Trade Secrets 2020

Last Updated April 28, 2020

South Korea

Law and Practice

Authors



Yoon & Yang LLC is a full-service law firm with more than 420 attorneys and other professionals based in Seoul, South Korea, with overseas offices in Tashkent, Uzbekistan, and Ho Chi Minh City and Hanoi, Vietnam. The firm’s trade secret practice team has over 20 attorneys and other professionals, including IP, antitrust, criminal defence and labour attorneys, who demonstrate world-class professionalism and expertise to provide top-notch legal services based on the clients’ needs. The trade secret practice team has accumulated litigation expertise as Korean companies have increasingly initiated or been subject to litigation in US court and ITC proceedings. The team successfully represented SK Innovation in a trade secret infringement lawsuit brought by its competitor before the US courts, ITC and Korean courts. It also represented SK Hynix against its competitor in trade secret infringement cases in the USA and Japan and OTO Melara in ICC arbitration proceedings regarding trade secret infringement.

In Korea, trade secrets are protected under the Unfair Competition Prevention and Trade Secret Protection Act (UCPA). The UCPA defines trade secrets and trade secret misappropriation, among others, and provides remedies for trade secret misappropriation, including injunction, damages, restoration of reputation of trade secret owner/holder and criminal penalties, among others.

If a trade secret constitutes “industrial technology” under the Act on Prevention of Divulgence and Protection of Industrial Technology (ITPA), it would additionally be protected under such Act. Further, other laws, including the Act on Support for Protection of Technologies of SMEs; Monopoly Regulation and Fair Trade Act; Fair Transactions in Subcontracting Act; Act on the Promotion of Mutually Beneficial Cooperation between Large Enterprises and SMEs; and Act on the Investigation of Unfair International Trade Practices and Remedy against Injury to Industry, may apply to trade secrets depending on the nature and relations between the trade secret owner and misappropriator and the form of misappropriation.

The UCPA defines trade secret as “a production method, sales method or any other useful technical or business information in other business activities which is unknown to public, has independent economic value and has been managed as a secret” (Article 2(ii)).

Any type of useful technical or business information may be protected as a trade secret as long as it satisfies the foregoing requirements under the UCPA.

Examples of technical information include methods of manufacturing objects, such as methods for mixing raw materials, and methods of using objects for new uses. Examples of business information include customer lists, business plans, such as investment plans and organisational management techniques, such as personnel management techniques.

For trade secret protection under Article 2(ii) of the UCPA, information should be unknown to public, have independent economic value and be managed as a secret.

Information is unknown to public if it cannot normally be obtained without obtaining it through the information owner as the information is unknown to many unspecified persons, which would otherwise be the case as in a publication or other published form.

Information has independent economic value if the information owner can gain competitive advantage over the competitors by using the information, or if significant cost or effort is required to obtain or independently develop the information. 

Information has been managed as a secret if it is objectively recognised that the secrecy of information is maintained or managed, such as by indicating or notifying the information so that it could be recognised as a secret, restricting who can access it or method of access or imposing confidentiality obligation on those who access such information.

With respect to the “secrecy” requirement, the UCPA has amended the clause “maintain secrecy by reasonable efforts” to “manage the information as secret” to set the bar lower for the “secrecy” requirement of trade secrets in 2019. Therefore, under the amended UCPA, a trade secret owner is not required to show that it took reasonable measures to protect its trade secrets, and the “secrecy” requirement would still be met if information was managed as a secret even without reasonable efforts. 

Although under the amended UCPA, the term “reasonable efforts” was removed from the “secrecy” requirement and the term “maintain” was changed to “manage”, the current UCPA still requires the “secrecy” of information. Since the trade secret owner needs to exert efforts in whatever form to satisfy this requirement, the prevailing view in academia is that even under the current UCPA, a certain level of effort is required to meet the “secrecy” requirement (Sang Jo Jong, Annotation to Unfair Competition Prevention Act, Pakyoungsa 2020 at 315 – 316).

The disclosure of a trade secret to employees could undermine the possibility of protection for the trade secret since it could increase the risk of making the information known to public and/or undermining the “secrecy” requirement. To maintain trade secret protection, it would be recommendable for the employer to advise employees that the information is confidential and proprietary and constitutes a trade secret, regularly hold education for employees and obtain confidentiality or nondisclosure agreements from the employees. 

Trade secrecy of the information cannot be denied merely because independent discovery or reverse engineering is possible. However, independent discovery or reverse engineering of a publicly available product does not constitute a trade secret misappropriation. The entity engaged in an independent discovery or reverse engineering actually bears the burden to present concrete proof that it obtained the relevant information by independent discovery or reverse engineering as a defence in the trade secret misappropriation lawsuit.

In Korea, there are no protections for trade secrets that are unique to computer software or technology.

Theoretically, information is protectable as a trade secret for an unlimited period as long as the requirements of a trade secret are met. However, in practice, courts limit the time period for trade secret protection by comprehensively considering various factors, including the content and difficulty of technical information; whether misappropriators or other fair competitors were able to obtain trade secrets in a legitimate way, such as independent development or reverse engineering; time taken for the owner to acquire technical information; time taken for the acquisition of technical information; speed of development of relevant technologies; personnel/physical facilities of the misappropriator; and former employee’s freedom of job selection and business (see Supreme Court Decision, No 2018Ma7100).

Meanwhile, once the information becomes known to public, it is no longer protectable as a trade secret, and this also applies to the case of accidental disclosure.

A trade secret owner is entitled to grant a licence to use its trade secret. As long as the person with the proper licence to use the trade secret maintains/manages the relevant information as a secret, the “secrecy” requirement would continue to be met. Therefore, when granting a licence to a third party to use the relevant information, the trade secret owner needs to require the third party to maintain or manage the information as a trade secret by imposing a non-disclosure or confidentiality obligation, and the like.

Most industrial property rights, including patent, design, trademark and variety protection rights are registered after a deliberation process. The registration presumes the existence, scope and ownership of these rights, and the misappropriators’ wilfulness or negligence. However, the subject of industrial property rights and their requirements are strictly limited by law, and significant costs are incurred in the application, registration and maintenance of these rights.

This being said, trade secrets do not involve a registration process requiring the disclosure of information. A disadvantage of this is that the entity protecting trade secrets must prove the existence and characteristics of the relevant information; fact that the information meets trade secret protection requirements; and the existence of trade secret misappropriation to receive protection. However, an advantage of this is that a wide range of information that meets the trade secret protection requirements are protectable and a smaller cost is incurred to maintain and protect trade secrets relative to industrial property rights.

Industrial property rights, including patent rights, are triggered after an application submission to the Korean Intellectual Property Office, disclosure of information and deliberation process. As such, trade secret protection rights, requiring information to be “unknown to the public” cannot, in principle, be asserted in combination with industrial property rights for the misappropriation/infringement of the same information.

However, for patent rights, there are many cases where additional information managed as trade secrets aside from the information disclosed in the patent specifications are necessary for the specific and actual practice of the relevant invention. Therefore, a plaintiff could assert trade secret rights in combination with patent rights for the misappropriation/infringement.

Where a corporate employee divulges a trade secret or major business asset, during their employment, to the employer’s competitor or removes the same without authorisation for the purpose of exploiting it for personal interest, such act constitutes unauthorised divulgence or removal in violation of their occupational duties as a person administering another’s business. Thus, the crime of occupational breach of trust is consummated at the time of such unauthorised divulgence or removal (see Supreme Court Decision No 2017Do3808). 

A third party, who is privy to and actively conspires in or assists in the corporate employee’s occupational breach of trust, may be recognised to have committed a breach of trust.  Further, the third party may be subject to tort liability under Article 750 of the Korean Civil Code for their inducement of the employee’s violation.

The UCPA prohibits each of the various acts in the acquisition and use or disclosure of trade secrets. The UCPA defines trade secret misappropriation as any of the following six acts (Article 2(iii)):

  • acquiring trade secrets by theft, deception, coercion, or other improper means (“improper acquisition”) or subsequently using or disclosing such trade secrets improperly acquired (including informing any specific person of the trade secret while maintaining secrecy);
  • acquiring trade secrets with knowledge of the fact that an improper acquisition of trade secrets has occurred or without such knowledge due to gross negligence or thereafter using or disclosing the trade secrets so acquired;
  • using or disclosing trade secrets, with the knowledge of the fact that an improper acquisition of the trade secrets has occurred or without such knowledge due to gross negligence after acquiring them;
  • using or disclosing trade secrets to obtain improper benefits or to damage the trade secret owner while under a contractual or other duty to maintain secrecy of the trade secrets;
  • acquiring trade secrets with the knowledge of the fact that they have been disclosed in the manner provided in the fourth bullet point above or that such disclosure has been involved, or without such knowledge due to gross negligence or, thereafter, using or disclosing the trade secrets so acquired; or
  • using or disclosing trade secrets, with the knowledge of the fact that they have been disclosed in the manner provided in the fourth bullet point above or that such disclosure has been involved or without such knowledge due to gross negligence after acquiring them.

To claim trade secret misappropriation under the UCPA, a trade secret owner should argue or prove that the alleged act meets the requisite elements of the relevant trade secret misappropriation.

No separate requirement is necessary to establish a claim of trade secret misappropriation by or involving an employee. The applicable law also does not impose any particular obligations on an employee with respect to trade secrets. However, an employee generally signs agreements with its employer where it bears obligations of non-disclosure, confidentiality or non-competition, and the employee, in principle, bears such obligations to the extent stated in the relevant agreement. Consequently, where a claim of trade secret misappropriation is by or involves an employee, the acts of misappropriation related to the violations of confidentiality obligations Article 2(iii) of the UCPA (as mentioned in bullet points four to six in 2.1 The Definition of Misappropriation) may particularly pose issues.

Meanwhile, if the information to be maintained under such agreements is deemed unworthy of protection, the court may determine that the employee’s confidentiality obligation under such agreements are null and void. In addition, the court may shorten the term of the obligation provided in the agreement if it considers it to be unreasonably long considering the employee’s freedom to select jobs and transfer to another employer.

The applicable laws, including the UCPA, do not separately stipulate rights or obligations between parties to a joint venture with respect to trade secrets. However, parties may sign an agreement that includes confidentiality obligations with respect to trade secrets.

The UCPA provides criminal penalties for trade secrets.

Under the UCPA, any person who commits any of the following may be punished by an imprisonment of no more than ten years and/or a criminal fine not exceeding KRW500 million:

  • for the purpose of obtaining improper benefits or damaging the trade secret owner,
  • acquiring, using, or leaking to any third party, trade secrets;
  • leaking trade secrets out of a designated place without authorisation;
  • continuing to possess another’s trade secret even after the trade secret owner’s request to delete or return it;
  • acquiring trade secrets through theft, deception, threat or other improper means; or
  • acquiring or using trade secrets while knowing that an act set forth in points four and five is involved (Article 18(2)). 

Any person who commits the above acts with knowledge of the fact that the trade secret will be used overseas may be punished by imprisonment of no more than 15 years and/or a criminal fine not exceeding KRW1.5 billion (Article 18(1)).

Further, the UCPA provides penalties for attempted crime, criminal intent and conspiracy, consent or abetting with respect to the crime of trade secret misappropriation (Articles 18-2 and 18-3). Additionally, the UCPA has a joint penalty provision providing that if the representative of a company, etc, commits the crime of trade secret misappropriation, the company in addition to the violator may be subject to a criminal fine (Article 19).

Moreover, industrial espionage is strictly punished as exemplified in the case where the relevant information constitutes “national core technology” under the ITPA. Any entity that divulges and misappropriates national core technology for the purpose of using the national core technology or having it used abroad may be punished by a limited penal servitude for at least three years and/or a criminal fine not exceeding KRW1.5 billion (Article 36(1)).

If the relevant information constitutes “industrial technology” under the ITPA, the violator may be punished by an imprisonment of no more than 15 years and/or a criminal fine not exceeding KRW1.5 billion (Article 36(2)).

Safeguarding

To safeguard trade secrets, it would be advisable to develop and implement security procedures that would reduce the risk of improper disclosure of trade secrets and provide evidentiary support for remedies for trade secret misappropriation. For example, a company may identify and classify trade secrets and mark them as confidential.

Also, a company may limit access to confidential information by controlling information on a need-to-know basis, and keep electronic information secure by using methods that prevent unauthorised access to trade secrets, including firewalls, passwords, encryption and digital signatures and tracking or keeping logs of access to the information. It is also important to conduct regular education for employees and secure agreements on non-disclosure and confidentiality from employees, vendors and independent contractors.

The Original Certificate System

The UCPA introduced the original certificate system for electronic document containing trade secrets to ease the trade secret owner’s burden of proof regarding ownership in the trade secret misappropriation lawsuit. Once the original electronic document, including trade secrets is registered and the original certificate is issued, the recipient of the original certificate is presumed to have possessed the information as stated in the relevant electronic document at the time of registration.

However, receiving the original certificate for a certain technology or data merely means that the recipient is presumed to possess the registered information at such time, and does not necessarily mean that the electronic document is automatically recognised as a trade secret. 

The original certificate system for trade secrets:

  • reduces and eases the burden of proof on the trade secret owner that it “owns the relevant trade secret at a certain point in time”;
  • forestalls trade secret misappropriation by systematically placing a time stamp on an R&D outcome so that employees recognise that the information is being managed as a trade secret;
  • may positively influence the court to recognise that the relevant information has been managed as a secret when a legal dispute occurred; and
  • may be used to prove prior use right or prior invention with respect to another person’s patent rights.

During exit interviews, an employer reminds departing employees of the confidentiality or post-employment restrictive covenants and demands the return of all proprietary information. An employer commonly has departing employees sign a certification during the exist interview acknowledging that they received copies of executed post-employment restrictive covenants and certifying that all confidential or proprietary company information and property have been returned.

Departing employees often execute written confidentiality agreements with respect to trade secrets acquired or used during the employment period, normally together with non-compete agreements prohibiting the employment of the departing employees in the same industry for a certain time period.

The non-compete agreement goes beyond merely imposing confidentiality obligation on an employee and prohibits the employee from engaging in any competitive acts, such as joining the employer’s competitor or establishing and operating a competing company on their own. Therefore, a concern is that the agreement would harm general consumer welfare by directly restricting the employee’s freedom of job selection as well as restraining free competition and especially by being directly linked to the employee’s livelihood. Thus, the court basically views the non-compete agreement as unacceptable.

However, the court may accept the employer’s claim to prohibit an employee’s transfer to another employer in the exceptional cases where the content and term of the non-compete agreement is found reasonable or where it is recognised that a company’s trade secrets cannot be protected without such prohibition.

Confidential information created, developed or accumulated in the course of the employment under the employer’s supervision may include the employee’s general knowledge, skills and experience that should be treated as belonging to the employee.

In Korea, courts distinguish between an employee’s general knowledge/skills/experience and protectable trade secrets. Utilising the employee’s “general” knowledge, skills or experience gained in their employment with the prior employer is not construed as trade secret misappropriation. However, using the “special” knowledge, skills or experience gained by the employee in their employment with the prior employer while bearing the confidentiality obligation, at the subsequent employer would constitute trade secret misappropriation.

Further, courts have ruled to the effect that using the information and know-how acquired in the employee’s professional line of work in a similar line of work does not violate the UCPA (see Supreme Court Decision No 2008Ma701). This suggests that the doctrine of inevitable disclosure does not appear to be broadly accepted in Korea.

When a company hires employees from competitors (prior employers), it would be recommendable for the company to ensure that the employees are aware of the actions that should not be taken, such as copying the prior employer’s files, before being hired and to request them to provide a written pledge to confirm that they neither possess, nor will disclose, any trade secret information they learned in their prior employment. Additionally, it would be recommendable for the company to require the new employees to sign a statement that they are not violating the terms of any restrictive covenants signed with their prior employers by taking on the new job.

Further, it would be advisable for the company to take physical/technical measures to prevent the inflow of the prior employer’s confidential information within the company, if possible. It would also be recommendable to prevent the employee from engaging in the same type of work as their work with the prior employer for a reasonable non-compete period, ie, usually six months to two years. The foregoing efforts will help minimise the likelihood that the company will be subject to a trade secret misappropriation claim.

There are no prerequisite or preliminary steps that must be taken before a trade secret misappropriation lawsuit can be filed.

Claims for trade secret misappropriation are subject to the statute of limitations. Under the UCPA, when the trade secret misappropriation continues, the right to claim injunction against or prevention of the misappropriation expires, unless the right is exercised within three years from the date on which the trade secret owner becomes aware of the misappropriator’s identity and the fact that business interests were infringed or threatened to be infringed due to such misappropriation. Such right also expires when ten years have elapsed after the date on which the misappropriation first occurred (Article 14). 

Furthermore, the right to claim for damages resulting from a trade secret misappropriation are also subject to three-year and ten-year statute of limitations. The three-year period begins to run when the trade secret owner becomes aware of such damage and the misappropriator’s identity, and the ten-year period begins to run when the misappropriation occurred (Article 766 of the Civil Act).

The applicable laws do not provide any steps that a trade secret owner must take to initiate a trade secret lawsuit.

There are no limitations on the courts in which a trade secret owner may bring a claim for trade secret misappropriation. There are no specialised courts handling civil or criminal trade secret lawsuits.

Under the Civil Procedure Act (CPA), a trade secret owner (plaintiff) may file a trade secret misappropriation lawsuit in a court having the jurisdiction over the place where the defendant has a domicile, where the misappropriation occurred, or where the plaintiff has a domicile (Articles 3, 8, 18 and 25).

The CPA and other applicable laws and regulations do not provide initial pleading standards for civil trade secret lawsuits. In this regard, the trade secret owner may choose to file such lawsuits by alleging facts on “information and belief” as in other civil lawsuits and may additionally submit concrete evidence of misappropriation in the later stages of litigation. 

However, a party’s filing of the civil lawsuit would constitute a tort if it is filed in order to infringe on the counterparty’s rights or interests or to inflict harm on the counterparty without reasonable cause, and the filing contravenes public order and morality (see Supreme Court Decision No 2011Da91876).

Korea does not have a discovery process where parties are subject to the general document preservation and provision (production) requirements. The party bearing the burden of proof in the adversarial system is responsible for fact-gathering, including evidence collecting and submission. Parties may collect evidence even before the lawsuit’s filing and submit evidence to the court until the end of hearings.

The CPA has a principle of free evaluation of evidence. In this regard, there is no limit on the admissibility of evidence for all evidentiary methods. For example, documents prepared to prove the disputed issues after filing the lawsuit, hearsay evidence and written unconfirmed judgments are admissible.

Under the CPA, even before the lawsuit’s filing, a party may request the court to conduct the examination of evidence in advance if using such evidence would be difficult unless the examination of evidence is conducted (Article 375). All types of evidentiary methods, including witness examination, expert examination, appraisal, documentary evidence, inspection and examination of parties are subject to such examination in advance, ie, preservation of evidence.

Under the CPA, a party may apply to the court for an order for document production. The application should specify the document label and its purport, document holder and facts to be proven and reason why such document should be submitted (Articles 345 and 347). Further, upon the party’s application, the court may order the document holder to state the document label and purport, etc. (Article 346). The document holder should submit documents under the court order only in any of the following cases:

  • when the holder has the documents cited in the lawsuit;
  • when the applicant holds a judicial right to demand the document holder to send or show such documents; and
  • when the documents have been prepared for the benefit of the applicant, or prepared with respect to a legal relationship between the applicant and the document holder (Article 344).

Moreover, the UCPA stipulates that the court may, at a party’s request, order the other party to submit materials necessary for the assessment of damage caused by the infringement of business interests in trade secret misappropriation lawsuits (Article 14-3).

Under the UCPA, in trade secret misappropriation lawsuits related to the infringement of business interests, the court, at a party’s request, may order the other party, its legal counsel, or any other entity that has acquired the trade secret due to such lawsuit not to use such trade secrets for purposes other than for continuing the lawsuit nor to disclose these trade secrets to others, provided that the applicant shows or vindicates that the evidence contains or would contain trade secrets and there is a risk of business disruption without such confidentiality order (Article 14-4).

Furthermore, under the CPA, if the court record contains trade secrets owned by a party, the court, at the party’s request, may restrict others’ access to the portions containing these trade secrets among the court records (Article 163).

Many defences are available against a claim for trade secret misappropriation.

Specificity 

The defendant may argue that the alleged trade secret lacks specificity. Since trade secrets are not disclosed to public, the exact contents thereof are often not specific, and the alleged trade secrets are fundamentally broad and ambiguous. However, trade secrets should be as specific as possible to the extent that secrecy is not lost so that it does not interfere with the court hearing and the defendant’s exercise of defence rights.

The extent of specificity of a trade secret should be determined by considering various factors, including the content and nature of the individual information alleged as a trade secret; content of information known in the relevant field; specific aspects of trade secret misappropriation and content of claim for injunction; and relationship between the trade secret owner and the other party. If the trade secret is not specific enough, the court will dismiss the plaintiff’s claim (see Supreme Court Decision No 2011Ma1624).

Information not Protectable

The defendant may argue that the alleged information does not qualify as a protectable trade secret. Possible arguments would be that the alleged information has been disclosed in prior arts or the plaintiff failed to manage the information as a secret.

Misappropriation

The defendant may target the misappropriation element. It may raise a defence contending that it independently developed or reverse engineered the information, or obtained the information under licenses, among others.

Accidental Acquisition

The defendant may argue and prove that it acquired trade secrets without the knowledge and without gross negligence that trade secrets were improperly disclosed or that an act of improper acquisition or improper disclosure of trade secrets has occurred when it acquired such trade secrets. In such case, the defendant may be exempt from liability for the plaintiff’s claims for injunction, damages or restoration of reputation (Article 13 of the UCPA).

Statute of Limitations

The defendant should check whether the statute of limitations has expired before the lawsuit’s filing.

Under the CPA, in the case of a deficient lawsuit whose deficiencies are not rectifiable, such lawsuit may be dismissed by a judgment without holding any pleadings (Article 219). This is exemplified in the case where a lawsuit is filed although the parties have an agreement not to file one. Furthermore, the court may render a judgment without holding any pleadings when a defendant fails to submit a written defence until the judgment has been rendered (Article 257).

However, this is at the court’s discretion, and the CPA does not provide any application procedure for parties to demand the court to render such judgment.

It is difficult to provide a general estimate of the costs for trade secret litigation as the costs are dependent on various factors, including the content, type and complexity of alleged information and relevant technology and the complexity of the relevant case at hand.

Most of the costs for trade secret litigation would be attorneys’ fees and technical expert fees. Contingency-based fees are permitted in civil cases.

Litigation financing is not prohibited, but is rarely used in Korea. However, applicable laws prohibit a voluntary litigation trust, where an entity entitled to be a party to a lawsuit or dispose legal matters entrusts such lawsuit to a third party for litigation financing.

In Korea, judges decide trade secret trials, and there is no jury trial system for civil lawsuits.

In Korea, the trial proceeds through several hearings designated by the court.

First Hearing

At the first hearing, the plaintiff states its purpose of claim and grounds of claim in the complaint. Then, the defendant states its written answer/defence or makes an oral response. In such response, the defendant requests the dismissal of suit or claim and states whether it accepts each of the claims provided in the complaint. The plaintiff may respond whether it accepts the defendant’s answer and/or submits a rebuttal brief to the defendant’s answer.

Each party commonly submits evidence supporting its arguments together with the briefs. In this regard, the relevant facts in the case are argued based on the written and oral statements of the plaintiff and defendant. The court decides whether to accept the parties’ applications for examination of evidence considering the relevance of the evidence with the factum probandum in the case. After the court notifies the decision on such applications for examination of evidence to the parties, it designates next hearing for pleadings and examination of evidence.

Examination of Evidence

At the hearings for the examination of evidence, a witness should attend the hearing, swear an oath and make testimonies (Article 303 of the CPA). Further, the court may hold an explanatory session at the hearing that normally lasts for one to two hours to understand the case, including alleged trade secrets and relevant technical information.

As such, the court holds several hearings where it reviews and examines information/evidence to render judgment and when it considers that it has sufficiently examined it, hearings are closed and the court schedules the date when it will announce its judgment. The first instance proceedings usually last for around eight months to a couple of years depending on the complexity of the case, among others.

As explained in 5.6 Obtaining Information and Evidence, the examination of evidence includes the examination of expert witnesses. Under the CPA, parties may apply for expert witnesses who report on facts obtained on the basis of specialised knowledge and experience, and the expert witness examinations is based on the witness examination procedure (Article 340).

An expert witness, in principle, should make oral testimony and thus, cannot testify by documents, unless permitted by the court. In other words, the expert witness, in principle, cannot testify while looking at any notes or documents prepared in advance, and thus, such written notes/documents cannot replace the witness’ oral testimony (Article 331). If an expert witness has difficulty in appearing before the court because they reside in a remote or barely accessible area or due to other circumstances, the court may examine such witness through video or other transmission system after hearing the parties’ opinions (Article 327-2).

The expert witness examination differs by each case, but usually lasts no more than an hour.

Under the Civil Execution Act, a trade secret owner may request for a preliminary injunction aside from the civil trade secret lawsuit to establish a temporary position on the disputed rights relationship in order to avoid potential material damage on the rights relationship, prevent imminent harm, or for other justifiable reason (Article 300). In order to obtain a preliminary injunction, the applicant should demonstrate that it is entitled to claim for trade secret misappropriation and the preliminary injunction is necessary to avoid significant harm or prevent imminent risk to the applicant. Such necessity is determined by comprehensively considering various factors, including the likelihood of success on the merits and the balance of hardships/benefits between the parties.

The courts limit the duration of a permanent injunction to the duration of trade secret protection, which is limited to the period explained in 1.9 Duration of Protection for Trade Secrets.

The court may order collateral provision with respect to the respondent’s damages that could incur from the preliminary injunction (Articles 301 and 280 of the Civil Execution Act). The party should either submit a copy of the deposit to the court after depositing the collateral amount ordered by the court or submit the original of the guarantee as collateral after executing a payment guarantee entrustment contract with a financial institution or insurance company. 

The standard for calculating the collateral amount differs for each court, but usually it is equivalent to 10% to 20% of the amount or value of the subject matter in the litigation.

Under the UCPA, the misappropriator which damaged the trade secret owner’s business interests by wilfulness or negligence is liable to compensate for such damages; in case the misappropriation is found wilful, the court may award up to treble damages (Articles 11 and 14-2). 

Misappropriation and Actual Damages

However, as it is difficult for the claimant (owner) to prove the causal relation between the misappropriation and actual damages, the UCPA provides damage calibration rules based on the following legal presumptions.

In measuring damages, the amount of damage may be calculated by multiplying "the volume of the goods transferred by the misappropriator" by "the claimant’s presumed profit per unit of good”. In such cases, the compensation should be determined between the volume of goods that the claimant could have produced as maximum and the amount that the claimant has actually sold under the circumstance of misappropriation. 

Where the respondent successfully proves the amount that the claimant would not have obtained even without misappropriation, such amount should be deducted from the foregoing damage amount if the misappropriator has gained any profit by misappropriation, the relevant amount of profit should be presumed as the amount of damages sustained by the claimant.

The claimant may choose the amount of reasonable royalty as damages against misappropriation, and the reasonable royalty denotes the objective amount which would have been paid for the trade secret if the misappropriator had gone into a license contract with the claimant. The reasonable royalty is guaranteed as the base amount of damages for every misappropriation, and if the actual damages amount exceeds the royalty amount, such excess amount may also be claimed as compensation.

Further, where the court recognises the extreme challenge of proving the amount of damages incurred with respect to the misappropriation in litigation owing to the nature of the case, the court may determine a reasonable amount on the basis of the entire purpose of oral proceedings and the outcome of examination of evidence (Article 14-2).

Punitive Damages

As explained above, punitive damages (treble damages) are available and the UCPA provides that the court should consider the following in determining damages:

  • whether the misappropriator has superior bargaining position;
  • degree of the misappropriator’s knowledge about the risk of damages or wilfulness;
  • scale of damages suffered by the owner due to the misappropriation;
  • economic benefits obtained by the misappropriator from the misappropriation;
  • period and frequency of the misappropriation;
  • penalties pursuant to the misappropriation;
  • misappropriator’s asset status; and
  • degree of efforts by the misappropriator for damage relief (Article 14-2).

In trade secret misappropriation lawsuits related to the infringement of business interests, the court may, at a party’s request, order the other party to submit materials necessary for the assessment of damage caused by the misappropriation (Article 14-3).

The trade secret owner (claimant) is entitled to claim for injunction against or prevention of misappropriation by the entity which misappropriated or is intending to misappropriate trade secrets; and necessary measures to prohibit or prevent misappropriation, such as the destruction of object that created the act of misappropriation, removal of equipment provided in such misappropriation or any other such necessary measures (Article 10 of the UCPA).

Courts have ruled that a permanent injunction in a trade secret misappropriation case is unacceptable as it not only has a sanctioning effect, but also runs contrary to the public interest of promoting free competition and enabling employees to extract their knowledge and abilities.Thus, courts impose a time limit on the permanent injunction as explained in 1.9 Duration of Protection for Trade Secrets and 7.1 Preliminary Injunctive Relief.

Further, as explained in 3.2 Exit Interviews, in exceptional cases where the parties have a non-compete agreement, the agreement is construed to be valid where the content and term of the agreement is recognised as reasonable or where it is found that a company’s trade secrets cannot be protected without such agreement.

By successfully obtaining the preliminary injunction and executing the preliminary injunctive relief, the trade secret owner may obtain ex parte civil seizure of accused products in a trade secret case. The court may order necessary measures to prohibit or prevent misappropriation, and such necessary measures include a seizure order ex parte. For the execution of the order, the bailiff would be dispatched to seize the accused products and/or the equipment provided in such misappropriation. The requirements for preliminary injunction are explained in 7.1 Preliminary Injunctive Relief.

In principle, the losing party should pay the litigation costs. Attorneys’ fees should be the cost of lawsuit up to the limit of the amount as determined by the Supreme Court Rules (Article 109). Therefore, only a part of the winning party’s attorney fees should be directly reimbursed by the losing party. 

The litigation costs, including attorneys’ fees, are determined in proportion to the amount in controversy. For example, if the amount in controversy is KRW100 million, the litigation costs would be about KRW7 million.

Under the Costs of Civil Procedure Act, the losing party bears all civil litigation costs, including: daily and travel expenses for witnesses, appraisers, etc; daily allowances required for the court clerk’s evidentiary examination; special charges for appraisal; communication costs; and notification costs. This amount is not significant as it is limited by the Supreme Court Rules.

The appeal mechanism is available to the losing (aggrieved) party in the first instance trial which has a legitimate interest in the appeal. Under the CPA, an appeal should be filed within two weeks from the date on which the written judgment has been served, and such period is invariable (Articles 390 and 396).

Although the appeal period differs by case based on the complexity of case, it usually takes six months to two years to pursue an appeal.

It is impossible to appeal from orders that are not final judgments (Article 390). 

Since the same laws apply to all appellate courts, the appeal process does not differ depending on the first instance court where the case was filed.

The appellate proceeding is a continuation of the first instance trial where there is a substantive review of claim. The appellate proceeding is a second factual trial and the case is decided again by reviewing both factual and legal issues. As a continuation of the first instance trial rather than repeating the content and process thereof, new allegations or submissions in the appellate proceeding should be considered. Therefore, the parties have a right to renewal in the appellate proceeding.

As a continuation, the parties do not need to separately take measures to preserve issues for appeal. However, considering that the appeal was initiated to reverse the judgment in the first instance court, the case is re-examined to the extent of such appeal and determined whether the appeal has grounds. 

The UCPA imposes criminal penalties for trade secret misappropriation (Article 18). Entities and conducts subject to criminal penalties have already been explained in 2.4 Industrial Espionage (see Articles 18(2) and 19)

The misappropriator may be punished by an imprisonment of no more than ten years and/or by a criminal fine not exceeding KRW500 million. If the amount corresponding to ten times the amount of property gain due to the misappropriation exceeds KRW500 million, the misappropriator may be subject to a penalty of two to ten times the property gain (Article 18(2)).

Any entity which has used trade secrets abroad or has misappropriated trade secrets with knowledge of the fact that they will be used overseas may be punished by imprisonment of no more than 15 years and/or by a criminal fine not exceeding KRW1.5 billion (Article 18(1)).

The defendant’s defence methods in the criminal trade secret lawsuit are similar to those in the civil trade secret lawsuit.

In regard to the alternative dispute resolution (ADR) mechanisms, there are settlement, mediation and arbitration procedures.

The settlement procedures include court-led settlement and out-of-court settlement. In the out-of-court settlement, parties sign a settlement agreement to make mutual concessions and end the dispute. The content and method of settlement agreement follows principles of contractual freedom and is not subject to any limits. However, court-led settlement is under the court’s supervision and carries the effect of a final judgment unlike the out-of-court settlement.

Mediation refers to the process by which a judge or mediator intervenes between disputed parties to prepare a forum for dialogue and compromise and ultimately, settlement. Once the mediation is established and mediation protocol is prepared, this would carry the same effect as the court-led settlement.

Arbitration refers to the process where the appointed arbitrator based on the parties’ agreement resolves the dispute by the arbitral award. Under the Arbitration Act, the arbitral award has the same effect as a court’s final judgment (Article 35). However, the arbitral award may be enforced only by the court’s decision to enforce it upon the request of the parties (Article 37).

Contrary to the judicial proceedings, the ADR proceedings are not open to public. Thus, the risk of losing secrecy of the parties’ trade secrets may be reduced. Except this, however, it is difficult to find any particular advantages or disadvantages to using ADR in trade secret cases relative to other cases.

Under the Arbitration Act, a party to an arbitration agreement may request interim measures of protection from a court, before the commencement or during arbitral proceedings (Article 10). In addition, unless otherwise agreed by the parties, the arbitral tribunal may grant interim measures as found necessary at a party’s request whereby the tribunal orders a party to perform any of the following:

  • maintain or restore the status quo pending determination of the dispute;
  • take action that would prevent current or imminent harm or prejudice to the arbitral proceeding or prohibit action that may cause such harm or prejudice;
  • provide a means of preserving assets subject to the execution of an arbitral award; or
  • preserve evidence that may be relevant and material to the dispute resolution (Article 18).
Yoon & Yang LLC

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Seoul
South Korea

+82-2-6003-7000

+82-2-6003-7800

yoonyang@yoonyang.com www.yoonyang.com
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Law and Practice

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Yoon & Yang LLC is a full-service law firm with more than 420 attorneys and other professionals based in Seoul, South Korea, with overseas offices in Tashkent, Uzbekistan, and Ho Chi Minh City and Hanoi, Vietnam. The firm’s trade secret practice team has over 20 attorneys and other professionals, including IP, antitrust, criminal defence and labour attorneys, who demonstrate world-class professionalism and expertise to provide top-notch legal services based on the clients’ needs. The trade secret practice team has accumulated litigation expertise as Korean companies have increasingly initiated or been subject to litigation in US court and ITC proceedings. The team successfully represented SK Innovation in a trade secret infringement lawsuit brought by its competitor before the US courts, ITC and Korean courts. It also represented SK Hynix against its competitor in trade secret infringement cases in the USA and Japan and OTO Melara in ICC arbitration proceedings regarding trade secret infringement.

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