[Insight & Opinion] How to Prevent Technology Leakage Through 'Legitimate Transactions'

Recently, there was a report that an engineer at Samsung Electronics was caught leaking dozens of semiconductor technology documents overseas. The transfer of our companies' technology and personnel abroad is continuously increasing. From 2017 to 2022, over the past six years, there have been a total of 117 cases of industrial technology leakage abroad, of which 36 cases (30.7%) involved the leakage of national core technologies. The estimated damage, calculated through research and development expenses, is said to reach 26 trillion won.

It goes without saying that related agencies such as the prosecution, the Korean Intellectual Property Office (technology police), and the National Intelligence Service must strengthen cooperation and make every effort to detect technology leakage offenders. In this regard, last month, the Supreme Prosecutors' Office's move to strengthen sentencing and detention standards for industrial technology leakage crimes was timely.

We are now living in an era of ‘technology hegemony competition.’ Developing and protecting advanced technology is no longer just about corporate economic interests but is directly linked to national survival. Countries around the world are making strenuous efforts to block technology leakage not only through ‘unlawful means’ but also through so-called ‘legitimate transaction methods’ such as technology sales and transfers, and mergers and acquisitions of technology-holding companies.

South Korea has controlled the export of defense materials and strategic items through the Defense Business Act and the Foreign Trade Act. However, as illegal overseas leakage of industrial technology became serious in the 2000s, the ‘Act on the Prevention and Protection of Industrial Technology Leakage’ was enacted in 2006. Currently, 73 technologies in 12 fields, including semiconductors, automobiles and railroads, and shipbuilding, are designated and announced as national core technologies.

The Industrial Technology Protection Act has been amended several times to continuously expand the scope of technologies subject to government approval or notification. Currently, companies holding national core technologies must obtain approval or submit notification to the Minister of Trade, Industry and Energy when exporting such technologies through sales or transfers, or when foreign entities seek to acquire or merge with the target companies. If the technology was developed with government research and development funding, approval is required; otherwise, notification is mandatory.

Furthermore, since August last year, the ‘Special Measures Act on Strengthening and Protecting the Competitiveness of National Advanced Strategic Industries’ has been enacted and implemented to further strengthen the protection of ‘national advanced strategic technologies.’ The ‘National Advanced Strategic Industry Committee’ has selected 15 strategic technology fields across three industries: semiconductors, displays, and secondary batteries, and is currently proceeding with designation and announcement procedures.

Under this law, holders of national advanced strategic technologies must obtain government approval in all cases when ① exporting the technology through sales or transfers to foreign companies, or ② engaging in overseas mergers and acquisitions or joint ventures. If approval is not obtained, the Minister of Trade, Industry and Energy may order suspension or prohibition of the transaction or restoration to the original state.

This export approval system involves a complex legal framework and highly specialized areas, which has made predictability difficult for companies. To address these practical difficulties and strengthen the protection of national core technologies under the Industrial Technology Protection Act, the Ministry of Trade, Industry and Energy prepared the ‘Industrial Technology Protection Guidelines’ in 2021 to establish detailed requirements and procedures for the application of the law.

Since the establishment of the Industrial Technology Protection Guidelines, concrete practical cases related to export approval procedures for national core technologies have been accumulated. Recently, there was even a case where a domestic company L applied to build a cathode material factory in a joint venture with a U.S. company but was denied approval due to concerns such as ‘negative impacts on domestic industrial competitiveness and national security.’

However, some unclear interpretations remain, such as whether the export approval regulations of the Industrial Technology Protection Act apply when a company holding national core technologies plans to merge or acquire with ① a private equity fund (PEF) funded by capital from foreigners, or ② a domestic corporation controlled by foreigners. Recently, there have been reports that the government is preparing amendments to the Industrial Technology Protection Act to prevent such cases.

Domestic companies related to automobiles and secondary batteries are actively investing locally in the U.S., usually through joint ventures (JVs), overseas subsidiaries, or establishing third-country companies. There is a latent risk that unintentional violations may occur due to lack of awareness that technology leakage prevention laws apply during such transactions. This could lead to suspension of business, restoration orders, and not only significant disruption to business operations but also severe sanctions such as criminal penalties.

Companies and research institutions holding national core technologies must accurately understand the relevant laws and make strenuous efforts, such as reviewing compliance with related laws and procedures when engaging in transactions with overseas companies.

Kim Kidong, Chief Attorney, Law Firm Robax