Criminal Sanctions on Trade Secret Infringements in Korea

Trade secret Infringers may be prosecuted as criminals in addition to civil litigations. The Korean UCPA stipulates that anyone who illegally acquires trade secret of others or uses or discloses to a third party a misappropriated trade secret may be imprisoned up to ten (10) years or fined in an amount of KRW50,000,000 (approximately US$50,000) or two (2) to ten (10) times of the monetary gains. The fine may amount to the 10 times of the value of the stolen trade secret. In Hyundai Motors case, two former engineers were punished to 3.5 years imprison and US$3 million fines respectively.

Further, the Korean Supreme Court held that the act of divulging trade secret to the competitor for the purpose of gaining economic benefit by former employees shall be punished as criminal violation of the fiduciary duty under the Criminal Code. Besides UCPA, trade secrets misappropriations may be prosecuted under the criminal code, too.

In addition to criminal sanction on individuals, companies may be punished by fine that is KRW50,000,000 (approximately US$50,000) or two (2) to ten (10) times of the value of the stolen trade secrets or monetary gains of infringers.

Criminal Procedure of South Korea

1. Initiation of Investigation

Investigation is initiated upon discovery of the possibility that a crime may have been committed. The ultimate responsibility in all investigative procedures is in the hands of the prosecutor. Based on collected evidences, the prosecutor assess the validity of the judgment that a crime has occurred, and take appropriate measures upon this ascertainment.

2. Booking, Arrest & Detention

Booking denotes the formation of a criminal case after initiation. An individual subject to investigation becomes a criminal suspect once a criminal charge has been determined by the investigation agency. In principle, prosecutors or police officers must obtain a warrant issued by a judge to arrest a suspect; however, there exist certain exceptions to these warrant requirements in cases that necessitate "Emergency Arrest" and "Arrest of Flagrant Offender". The prosecutor may detain the arrested suspect with a warrant of detention issued by the judge upon request by the prosecutor within 48 hours from the time of arrest. A suspect may request a preliminary hearing prior to detention, and an arrested or detained suspect may request a review of legality to the court. Through such process, the suspect may be released.

3. Prosecution

Suspects are indicted in cases when there is a prosecutor’s decision that such suspects must stand trial. On the other hand, prosecutors may dismiss a case without indictment. The ground such as ambiguous location of the suspect, in which case further proceedings are unfeasible, will lead to a stay of prosecution.

4. Trial and Sentencing

A judge hears trial upon motions filed by prosecutors. Sentencing occurs when defendants are found guilty of their charges. The punishment may include death penalty, imprisonment and fine, etc.

Trade Secret Protection in South Korea

1. What is Trade Secret under Korean law?

“Trade secret” under Article 2.2 of the UCPA of Korea means technical or business information that: (i) has not been publicly disclosed, (ii) has an independent economic value, and (iii) has been maintained as secret with substantial effort. The clause of article 2.2 of the UCPA is : "trade secret" means information, including a production method, sale method, useful technical or business information for business activity, that is not known publicly, is the subject of considerable effort to maintain its secrecy and has independent economic value.

2. What is misappropriation or infringement of trade secret under Korean law?

Article 2.3 of the UCPA further stipulates that any of the following acts shall constitute an act of trade secret misappropriation:

(i) acquisition of a trade secret through theft, deception, coercion or other improper means (hereinafter referred to as “act of improper acquisition”), use or disclosure, to a third party, of the acquired trade secret (including disclosure thereof to a third party while maintaining its secrecy);

(ii) acquisition of a trade secret, with the knowledge that an act of improper acquisition was involved with respect to the trade secret or failing to know thereof due to gross negligence, use or disclosure thereof to a third party;

(iii) use or disclosure, to a third party, of a trade secret, with the knowledge gained subsequent to its acquisition that an act of improper acquisition was involved with respect to the trade secret or failing to know thereof due to gross negligence;

(iv) use or disclosure, to a third party, of a trade secret by a person who has a fiduciary duty not to use or divulge the trade secret under a contractual relationship and the like;

(v) acquisition, use or disclosure, to a third party, of a trade secret with the knowledge that the trade secret was disclosed in violation of the fiduciary duty referred to in item (iv) above or failing to know thereof due to gross negligence; and

(vi) use or disclosure, to a third party, of an acquired trade secret with the knowledge gained subsequent to its acquisition that the trade secret was disclosed in violation of the fiduciary duty referred to in item (iv) above or failing to know thereof due to gross negligence.

We can assume that the meaning or scope of misappropriation under Korean law is almost the same as those of misappropriation under American UTSA. Namely, the key points of misappropriation under Korean law include (1) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or (2) disclosure or use of a trade secret of another Without express or implied consent by a person who used improper means to acquire Knowledge of the trade secret; or (3) at the time of disclosure or use, knew or had reason to know that his knowledge of the trade secret was (i) derived from a person who had utilized improper means to acquire it; (ii) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or (iii) derived from a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or (4) before a material change of his position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.

3. Remedies for Trade Secret Misappropriation

(1) Injunctive Relief

(2) Damages
   A. Actual loss (including lost profits where applicable),
   B. Unjust enrichment, and/or
   C. Reasonable royalties.

(3) Criminal Sanctions

False Patent Marking

Many companies mark their products as patented by the patent number on the product or its packaging. Often they mark their products as patented by the patent application number on the product or its packaging before obtaining granted patent. It is false patent marking. More often many companies continue to mark their products as patented by the patent number on the product or its packaging after the expiry of the patent. That is false patent marking, too.

Patent marking may create consumer goodwill by suggesting that the product is innovative and further deter competitors to enter market with the same product. Even before patent granted, manufacturers may try to achieve similar effect through marking product with a patent application number. On the other hand, continued listing of an expired patent would continue to benefit the manufacturer, too.

In Korea, false patent marking can be charged as a crime. The person or company who did such false patent marking shall be imprisoned not more that 3 years or fined not more than KRW20million (about US$22,000). Several cases law show around US$5,000 fines for false marking.

The Korean Patent Act provides a cause of action against those who falsely claim that their products are patented. A company that falsely marks or advertises a product as patented can be held liable. However, it usually is not a cause of action for civil lawsuit including damage compensation. Without exceptional circumstances, false patent marking is within criminal sanction in Korea. Furthermore, under the Korean patent law, it does not require to falsely mark “for the purpose of deceiving the public” as like in the U.S. The intent or knowledge on false marking is enough.

Basically patent marking is not required by the Korean patent law. Without patent marking, a patentee may obtain a preliminary or permanent injunction against infringers. Unlike the injunction remedy, however, the patentee must prove the intent or negligence of infringers in order to obtain damage compensation from the infringers. Marking is an effective and convenient method to prove it and has been used ordinarily in practice.

Criminal Sanction on IPR Infringer

Criminal Sanction on IPR Infringer

Infringement of IP is a crime of trespass of personal property. An infringer may be punished up to 7 years in imprison and/or about US$100,000 fine. It is not uncommon that infringers of IP rights, especially trademarks and trade secrets, have been punished under the Korean criminal law.

To prosecute an infringer of IPR as criminal, an accusation by a proprietor is required. According to the Criminal Procedure Act, the proprietor must accuse an infringer within six months of the date of knowing the infringement and the criminal. The beginning point of the limitation starts from the moment of infringement. Also, the accusation to an infringer will be effective to a corporation as a vicarious liability. An infringer of IPR has been often prosecuted in Korea.

Vicarious Liability on Company

The Patent Act stipulates that the court can punish not only a person who committed an infringement but also a legal entity by imposing fines. The separate accusation against a legal entity is not required because it is not a separate crime from the personal infringer’s. The Supreme Court held that even if the patentee’s request applies only to a person, not to the legal entity, the legal entity may be punished without the expressed accusation of the patentee. This is because the legal entity is liable for the infringement done by its employee.