[Essential Intellectual Property] Facing Off Against Lotte... AlgoCare CEO "I Must Win"

⑨Algocare-Lotte Healthcare Controversy
CEO Jung Ji-won "It Will Be a Tough Fight"
Ministry of SMEs and Startups Begins Administrative Investigation Preparation
Experts "Need to Prepare for NDA Signing, etc."

Jiwon Jeong, CEO of Algocare (center), is introducing the product to visitors at the 'CES 2022' event held in the United States.

[Asia Economy Reporter Kim Bo-kyung] "We must win. If I lose, which startup will claim that a large corporation stole their idea in the future?" (Jung Ji-won, CEO of Algocare)

The inevitable has happened. A controversy has erupted over a large corporation allegedly stealing a startup's idea to develop a product. The protagonists of the case are Algocare's 'NAS' and Lotte Healthcare's 'Kazle.' Both NAS and Kazle are customized solutions that automatically manage nutritional supplements for busy modern people. Lotte Healthcare recently unveiled Kazle for the first time at CES 2023, the IT and electronics exhibition held in the United States. Founded in 2019, the startup Algocare has been dedicated to developing the NAS solution for over three years and has been recognized for its technology by winning awards at CES for three consecutive years. Both products are scheduled for official release this year. However, Algocare claims that Lotte approached them in 2021 under the pretext of investment and stole their idea. Lotte Healthcare was established last April with a capital injection of 70 billion KRW from Lotte Holdings, while Algocare is a startup with about 30 employees. It is a battle between David and Goliath.

The incident began at CES in the United States. On the 5th (local time), Jung Ji-won, CEO of Algocare, was busy introducing the NAS product to visitors at the CES event when she overheard a visitor say, "Isn't this the same thing that Lotte is doing?" Upon hearing this, CEO Jung rushed to the Lotte Healthcare booth and, upon seeing Kazle, was devastated, saying, "They copied Algocare's idea exactly." CEO Jung appealed her situation to Lee Young, Minister of SMEs and Startups, who was also visiting CES, and the minister said, "This is something that can happen in business. If you respond well, it will be fine. The Ministry of SMEs and Startups will provide maximum support." Some say "Lotte picked the wrong opponent." CEO Jung is a former lawyer at Kim & Chang and is well-versed in the law. She has also secured circumstantial evidence supporting the claim of idea theft, including recordings and messages from Lotte Healthcare officials. Nevertheless, in a phone interview with Asia Economy, CEO Jung confessed, "It will be a tough fight." She said, "Looking at precedents of large corporations stealing ideas from small businesses, it seems hopeless. Even if we engage in a tedious legal battle and eventually receive 1 billion KRW in compensation, what good is it if the company goes bankrupt in the meantime?"

In December 2021, there was the first case where a small or medium-sized enterprise partially won a civil lawsuit over technology theft between large and small businesses in Korea. SJ Innotech, a solar equipment manufacturer and partner of Hanwha, partially won a technology dispute lawsuit against Hanwha and Hanwha Solutions, with the court ordering Hanwha to pay 1 billion KRW in damages. However, this was the result of a legal battle that lasted six years. CEO Jung said, "Even if we sue, it may not be a big blow to the large corporation, but it is not the same for small businesses." She added, "Even I, who know the law well compared to other startup CEOs and have many people around me to ask about the law, find this difficult. If I lose, who else will fight against large corporations?" Finally, she expressed her determination, saying, "I believe this is not just our company's problem. We will do everything we can."

Lotte Healthcare Customized Nutritional Supplement Solution 'Cazzle'

This issue is more related to trade secrets than patents. Algocare has filed four patent applications, but they are still under review and not yet registered. CEO Jung said, "The core of the case is whether the idea was stolen." Here, the idea refers to trade secrets. Trade secrets are technical or business information that a company manages confidentially for business activities. They must have independent and economic value, not being common technology generally used in the industry. Acquiring or using trade secrets by unfair means violates the "Act on the Prevention of Unfair Competition and Protection of Trade Secrets." The two companies are expected to argue right and wrong based on this law. Some compare trade secrets to "Columbus's egg." Although it seems simple to stand an egg on its end by cracking the bottom, it is actually hard to come up with the idea. Innovative thinking is required. Therefore, when companies conduct transactions or negotiations, they usually sign a Non-Disclosure Agreement (NDA). If the NDA is violated and trade secrets are leaked, legal responsibility can be imposed. However, Algocare did not sign an NDA with Lotte Healthcare. CEO Jung said, "At that time, we could not sign because Lotte Healthcare was not a legal entity." However, she said they were meticulous in managing trade secrets, even signing NDAs with medical professors and design professors who usually provide business advice.

Lotte Healthcare claims that the personalized healthcare business plan was established before meeting Algocare. They also state that they were never asked to sign an NDA and did not refuse to sign one due to the lack of legal entity status. They argue that the personalized nutritional supplement business model was first announced in 2020 by the Israeli company 'Nutrico,' and it is a common business model.

The Ministry of SMEs and Startups is interviewing both sides to determine whether the matter involves trade secrets subject to administrative investigation. On the 17th, officials in charge of administrative investigations and lawyers visited Algocare's headquarters to verify the facts, and today (26th), they plan to visit Lotte Healthcare. Jung Jae-hoon, head of the Technology Protection Division at the Ministry of SMEs and Startups, said, "If it is judged to be a trade secret infringement after the administrative investigation, corrective recommendations and public announcements will be made." Corrective recommendations mean that the administrative agency advises to correct the wrongdoing, but there are no legal penalties such as fines. The Korean Intellectual Property Office stated, "If a report of unfair competition is received from Algocare, we will take related measures such as administrative investigations." Both the Ministry of SMEs and Startups and the Korean Intellectual Property Office have dispute mediation systems to resolve issues through mutual agreement. However, since Lotte Healthcare is completely denying the idea theft, reaching an agreement is not easy.

An anonymous lawyer said, "Issues of technology theft have been continuously raised in collaboration processes between large corporations and small or medium-sized enterprises (startups). Large corporations often proceed with product or service development claiming 'similar technology already exists.'" He advised, "Before collaboration, it is essential to prepare for technology or idea borrowing." Another patent attorney said, "It is important to sign an NDA before sharing technology and to define the technology and scope subject to confidentiality. It is also desirable to file various patents to protect owned technology before signing an NDA for technology sharing with other companies."