"Promised a Supply Contract but Demanded Technology Disclosure"…Struggling SMEs [Intellectual Property is Competitiveness]

⑤Protecting SME Technology: The Importance of IP
Asia Economy - Seoul School of Integrated Sciences and Technologies Joint Project
Technology Disclosure Demanded as Contract and Investment Conditions
Balanced Use of Patents, Trade Secrets, and Technology Deposit System
"Smart Patent Applications Needed Despite Costs and Time"

'Hanmir's Silmagel Fireproof Insulation Board' developed by Hanmir. It is characterized by its heat resistance and eco-friendliness.
[Photo by Hanmir]

"We were sometimes asked by large corporations to disclose our technology as a condition for signing supply contracts."

Han Seung-woo, CEO of Hanmir, a small and medium-sized enterprise (SME) in its 13th year, has been struggling to protect his company's core technology. The core technology he referred to is a manufacturing method for new materials with various effects such as insulation and heat generation. In particular, the patented material 'Silmagel' is used in building insulation materials due to its property of being difficult to ignite. CEO Han said he received a blatant request for technology disclosure from a representative of a well-known large corporation, who said, "We will invest if you demonstrate the process of making the product." Hanmir is an R&D specialized company dealing with energy and heat-related technologies, producing Silmagel adhesives, energy coatings, and fire-resistant coatings.

CEO Han also mentioned that domestic and foreign companies in similar industries are constantly trying to poach technical personnel who know the know-how of material development. Because of this, he chose not to file patents for his core technology. Filing a patent would disclose the know-how, so he kept it as a trade secret known only to himself.

◆Be cautious about patent filing to protect core technology= CEO Han shared a case of another SME that suffered damage from a Chinese company. "A Chinese company proposed a joint technology venture with a 30% stake and had them build a factory in China. After transferring the technology and starting the factory, the Chinese company built another factory next door. They secretly stole the technology and operated their business."

Hanmir holds about 20 domestic patents and 4 overseas patents. CEO Han said, "Registering an overseas patent costs about 8 to 10 million KRW per case, and domestic patents cost around 3 million KRW. Since the patent office requires specialized terminology and format, most applications are handled through patent attorneys." He added that maintaining patents costs more than 20 million KRW annually. Due to these considerable costs, patents are sometimes abandoned if the business feasibility is low or better technology is developed.

CEO Han appropriately utilizes patents, trade secrets, and the technology escrow system. He said, "Technologies that seem simple like 'Columbus's egg' but are hard to come up with are maintained as trade secrets." The technology escrow system is a mechanism where large and small-medium enterprises in a business relationship agree to deposit core technology materials with the Foundation for Large and Small Enterprises and Agricultural, Fishery Cooperation under the Ministry of SMEs and Startups to reduce the risk of technology leakage. If the SME goes bankrupt or closes, the large company can restore and use the technology.

According to the Korea Invention Promotion Association, the technology escrow system has a long history, having been introduced in advanced countries like the U.S. and the U.K. as early as the 1930s. Korea introduced it in 2008. While patent applications allow viewing and copying, thus disclosing technology, the technology escrow system does not expose the technology externally and protects technologies that companies want to keep confidential. Recent statistics show that the number of technology escrow cases has increased yearly: 9,522 in 2018, 10,415 in 2019, 11,226 in 2020, and 13,457 last year.

◆"Consider patent registration from the technology development stage"= Lee Wan-sik, non-standing director of the Invention Promotion Association, emphasized that SMEs should file 'smart patents' to protect their technology. He advised, "Even though it costs time and money, patents with broad claim scopes are necessary. If you focus only on technology development and product launch, you might neglect filing and end up with weak patents." Lee stressed, "If internal technology leaks before patent filing, all efforts become futile, so you must keep patent registration in mind from the development stage and do your best to prevent technology leakage."

The Ministry of SMEs and Startups operates a technology protection legal support group to assist SMEs with weak technology protection capabilities. Composed of about 90 experts including lawyers and patent attorneys, it provides one-on-one consultations to companies. While there were 47 consultations in 2019, the number increased to 164 in 2020 and 183 last year, showing growing demand for the legal support group.

A Ministry official explained the role of the legal support group by citing the 15-year patent infringement dispute between Seo Telecom and LG Uplus since 2004. Seo Telecom sued LG for infringing its patent on mobile phone emergency call services, spending about 5 billion KRW and even selling its office building, but eventually lost and went bankrupt. Many patent experts lamented that if Seo Telecom had secured multiple patents simultaneously or filed divisional applications, it would have been in a better position in the dispute. The legal support group also evaluates the likelihood of patent infringement recognition by courts, litigation costs, and damages to filter lawsuits with a chance of success for SMEs.