The Korean government has strictly regulated unauthorized disclosure or theft of technology, as well as a new category of the “theft of ideas,” as part of a priority agenda to protect small and medium-sized enterprises (“SMEs”) from predatory behavior by large corporations. However, there was confusion, because the few legislative amendments that were presented were not enacted into law. Accordingly, the traditional body of laws to protect intellectual property, i.e., the Patent Act and the Unfair Competition Prevention and Trade Secret Protection Act (the “UCPA”) remained unchanged.
However, on December 7, 2018, a legislative amendment of the Patent Act and UCPA (“Amendments”) finally passed a plenary session of the National Assembly. Both the amended UCPA and the amended Patent Act are expected to become effective in or about June 2019 (the publication date has not yet been set), and the Amendments will not be retroactively applied. We present below a summary of the Amendments, focusing on how the Amendments purport to reinforce the protection of patents and trade secrets.
Ⅱ. Major Content of the Amendments
1. UCPA—Setting the Bar Low for Secrecy
Under the current UCPA, information can be considered a trade secret only when the owner of the information can prove that it made “reasonable efforts to maintain the secrecy” of the information. However, the legislative intent of the amended UCPA was to set the bar lower for secrecy, by requiring an owner of information to simply “manage the information as secret” rather than to make “reasonable efforts to maintain secrecy.” Many small and medium business owners complained that it was too difficult to show that they had undertaken “reasonable efforts to maintain the secrecy”
The important question that remains unresolved is how low can the bar go, i.e., what is the minimum required to meet the amended UCPA’s standard of “manage as secret”? For example, is stamping a document “secret” sufficient to make it a trade secret without taking reasonable efforts to maintain secrecy of the document? Although the element of “reasonable efforts” is removed and the term “to maintain” is changed to “to manage” in the amended UCPA, the amended UCPA still requires “secrecy” of the information. Accordingly, if any technical, business, or financial information is publicly available or otherwise is managed in a manner that is easily accessible by anyone, such information will likely fail to meet the “secrecy” element under both the current and amended UCPA.
Since the standard for determining the “secrecy” element under the amended UCPA will be established through interpretation of the amended UCPA by the courts in future cases, it is recommended to monitor upcoming court decisions issued after the amended UCPA comes into force.
Until the amended UCPA becomes effective in or about June 2019, the “secrecy” element will be determined based on the current UCPA, and owners of information must show that they have made “reasonable efforts to maintain the secrecy” of the information for the information to be considered as a trade secret.
2. UCPA—Broadening the scope of Trade Secret Theft and Reinforcing Penal Provisions
The current UCPA criminalizes theft of trade secrets only in the following circumstances: (i) acquisition of a trade secret, in order to gain improper profits or to inflict harm on the owner of such trade secret (“Acquisition for Improper Purposes”); (ii) unauthorized use of a trade secret; and (iii) unauthorized disclosure of a trade secret. The term “theft” was so narrowly defined that certain data leak incidents were not recognized as “theft” under the current UCPA. For example, under the current UCPA, even if employees take employers’ trade secrets with them when they leave the company, such act alone is considered a mere data leak and does not constitute trade secret theft, as the act of taking information without authorization alone may not be deemed a violation of the three categories, i.e., Acquisition for Improper Purposes, unauthorized use, or unauthorized disclosure. Due to this failure to encompass “data leaks by resigning employees” within the term “theft,” employers typically relied on the legal theory of breach of fiduciary duty against such employees in their criminal complaints, rather than the legal theory of theft of trade secrets.
However, the amended UCPA expanded the scope of theft and now includes the following in addition to the traditional forms of trade secret theft: (i) taking information outside of a designated area without authorization; (ii) refusing to comply with the owner’s request to return or destroy information; (iii) acquisition by improper means; and (iv) re-acquisition and use of misappropriated trade secrets with knowledge of (i), (ii), or (iii). In addition, the statutory punishment for trade secret theft has been increased as follows:
The amended UCPA clarified that while employees have an obligation to either destroy or return the employers’ trade secrets before resigning, employers have an obligation to (i) clearly designate areas and boundaries, where information can be taken and (ii) expressly require employees to either return or destroy trade secrets. Although employers would have a burden of setting up and maintaining compliance programs for their trade secrets, e.g., designated areas and assign compliance personnel, employers equipped with such compliance programs can now effectively claim trade secret theft even against a mere data leak and thus will be entitled to strong protection under the amended UCPA.
Before the UCPA becomes effective in or about June 2019, companies are highly recommended to update trade secret compliance programs and provide education to its employees regarding their new obligations under the amended UCPA.
3. Patent Act—Easing Patentees’ Burden of Proof in Patent Litigation
In patent litigation under the current Patent Act, patentees or exclusive licensees (“Patentees”) have the burden of proving a specific mode of infringement, including identifying an infringing product or service. However, many Patentees have found this burden particularly challenging, as information relating to an accused product or process may not be publicly available and key evidence is often exclusively in the possession of an alleged infringer. In order to address the challenge, the Korean Civil Procedure Code was amended in 2016 to allow a Patentee to ask the court to order an alleged infringer to produce materials that are deemed necessary to verify infringement. However, intellectual property lawyers and scholars have expressed some doubts over the effectiveness of the document production system.
The amended Patent Act now addresses all of the foregoing issues with heightened effectiveness. Under the amended Patent Act, once a Patentee asserts patent infringement and an alleged infringer denies the allegation of infringement by denying an alleged mode of infringement, the burden shifts to an alleged infringer to demonstrate a specific mode of practicing an accused product or service. Moreover, any refusal to do so without a legitimate reason creates a presumption that the Patentee’s assertion regarding the mode of practicing a patent at issue is true. As a result of this change, a Patentee can now identify the specific mode of practicing an accused product and shift the burden on the alleged infringer to show that the specific mode is not practiced.
Therefore, a plaintiff considering the filing of a patent litigation should be mindful of this amended Patent Act provision easing the burden of providing a specific mode of infringement, which is expected to become effective in or about June 2019.
4. Patent Act & UCPA—Punitive Damages Scheme (Treble Damages)
Under the current Patent Act and UCPA, a Patentee or owner of trade secrets is entitled to the same amount of damages regardless of the willfulness or intent of an infringer. As a result, many companies believed that it is better to make profits by infringing patents or misappropriating trade secrets and later pay damages, instead of negotiating a license and paying the appropriate amount of licensing fees. In order to redress this unethical business practices, the Amendments allow courts to issue a finding of willful infringement also provide courts the discretion to increase by up to three times the recognized damages amount upon a finding of willful infringement.
The Amendments require consideration of the following eight (8) factors in determining willfulness: (i) whether an infringer is in a dominant position; (ii) the degree to which an infringer recognized the willfulness of his misconduct or potential damages that a Plaintiff may sustain; (iii) the scope of damages suffered by a Patentee or owner of trade secrets; (iv) economic benefits that an infringer obtained as a result of the infringing act; (v) the period and frequency of the infringing act; (vi) penalties arising from the infringing act; (vii) the scope of infringer’s assets; and (viii) the degree of remedial efforts by an infringer. The introduction of treble damages for willful infringement is expected to redress certain distortions in the technology market and to encourage licensing between companies, as well as to aid victims of patent infringement or trade secret misappropriation to sufficiently recover their damages through litigation.
The aforementioned provision applies to infringing acts that are committed after the enforcement of the Amendments (i.e., around next June which is six (6) months after the promulgation of the Amendments). Therefore, Patentees are advised to take measures based on the aforementioned eight (8) factors provided in the Amendments by creating evidence, including cease and desist letters providing notice of the existence of patents and infringement of those patents, and to preserve that evidence so that any infringing act can be recognized as willful misconduct. On the other hand, alleged infringers are advised to keep documentary evidence showing their lack of willfulness. Such evidence may show that alleged infringers conducted freedom to operate searches of patents (i.e., were not aware of the existence of the patents) or that they attempted to design around the patents.
Ⅲ. Implications of the Amendments
The Amendments (i) set the bar low for the “secrecy” element under the UCPA; (ii) broadens the scope of what can be considered as trade secret misappropriation; (iii) eases Patentee’s burden of proving patent infringement; and (iv) enhances both civil damages for patent infringement by up to three times the actual amount proven, as well as criminal penalties for trade secret misappropriation. The overall changes purport to (a) assist SMEs in litigation involving large corporations free riding on SMEs’ R&D efforts and taking advantage of SMEs’ technologies and (b) provide SMEs with sufficient remedies to such technology infringement or theft of trade secrets. The Amendments seem to effectively reinforce the Korean government’s administrative measures against technology theft from SMEs, which has been recently announced in February 2018 as the “Measures to Eradicate Technology Theft against SMEs” collectively by the Ministry of SMEs and Startups, the Ministry of Trade, Industry and Energy, and the Korean Intellectual Property Office.
Therefore, companies that own patents and trade secrets are advised to more actively consider filing lawsuits as the means to resolve disputes involving technology infringement. In contrast, companies that may be accused of technology infringement, particularly large corporations, are advised to establish compliance programs and take preventive measures, such as reviewing technical work processes with SMEs and revising their internal systems to reduce infringement risks. Due to the Amendments, both SMEs and large companies are required to be more thoroughly prepared at an early stage of the dispute for lawsuits involving technology infringement.