On September 8, 2017, to promote joint growth of enterprises of all sizes and their collaborative efforts, the Korean Fair Trade Commission (“KFTC”) and the ruling Democratic Party of Korea held a consultation conference to step up efforts to eliminate unfair demands of technical information and/or misappropriation of technology by large conglomerates against small and medium-sized enterprises.
Following the conference, the KFTC announced an enforcement plan to root out misappropriation of technology. This is part of the KFTC’s policy to eliminate abusive practices by large conglomerates and promote joint growth of large conglomerates along with small and medium-sized enterprises. Key items from the consultation conference include the following:
• Preemptive ex officio investigations to be conducted over the machinery and automotive industries in 2018, the electronics and chemical industry in 2019, and the software industry in 2020.
• Expansion of the scope of technical information to cover information that has been kept confidential through “reasonable” efforts (from the prior standard of protecting information that has been kept confidential through “considerable” efforts).
• Establishment of a team dedicated to technology misappropriation cases and a committee comprised of experts in relevant technical fields (“Technology Inspection Advisory Committee”).
• Imposition of stricter sanctions, including fixed amount fines, criminal referrals and punitive damages.
• Adoption of measures to prevent unfair trade practices involving disclosure of technical information by prohibiting the demand for disclosure of managerial information or joint patenting of source technology.
• Regulation of unfair demands for technical information or technology misappropriation prior to the execution of a contract as unfair interference with management of another under the FTL (since prior to the execution of a contract, such conduct would not be subject to the Fairness in Subcontracting Transactions Act).
As the scope of technical information has been extended, it is highly likely that certain technical information provided to prime contractors could now raise concerns of technology misappropriation, even if such provision was not challenged in the past.
Also, the KFTC is expected to strengthen its enforcement efforts. In particular, given that the ex officio investigations scheduled to start in 2018, it is recommended for prime contractors to review the materials they have received from the subcontractors and their status of compliance relating to technology misappropriation (including whether their request for materials can be substantively and procedurally justified, whether they have engaged in sufficient discussions with the subcontractors to obtain the materials, and whether their requests were made on the bases of any documentation). Upon such extensive review, it is further recommended to remedy or develop follow-up plans for any gaps detected during the review.