If SMEs suffer technology theft, damages will be tripled... 'Win-Win Cooperation Act' to be enforced in February next year

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Starting next year, a punitive damages system will be introduced that requires large corporations to compensate up to three times the amount of damages if they steal technology from their suppliers (small and medium-sized enterprises, SMEs).

The Ministry of SMEs and Startups announced that the amendment to the "Act on the Promotion of Mutual Cooperation between Large Enterprises and SMEs (Mutual Cooperation Act)" containing this provision was approved at the Cabinet meeting on the 10th. There have been numerous cases where large corporations abused technical data obtained from SME suppliers to demand price reductions or even halt orders altogether.

The Mutual Cooperation Act was revised to eradicate such technology theft and supports the legal and institutional improvements reflected in the measures announced during the government-party consultation in February 2018.

Key points of the bill include making it mandatory for contracting and contracted companies to sign non-disclosure agreements (NDAs) when providing technical data during transactions. A new provision imposes fines of up to 10 million KRW for failure to comply. This is expected to establish a culture of NDAs for protecting technical data, similar to advanced overseas countries, and strengthen the prevention of technology theft.

The Ministry of SMEs and Startups plans to support smooth conclusion of NDAs in the field by preparing and providing a "Standard Non-Disclosure Agreement" to both large and small enterprises as a follow-up measure.

Additionally, a punitive damages provision has been established requiring compensation up to three times the amount of damages for technology theft occurring in contracting and contracted transaction relationships.

Although related laws such as the Subcontracting Act, Patent Act, and Unfair Competition Prevention Act already include punitive damages provisions, there was no punitive damages system for misuse of technical data by SMEs in contracting and contracted transactions.

Considering the difficulty SMEs faced in proving misuse of technical data, the bill also includes provisions to ease the burden of proof.

Most evidence of technical data misuse exists at the business premises of the contracting company, while the affected contracted SMEs often lack the expertise or financial resources to prove violations.

As a result, problems arose where contracted SMEs lost lawsuits for damages related to technology theft or received low compensation amounts.

The Mutual Cooperation Act now stipulates that if the affected contracted SME specifically alleges the violation by the contracting company in a damages lawsuit, the contracting company denying the claim must present specific details of its conduct (행위태양, various forms or categories of acts, evidence related to the act), thereby easing the burden of proof on the contracted SME.

The Mutual Cooperation Act is scheduled to be implemented six months after promulgation, in February next year, following procedures for subordinate legislation such as public notice and amendment.

Won Young-jun, Director of Technology Innovation Policy at the Ministry of SMEs and Startups, stated, "We will thoroughly prepare to prevent potential infringements on technology owned by SMEs in advance and ensure that SMEs are not disadvantaged during litigation procedures by reviewing measures to eradicate technology theft and preparing for the system’s implementation."

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