Crime

Background of Applying Breach of Trust to Trade Secret Cases

Due to several issues with the current penal provisions in the Unfair Competition Prevention Act (UCPA) in South Korea, criminal practitioners have actively applied breach of trust under the Criminal Code as a property crime for easier prosecution.

Precedents have indicated that technical information must possess non-disclosure, usefulness, and confidentiality requirements to be protected as trade secrets. However, even if such information does not meet all requirements for trade secret protection, if it satisfies the non-disclosure and usefulness criteria and constitutes an important business asset, breach of trust can still be established.

This means that even when information cannot be protected as a trade secret under the Trade Secret Protection Act, punishment is possible through breach of trust using the concept of “major commercial asset.”

General Legal Principles of Breach of Trust Crime

The essence of breach of trust is the violation of the duty of good faith or breach of fiduciary relationship according to the prevailing theory and precedents in South Korea. The elements of breach of trust crime include: the perpetrator must be “a person handling another’s affairs” (subjective element), must commit “an act in violation of duty” (objective element), and there must be “property damage and gain” (result element).

However, there is a view that extremely applying the betrayal theory may risk unlimited expansion of the criminal elements, so strict interpretation is necessary to comply with the principle of clarity.

Whether a retired company employee was in the position of “a person handling another’s affairs” under breach of trust must be determined by comprehensively considering the time of resignation, motivation, circumstances of document leakage, and content. There are conflicting views on whether “another’s affairs” includes only property matters, and if limited to property matters, the scope of applying breach of trust to trade secret infringement cases may be significantly restricted.

Examination of Breach of Trust for Trade Secret Leakage/Removal

Since a company employee who knows trade secrets and can use them is deemed to have already acquired such trade secrets, simply removing trade secrets outside the company without authorization may constitute breach of trust but does not correspond to trade secret “acquisition” as defined in the relevant provisions.

According to precedents, even if a company employee legally removes trade secrets or major commercial assets without constituting breach of trust for the removal, if they fail to return or dispose of such trade secrets upon resignation despite the obligation to do so, with the intent to leak to competitors or use for personal benefit, such conduct constitutes breach of trust.

Even in cases of legal removal for business purposes, the “intent to leak to competitors or use for personal benefit” must exist for breach of trust to be established. This intent is subjective and difficult to confirm, often retrospectively inferred from subsequent objective actions such as actual leakage or use.

“Major commercial asset” refers to an asset that has not been disclosed to the general public, has been created with considerable time, effort, and cost by the employer, and can provide competitive advantages over competitors. While major commercial assets require non-disclosure and economic value similar to trade secrets, confidentiality management is not an essential requirement.

Possibility of Complicity by Competing Companies (Hiring for Trade Secret Acquisition)

When a competing company hires an experienced employee, if that employee’s use of the previous company’s trade secrets is unknown to the hiring company, no crime is established for the hiring company.

However, if hiring an experienced employee was intended as a means to acquire the previous company’s trade secrets for their own business use, the competing company may be considered as having actively participated in the hired employee’s breach of trust, potentially making them complicit in breach of trust.

Since breach of trust is a doubly qualified crime, when a competing company without the required status conspires with someone who has such status to commit breach of trust, they should be punished according to the penalty provisions for simple breach of trust under Article 33 proviso of the South Korean Criminal Code.

A competing company that participates in a company employee’s post-retirement actions (e.g., post-resignation use of trade secrets) may become complicit in breach of trust, and depending on the degree of participation, may be punished as an accessory rather than a principal.

Trade Secret Protection Law Amendment and Limited Application of Breach of Trust

In the past, precedents strictly interpreted the “confidentiality management” requirement, resulting in numerous cases where trade secret protection was denied, leading to criticism and calls for relaxing the confidentiality management requirement.

Recently, legal amendments have been continuously made to relax the confidentiality management requirement for strengthening trade secret protection. These amendments may expand the scope of recognition as trade secrets.

Some argue for limited application of breach of trust in trade secret infringement cases. This relates to various legal issues arising when prosecuting trade secret infringement cases as breach of trust.

Inconsistencies in UCPA Regulatory Framework

Unlike the original legislative intent, the UCPA has added provisions for trade secret protection, creating inconsistencies between the unfair competition prevention and trade secret protection frameworks. There is particularly an imbalance between civil liability provisions and criminal penalties.

While the UCPA specifically enumerates trade secret infringement acts for civil remedies, the penalty provisions define criminal elements as trade secret acquisition, use, and disclosure to third parties, which may not align with civil infringement acts.

Depending on the interpretation of penalty provisions, they may have a broader application scope than civil liability targets. This approach creates an imbalance between civil and criminal liability and may violate the principle of subsidiarity in criminal law.

2. Joint Ownership of Trade Secrets

Requirements for Joint Ownership (Substantial Contribution)

When multiple parties develop trade secrets through joint research without separate agreements determining ownership, relevant court decisions have held that such trade secrets jointly belong to research and development entities that have made “substantial contributions” to the development process. Notably, Supreme Court Decision 2021Da289399, Supreme Court Decision 2023Do4058, and Seoul High Court Decision 2020Na2038172 (September 9, 2021) have taken this position.

“Substantial contribution” is determined by whether there was concrete and substantial technical contribution such as providing original technology and manufacturing technology, presenting detailed specifications, design work, drawing creation, performance testing, suggesting improvements, and providing other experience and know-how. Financial burden for development costs may also be considered. This criteria is similar to that for joint invention.

Regulation and Legal Nature of Joint Ownership Relationships

Relevant court decisions have held that legal relationships between joint owners of trade secrets are governed by applying civil law provisions on joint ownership by analogy, and the legal nature corresponds to civil law (quasi-)ownership. Unlike patent law, the UCPA has no provisions regarding joint ownership and its legal nature.

In Supreme Court Decision 2021Da289399, the Supreme Court clearly stated that in the absence of separate agreements, trade secrets jointly belong to substantial contributors, and civil law principles of co-ownership apply between joint owners.

Range and Requirements for Self-Use by Joint Owners

Discussion on Necessity of Consent from Other Joint Owners

There are conflicting academic views on whether consent from other joint owners is necessary when one joint owner uses trade secrets independently: the “consent required theory” requires consent from other joint owners, the “no consent required theory” (or unlimited theory) allows free use without consent, and the “compromise theory” allows consent-free use within certain limits.

Use Within Limits Not Causing Loss of Secrecy (Compromise Theory)

Recent lower court decisions mainly adopt the “compromise theory.” Seoul High Court Decision 2020Na2038172 (September 9, 2021) and concurrent decisions 2020Na2016653 and 2038875 held that one joint owner of trade secrets can freely use the entire trade secret without losing its confidential nature.

The original decision in Supreme Court Decision 2023Do4058, the Suwon High Court, also held that self-use by joint owners is possible if it does not cause loss of secrecy.

Self-Use Range for Subcontracting and Third-Party Provision

According to the compromise theory, when a joint owner reasonably needs to provide technical information to third parties for implementing their own technology, if confidentiality obligations are imposed to maintain secrecy, such third-party provision can also be included within the scope of self-use.

Seoul High Court Decision 2020Na2038172 (September 9, 2021) stated that “it is possible not only when joint owners directly implement technical information, but also when they reasonably need to provide it to third parties for implementation, by imposing confidentiality obligations to maintain trade secrecy.”

Given that subcontracting and outsourcing are common in the current industrial structure of specialization and division of labor, the view that only pure self-use constitutes legitimate self-use does not align with reality.

Discussion on Pure Free Use

If adopting the “pure free use limitation theory” that only recognizes pure self-use with one’s own personnel and facilities as legitimate self-use, it may create unfair results between companies with complete capital, facilities, and personnel versus small and medium enterprises and individuals who lack these resources.

Seoul Central District Court Decision 2019Gahap534152 (November 13, 2020) broadly recognized joint owners’ self-use rights based on Civil Code Article 263, which allows co-owners to use and benefit from the entire jointly owned property according to their shares.

Issues with Joint Creators of Trade Secrets Managed by Companies

However, Supreme Court Decision 2016Da8503 (June 9, 2016) held that “if technical information jointly created by company employees is managed as the company’s trade secret, even if one is a joint creator, they cannot be in a position to freely dispose of such technical information, so their unauthorized use or disclosure constitutes infringement of the company’s trade secret.”

Consideration of UCPA’s Legislative Purpose

The legislative purpose of South Korea’s UCPA is to maintain fair transaction order, strengthen domestic industry competitiveness, and contribute to national security and economic development.

When determining the scope of self-use by joint owners of trade secrets, consideration should be given not only to the essential characteristics of trade secrets such as non-disclosure and economic usefulness, but also to the legislative intent of the UCPA, supporting the view that free use by individual joint owners should be permitted similar to patent rights.

Supreme Court Decision 2023Da224303 (June 15, 2023, High-Speed Rail Technical Information Case) explicitly stated that “joint owners of trade secrets can use jointly owned trade secrets without consent from other joint owners, as long as they do not disclose trade secrets or cause loss of trade secrecy, unless there are other agreements between them.”

3. Conclusion

The application of breach of trust in trade secret infringement cases, while controversial, is actively practiced. Particularly, issues arise regarding post-resignation non-return/non-disposal actions and potential complicity of competing companies.

As the confidentiality management requirement in Trade Secret Protection Law has been relaxed, the scope of applying breach of trust may decrease, yet it remains an important punishment mechanism in practice.

For joint ownership relationships of trade secrets, while civil law co-ownership principles apply, the “compromise theory” allowing self-use within limits that do not cause loss of trade secrecy is emerging as the prevailing interpretation.

This represents a balanced approach considering both the legislative purpose of the UCPA and the reality of technical information utilization, particularly suitable for modern industrial environments where subcontracting and third-party provision are common.

Law Firm KNP recently successfully provided legal strategies for coordinating interests between two companies regarding ownership and use of trade secrets in joint research and development projects, and drafting corresponding agreements to resolve disputes in South Korea.