CONTENTS
- 1. Concept of the Semiconductor Industry
- - Industry Structure and Characteristics
- 2. Main Regulatory Framework of the Semiconductor Industry
- - Act on National Advanced Strategic Industries
- - Industrial Technology Protection Act
- - Export Controls and Foreign Regulations
- 3. Corporate Response Strategies in the Semiconductor Industry
- - Technology Classification and Determination of Regulatory Application
- - Review of Investment and Transaction Structures
- - Internal Management and Technology Protection
- 4. Legal Structure That Companies in the Semiconductor Industry Should Understand
- - Types of Disputes Related to the Semiconductor Industry
- - Direction of Contract and Regulatory Response
- 5. Direction of Legal Advisory and Assistance in the Semiconductor Industry
1. Concept of the Semiconductor Industry
The semiconductor industry produces core components for a wide range of sectors, including electronic devices, telecommunications, automobiles, and artificial intelligence, and it carries significant weight for the national economy and security.
Because the field is highly technology intensive and demands large scale capital investment in facilities, the work is often divided among several companies rather than handled end to end by one.
As a result, contractual relationships take shape in complex ways, and questions about the scope of technology access and the attribution of rights can give rise to significant legal issues.
The semiconductor industry is also deeply tied to the global supply chain, so a company's business structure can be directly affected by policy shifts or export controls in a particular country.
Within such a supply chain, a regulatory change in one country often produces a chain reaction.
For example, an export restriction on particular equipment can affect not only the production process but also delivery schedules and relationships with partner companies, so companies need to build strategies that also account for changes in statutes and policies.
Industry Structure and Characteristics
The semiconductor industry follows a staged structure that moves through design, manufacturing, and back-end processing, and the technology and contractual arrangements required at each stage differ.
The key points of each stage can be summarized as follows.
Category | Main Content | Legal Issues |
Design | Circuit design and structure development | Intellectual property rights, design rights |
Manufacturing | Wafer production and processing | Technology transfer, equipment export controls |
Back-end Processing | Packaging and testing | Quality liability, contractual disputes |
Because distinct legal issues arise at each stage of the semiconductor industry, the scope of rights and the allocation of liability become central concerns during technology transfer or joint development.
2. Main Regulatory Framework of the Semiconductor Industry
The semiconductor industry falls under a regulatory framework more stringent than that of general industries, driven by the need for technology protection and supply chain stability.
Depending on the nature of the technology and the method of the transaction, an obligation to obtain approval or to file a report may arise, and failing to review this in advance can lead to business delays or contract changes.
Act on National Advanced Strategic Industries
The Act on Special Measures for Strengthening the Competitiveness of National Advanced Strategic Industries designates the semiconductor industry as a national strategic industry, with the aim of protecting technology and strengthening industrial competitiveness.
Technology designated under this Act may require approval or reporting procedures in various transactions, such as overseas transfer, investment, and joint ventures.
Where a cooperation structure with a foreign company is involved, even a simple contract may become subject to regulation, depending on the possibility of technology access.
Industrial Technology Protection Act
The Act on Prevention of Divulgence and Protection of Industrial Technology is a statute meant to prevent the leakage of national core technology, and it plays an important role in the semiconductor industry.
Where a technology qualifies as national core technology, approval or reporting is required for its overseas transfer, and a violation can give rise to criminal liability under certain conditions, such as unauthorized overseas leakage. Administrative sanctions, including penalty surcharges and administrative fines, may also be imposed.
Because the question of whether a technology has been leaked accounts for the possibility of technology access, a comprehensive review of the contractual structure and operating methods is necessary.
Export Controls and Foreign Regulations
Because the semiconductor industry operates globally, foreign regulations must also be taken into account.
The U.S. EAR, in particular, has a direct effect on the export of semiconductor equipment and technology, and transactions with certain countries may be restricted.
U.S. export controls reach technology transfer, software access, and remote collaboration, and where U.S. technology is included even in part, extraterritorial application is possible.
Transactions with sanctioned companies may also be restricted, so prior review of the counterparty is important.
A comparison of the main regulatory frameworks follows.
Category | Scope of Application | Characteristics |
Act on National Advanced Strategic Industries | Strategic technology | Approval-centered regulation |
Industrial Technology Protection Act | National core technology | Leakage-prevention focused |
EAR | Exported technology | Application of foreign regulations |
In the semiconductor industry, intangible technology such as design data and process information may also become subject to regulation, and regulation can apply in cloud environments and during remote collaboration as well.
3. Corporate Response Strategies in the Semiconductor Industry
The semiconductor industry combines technology, contracts, and regulation, and a range of legal issues can surface in the course of doing business.
For that reason, it is important for companies to build a response system centered on prior review.
Technology Classification and Determination of Regulatory Application
The most important step in the semiconductor industry is to determine the legal nature of the technology a company holds.
The applicable regulations differ depending on whether the technology is general technology, national core technology, or strategic technology.
Where the classification is unclear, a prior determination procedure through the competent authority, such as the Ministry of Trade, Industry and Energy, is available, and the outcome carries important consequences for the future contractual structure and business direction.
Review of Investment and Transaction Structures
In the semiconductor industry, whether regulation applies can turn on the transaction structure, and the following types are representative examples that give rise to issues.
· Joint development and technology cooperation
· License and technology transfer contracts
Because such transactions may be treated as technology transfer rather than a simple contract, legal review is necessary from the structuring stage.
In joint development, if the attribution of rights to the results and the scope of their use are not clearly set out, a later dispute becomes highly likely.
Because the semiconductor industry is a national strategic industry, regulation may also reach foreign investment, and an investment in a company that holds national core technology or strategic technology can require a prior reporting or approval procedure.
Since an investment may be assessed as technology transfer depending on the investment structure, it is important to review whether regulation applies from the investment stage.
Internal Management and Technology Protection
In the semiconductor industry, an internal management system to prevent technology leakage is important.
The following management elements are necessary.
· Management of technology access rights
· Conclusion of confidentiality agreements
· Management of personnel movement
Category | Management Content | Purpose |
Access Control | Restriction of entry and data access | Technology protection |
Contract Management | Conclusion of an NDA | Leakage prevention |
Personnel Management | Confidentiality upon turnover and management of agreements concerning job transfer | Prevention of technology leakage |
Such a management system can serve as a basis for proving that the company met its internal control obligations in the event of a dispute.
4. Legal Structure That Companies in the Semiconductor Industry Should Understand
The semiconductor industry weaves technology, contracts, and regulation together, and a variety of legal issues can arise in the course of doing business.
Types of Disputes Related to the Semiconductor Industry
In the semiconductor industry, the main disputes that arise include technology leakage, infringement of trade secrets, disputes over rights to the results of joint development, and questions about the interpretation of license contracts.
Where the scope of the technology and the attribution of rights are unclear, a dispute can drag on, so it is important to settle these clearly at the contract stage.
Because technical facts and legal determinations are intertwined, the outcome can vary significantly with the direction of the initial response.
Where transactions with foreign companies are involved, a dispute may also lead to international litigation.
Where technology leakage or infringement of trade secrets is established under the Industrial Technology Protection Act and the Unfair Competition Prevention and Trade Secret Protection Act, criminal punishment together with civil liability for damages may follow, which can pose a significant legal risk to a company.
The main standards of punishment for technology leakage and infringement of trade secrets are as follows.
Category | Relevant Statute | Violation | Level of Punishment |
|---|---|---|---|
Leakage of national core technology | Article 36 of the Industrial Technology Protection Act | Overseas leakage or unlawful acquisition or use of national core technology | Imprisonment for a definite term of at least 3 years and a fine of up to 6.5 billion won (imposed concurrently) |
Infringement of trade secrets | Article 18 of the Unfair Competition Prevention and Trade Secret Protection Act | Unlawful acquisition, use, or disclosure of trade secrets | Imprisonment for up to 10 years or a fine of up to 500 million won |
Overseas leakage of trade secrets | Article 18 of the Unfair Competition Prevention and Trade Secret Protection Act | Overseas leakage of trade secrets | Imprisonment for up to 15 years or a fine of up to 1.5 billion won |
Where intentional infringement is established, civil liability for damages may also arise, and punitive damages of up to three times the amount may be recognized.
Direction of Contract and Regulatory Response
In the semiconductor industry, regulatory response must be carried out at the same time as the conclusion of contracts.
Whether regulation applies should be reviewed against factors such as the scope of technology transfer, the method of providing data, and the structure of foreign cooperation, and the necessary approval and reporting procedures should be prepared in advance.
It is also necessary to set up a business plan that takes both the transaction schedule and the regulatory procedures into account.
5. Direction of Legal Advisory and Assistance in the Semiconductor Industry
The semiconductor industry calls for technology protection and business expansion at the same time, so it is important to review comprehensively the legal issues that arise at each stage.
Because elements such as technology transfer, export controls, investment structures, and joint development come together, a response must rest on a composite regulatory framework rather than a single statute.
Main Areas of Assistance by the Corporate Legal Group
• Review of whether the technology held qualifies as national core technology or national advanced strategic technology
• Analysis of legal risks in the structure of technology transfer, license, and joint development contracts
• Review of the possible application of export controls, such as the EAR, and foreign regulations
• Advisory on regulatory responses for transaction structures such as overseas investment, acquisition of equity interests, and joint ventures
• Response to disputes over semiconductor technology leakage and infringement of trade secrets
In the semiconductor industry, business outcomes can vary significantly with the contractual structure, the scope of the technology, and whether regulation applies.
Where legal review is needed in connection with this industry, it is important to thoroughly review the relevant matters through a 🔗corporate attorney legal consultation reservation and then to set a response direction suited to the matter.
