Trade Secret

The reasons trade secrets are important to a company include the following.

1. Conversion of core technology and know-how into assets

Non-public status means a state in which the information is not disclosed to the general public and is not widely known in the relevant industry or society as a whole.

That is, information that anyone can readily verify from accessible websites, public-agency documents, patent gazettes, papers, and the like cannot be a trade secret.

In practice, internal company materials, undisclosed research reports, new-product development plans, and the like may satisfy non-public status.

However, a case in which only some departments within the same company are aware of the information may also be regarded as non-public.

→ Practical Tip for Businesses : It is important to restrict access rights to the information and to clearly make all employees aware of the confidentiality of that information.

Economic usefulness means that because the information has not been disclosed, it has value that may provide a direct benefit to business activities or confer a competitive advantage.

This requires not merely existing in the form of figures or documents but having actual value that contributes to the company's cost reduction, increased sales, technology development, customer retention, and the like.

For example, information such as a particular manufacturing process, a customer list, or supply unit prices may cause actual harm to the company if leaked, so economic usefulness is recognized.

→ Practical Tip for Companies: It is advisable to keep provable records of how the information contributes to the company and what harm could occur if a competitor were to obtain it.

Secrecy management means whether reasonable management measures are being taken to keep the information confidential.

This includes not only whether the information itself is encrypted but also comprehensive management practices such as restricting access rights to information, internal security rules, training to prevent information leaks, the conclusion of NDAs, and management of internal servers.

When assessing this requirement, the court comprehensively considers factors such as confidentiality markings, physical and digital access restrictions, documentation of security policies, and whether employee security training was provided.

→ Practical Tip for Companies: It is necessary to mark internal materials as confidential, manage logs of document access, copying, and printing along with access records, and obtain a pledge that includes clauses on the return of information and the duty of confidentiality upon resignation.

The main legal risks that a company may face in connection with trade secrets are as follows.

1. Criminal punishment due to leakage of trade secrets
If a trade secret is leaked externally or conveyed to a competitor, not only the person who committed the act but also the company that failed to prevent it may bear criminal liability.

In particular, cases of leakage by former employees or partner-company staff are frequent, and criminal punishment may be imposed for violation of the laws on prevention of technology leakage.

A company should put in place internal controls, conclude NDAs (nondisclosure agreements), and maintain a leakage prevention system.

2. Risk of not being recognized as a trade secret
Even if information has been leaked, if that information is not legally recognized as a ‘trade secret,’ it cannot be protected.

The requirements of non-public availability, economic usefulness, and secrecy management must all be met, and, for example, if an internal document has no confidentiality marking or there are no management rules, a court may judge it to be mere business information.

It is necessary to establish security policies and set up an information management system in advance.

3. Disputes with former employees or partner companies
When an executive or employee who knows the technology or customer information moves to a competitor or starts a business after leaving, this may lead to a trade secret infringement dispute.

However, if the company cannot prove that the information is a trade secret, or if it conflicts with the worker's freedom to choose an occupation, the company may find it difficult to receive legal protection.

To this end, confidentiality obligation clauses and non-competition clauses should be clearly included in the contract.

4. Risk of failing to protect the company's own trade secrets and conversely being treated as the infringing offender
If a company inadvertently uses the information of a partner company or another company, or unintentionally infringes the other party's trade secret in the course of referring to another company's materials, it may be treated as the offender in criminal and civil terms.

This occurs in various situations such as product development, mergers and acquisitions, and outsourcing contracts, and the company suffers significant harm including damages as well as a decline in credibility.

In practice, confirming the legality of the process of collecting and using information is important.

5. Civil liability due to inadequate information protection systems
If a trade secret is leaked through hacking of information and communications devices or unauthorized access by an insider, a company that neglected technical and managerial protective measures may bear civil liability for damages.

In particular, if this occurs in transactions with an ordering party or a public institution, additional disadvantages such as contract termination and a decline in creditworthiness may follow.

Establishing an information protection organization and IT security infrastructure is indispensable.

6. International technology leakage risk when expanding overseas business
A trade secret leakage that occurs at an overseas research institute or overseas subsidiary may conflict not only with local law but also with domestic law, and as a result the company may be investigated by multiple agencies such as investigative agencies or the National Intelligence Service.

In particular, where it falls under national core technology or strategic technology, additional sanctions under the "Act on Prevention of Divulgence and Protection of Industrial Technology" may apply.

When expanding overseas business, a legal and security control tower is necessary.