Damages Mostly Determined by Court Discretion... "Do Judges Even Understand Technology?" [SME Technology Theft Trap] ③

<3> Damages Determined by Court Discretion in Most Cases...
"Do Courts Even Understand the Technology?"
Solcom Awarded Only 20 Million Won After 8 Years of Litigation
Unable to Recover Losses, the Company Shuts Down
Proving Damages From Techno

Editor's NoteWhen a small or medium-sized enterprise (SME) fights a conglomerate over stolen technology, the outcome-win or lose-often leaves only scars. Not only is it difficult to pass through the narrow gate of victory, but even if a company does prevail, the damages awarded are often so negligible that many are forced to close their businesses. This is why there is an unwritten rule: "If your technology is stolen, consider it bad luck and do nothing." No matter how hard SMEs fight, it is difficult to win, and even a victory can feel like a loss. Approximately 300 such cases occur annually. The Asia Business Daily will examine the current state and causes of technology theft that drives SMEs to ruin and seek solutions in a five-part series.

Overwhelming litigation costs and unreasonably low compensation amounts are the main reasons why SMEs that have had their technology stolen are reluctant to pursue legal action. According to the Ministry of SMEs and Startups, the average amount of damages recognized by the court in technology infringement lawsuits is 140 million won, which is only 17.5% of the average amount claimed by plaintiffs (800 million won).

The case of Koh Si-hyun, CEO of the software development company Solcom Infocoms (Solcom), illustrates this problem well. In 2011, Solcom received a subcontract request from Kolon Benit, an affiliate of Kolon Group, to develop a program. After Solcom successfully completed the development and the business relationship was proceeding smoothly, Kolon suddenly notified Solcom of the contract's termination, stating that it would source the product from another company. Later, CEO Koh discovered that Kolon Benit was using the source code he had painstakingly developed without authorization and initiated a lawsuit.

CEO Koh spent eight years engaged in four civil lawsuits and three criminal lawsuits. He spent hundreds of millions of won on litigation, and his health deteriorated rapidly. In the end, the court recognized Kolon's violation of copyright law and ordered Kolon to pay Solcom 20 million won in damages. Although this was a hard-fought victory, Solcom ultimately closed its doors. CEO Koh expressed his frustration, saying, "When I think only about the damages, it makes my blood boil. Who would be willing to invest so much time and money in a lawsuit under these circumstances?"

Difficulty in Valuing Technology Leaves It to 'Court Discretion'

How are damages determined? According to SME and legal industry sources on October 24, the methods courts use to calculate damages in technology theft cases include: ▲ lost profits due to technology theft, ▲ profits earned by the infringing company, and ▲ royalties that would have been paid if permission had been obtained. If damages cannot be calculated using these three methods, the court ultimately determines a "reasonable amount of damages" at its own discretion.

According to a paper by the Graduate School of Interdisciplinary Security at Chung-Ang University titled "A Study on the Technology Infringement Damages System Based on Statistical Precedent Analysis," in most domestic technology theft disputes, damages are determined by the court's discretionary decision-"reasonable damages"-in 80.7% of cases. This is because it is difficult for the victim company to present objective and credible evidence to persuade the court.

Jung Ji-won, CEO of Algocare, who experienced a technology theft dispute with Lotte Healthcare in 2023, said, "Even if sales dropped from 1 billion won to 500 million won due to technology theft, no one can say for sure whether it was because of market changes or because the service deteriorated. The very demand to prove the damages essentially means compensation will not be awarded."

Attorney Park Hee-kyung of the Gyeongcheong Foundation explained, "The infringing company can simply claim, 'The profits we earned were not due to the stolen technology.' It is extremely difficult to prove how much the stolen technology actually contributed to the infringer's profits. Because it is hard to persuade the court with objective logic, the court inevitably sets the compensation far more conservatively than the plaintiff's claim."

Increase in Specialized Disputes..."Courts Cannot Be Trusted"

As technology theft disputes increase in specialized fields such as machinery, chemistry, and IT, distrust in the court's discretionary calculations is also rising.

Park Seon-tae, CEO of Sun Aerosys, who developed a six-axis drive simulator, began legal proceedings in 2018, claiming that Hyundai Rotem did not sufficiently pay subcontracting fees and used his technology without authorization. In the first trial, the court acknowledged that Hyundai Rotem had used hardware developed by Sun Aerosys without proper payment and ordered 430 million won in compensation. However, considering the amount CEO Park had invested in research and development, this was insufficient.

CEO Park requested that the value of the software, not just the hardware, be properly assessed in the second trial. However, the court not only overturned the first trial's result but also ruled against Sun Aerosys in the second trial. The court excluded the valuation of the software, stating that there was "little need to assess its economic and independent value." Attorney Park commented, "The core of the simulator is the software, not the hardware, so I still cannot understand the court's ruling that there was little need to assess the economic value."

CEO Koh also questioned the court's method of calculating damages. The court recognized partial infringement of Kolon's reproduction rights, but since only two out of forty-six library files were found to be infringed, the damages were set at 20 million won. The value of the source code, which is the core of file development, was not considered, and the assessment was made based on a simple ratio.

CEO Koh lamented, "If the engine makes up 20% of a car worth 10 million won, they're saying they'll pay 2 million won because only the engine was taken. The time and effort spent designing and developing the car (the source code) are the most significant parts, and it's most unfair that this wasn't taken into account."