[New Wave] Misunderstandings and Truths about the 'Confidentiality Agreement Obligation' in the Win-Win Act

On July 9th, the proposed amendment to the "Act on the Promotion of Mutual Cooperation between Large and Small-Medium Enterprises (Mutual Growth Act)" was announced, sparking backlash from the business community. In particular, there are concerns that mandating the signing of a Non-disclosure Agreement (NDA) when small and medium enterprises (SMEs) provide technical data to large corporations could stifle business transactions.

While overseas advanced companies customarily sign NDAs during technology transactions, this culture has not yet taken root domestically. Interestingly, large corporations always sign NDAs when dealing with foreign companies, but their approach is quite different when dealing with domestic SMEs. There have been numerous cases where large companies have refused SMEs' requests for NDAs, and some have even rejected the entire transaction on the grounds that such a request was made.

Technology theft often occurs during business proposals, bidding, or negotiations before a formal business relationship is established. Among 218 cases of unfair competition reported to the Korean Intellectual Property Office recently, 56 cases (26%) involved idea theft. Of these, 30% were perpetrated by large corporations, showing a higher proportion of large company involvement compared to other unfair competition acts.

Idea theft happens because creating an original idea requires significant investment and time, but during negotiations, the technical experts on the other side can easily understand the idea once explained, believe they can implement it themselves, and eventually regard the other party’s idea as insignificant. Technology theft not only deprives the proposing SME of business opportunities but also damages future business prospects by stealing their technology.

The Federation of Korean Industries holds a critical view of the "Obligation to Conclude a Non-disclosure Agreement (Article 21-2 of the amendment)" because the wording of the legal provision may cause misunderstandings. Specifically, Article 1 of the same clause states, "When a commissioned company provides technical data to a commissioning company, both parties shall conclude a non-disclosure agreement," which can be interpreted as mandating an NDA in 'all' cases where technical data is provided, potentially overlapping with the existing obligation under the current Mutual Growth Act to issue written documents.

The current Mutual Growth Act generally prohibits the demand for technical data from commissioned companies and only allows legitimate requests when a proper written document is issued for justifiable reasons (Article 25, Paragraph 1, Item 12). Technology theft occurs both before and after the formation of the commissioning relationship, but the current law only regulates after the relationship has been established.

Therefore, if the amendment clarifies that the "obligation to conclude a non-disclosure agreement" applies only to the provision of technical data during pre-contractual stages such as business proposals and bidding for commissioning transactions, it would avoid duplication with the existing written document issuance requirement and achieve the intended legislative purpose.

Eradicating technology theft is a key national agenda of President Moon Jae-in’s administration, which has promoted "fair economy" since the beginning of his term. Although South Korea’s economy has risen to the world’s top 10 in stature, deeply rooted unfairness still prevents the market order from functioning properly. With the digital transformation underway, it is now essential for Korea to respect the innovative ideas and technologies of SMEs and for large corporations to transform into a sound economy respected by society.

Professor Son Seung-woo, Department of Industrial Security, Chung-Ang University

This content was produced with the assistance of AI translation services.