Preventing Technology Theft from SMEs

Amendment to the Win-Win Cooperation Act Effective on the 18th
Mandatory Confidentiality Agreement Signing
Up to Triple Damages Imposed for Infringement

[Asia Economy Reporter Choi Donghyun] From now on, large corporations will be required to sign non-disclosure agreements (NDAs) when receiving technical data from small and medium-sized enterprises (SMEs). Additionally, when SMEs file lawsuits for technology infringement, the burden of proof will rest on the large corporations. Compensation for technology infringement damages can be imposed up to three times the amount of the damage.

The Ministry of SMEs and Startups announced on the 8th that the revised enforcement decree of the "Act on the Promotion of Mutual Cooperation between Large Enterprises and SMEs" (Mutual Cooperation Act), which includes these provisions, passed the Cabinet meeting. The law will take effect from the 18th of this month.

Until now, the government has prepared various measures to protect SME technologies, but there have been criticisms that these were limited to fragmented legal and institutional improvements. On the ground, cases have continued where large corporations request technical data from SME suppliers, use the received technical data to dual-source suppliers, then demand price reductions or halt orders from the original SME suppliers.

The revision can be summarized into three points: ▲mandatory non-disclosure agreements ▲easing the burden of proof for technology infringement by commissioned companies ▲establishment of punitive damages regulations for technology theft. From now on, to protect technical data in consignment transactions, signing NDAs when providing technical data will be mandatory. In particular, to ensure fair NDAs between commissioned and commissioning companies, the list of employees holding the technical data, rights ownership relations, methods and dates for returning or destroying the technical data must be explicitly stated. Failure to comply will result in fines of 5 million KRW for large corporations and 3 million KRW for SMEs.

The burden of proof for technology infringement by commissioned companies will also be eased. In future technology infringement damage lawsuits, the commissioning company, usually a large corporation, must directly present specific evidence. Furthermore, fines for refusing administrative investigations related to misuse of technical data will be increased.

A punitive damages provision has also been newly introduced, requiring compensation up to three times the damage amount for technology theft occurring in consignment transactions. This is the first time a punitive damages system for misuse of SME technical data in consignment transactions has been introduced.

Won Youngjun, Director of Technology Innovation Policy at the Ministry of SMEs and Startups, stated, "We will carefully prepare by reflecting the revised law and enforcement decree in the standard NDA and conducting promotion and education together with SME cooperatives and associations."

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