Korea toughens penalties for technology leaks to foreign entities as cases rise

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Korea toughens penalties for technology leaks to foreign entities as cases rise

Published: 06 Feb. 2024, 12:09 Updated: 06 Feb. 2024, 15:51

SHIN HA-NEE
[email protected]

[SHUTTERSTOCK]

The Korean government is bolstering efforts to curb a rise in industrial technology leakage to foreign entities, especially within the semiconductor sector, as the number of cases reached a five-year high in 2023.

The latest plan includes upping the penalty cap from the previous 1.5 billion won ($1.13 million) to 6.5 billion won, as well as tighter reporting obligations on foreigners regarding mergers and acquisitions (M&A) of Korean companies.

According to the Ministry of Trade, Industry and Energy’s release on Tuesday, the number of industrial technology leakage cases to foreign entities has grown constantly over the past five years, from 14 in 2019 to 23 in 2023. Out of the 23 cases uncovered last year, 15 were involving semiconductor technologies. There were three incidents in the display sector and three in the automotive space.

To combat the growing trend, the Industry Ministry plans to expand and strengthen penalties for technology leaks.

Under the revised Act on Prevention of Divulgence and Protection of Industrial Technology, the penalty cap on overseas technology leak cases will be upped from the current 1.5 billion won to 6.5 billion won for core technologies, and 3 billion won for other industrial technologies. Brokers who facilitated the theft will also be subject to the punishment, and the cap on punitive damages for infringement will be expanded from the current threefold compensatory damages to fivefold.

Moreover, foreign entities seeking to acquire or merge with a local company with strategic technologies will be obligated to submit a report to Korean authorities. The reporting obligation is imposed on those seeking to acquire over 50 percent of ownership in a local company possessing core technologies.

The current law only mandates the local company to make a report.

“Under the current law, […] other local companies cannot have access to information on whether an M&A is taking place in case of hostile takeovers, and it is a common practice to impose reporting obligation on the investor when it comes to M&A deals or foreign investments,” said the ministry in the release.

Addressing concerns about the increased burden on foreign companies, the ministry said that it would minimize any inconvenience with more efficient procedures.

The review process for an M&A application will become stricter as well, with additional review items, such as its potential implications on national security and the economy.

The Industry Ministry aims to complete the revision of the law within the first half of the year and adjust relevant rules by the latter half.

Other major economies have also been beefing up measures to prevent tech infringements. The U.S. authorities, for example, bolstered the review process on foreign investments, mandating a review even for the acquisition of non-controlling stakes in crucial sectors.

BY SHIN HA-NEE [[email protected]]