Compensation Disrupted by 'Wrong Practices'... Concerns Over Lawsuits, Technology, and Talent Leakage

Technology Sales and License Revenue
Rights Guaranteed Through Invention Promotion Act
Companies Pay Based on Customary Practice
Company Resentment and Overseas Job Change Cases
Legal Community Advises "Need for Detailed Regulations"
Calls to "Raise Tax Exemption Limits"

In recent 2 to 3 years, companies have frequently become embroiled in legal disputes over employee compensation for job-related inventions. In April, a former KT&G researcher filed a lawsuit at the Daejeon District Court claiming compensation for inventing the "heat-not-burn type cigarette electronic cigarette" but not receiving any payment. The case attracted attention due to its scale, reaching 2.8 trillion won, the highest amount among individual lawsuits filed in Korea.

The job invention compensation system is designed to reward employees who invent new technologies during their work that generate profits for the company by giving them a portion of those profits. The profits include increased sales revenue from the actual use of the technology by the company, income from selling the technology, and revenue from licensing agreements with other companies related to the technology. This system was created as a protective measure to prevent employees from losing their rightful claims after transferring all rights of the developed technology to the company. Before the Invention Promotion Act was enacted in February last year, this system was stipulated under Article 40 of the Patent Act, but it was absorbed into Article 15 of the new act. Large companies, which have more financial resources, tend to adopt and operate this system more than small and medium-sized enterprises that may lack the capacity to pay compensation.

Compensation Classification and Payment Controlled by Companies

The main reason these disputes escalate into legal battles is that the relevant laws do not specify how to calculate compensation. When determining fair compensation for job inventions, only the profits the user gains from the invention and the degree of contribution by both the user and the employee to the invention’s completion are considered. Although there is a customary formula, it is not mandatory. Due to the lack of clear guidelines, compensation calculation and payment are often arbitrarily decided by companies.

Legal experts advise that compensation companies owe employees for job inventions should be detailed, considering the diverse types of profits companies gain from inventions. These can be categorized into license income, royalty savings, and compensation from sales, but most companies reportedly avoid this classification method due to concerns that compensation amounts could reach tens of millions to billions of won. Instead, many companies split compensation into two types: application compensation and registration compensation. This method pays compensation before the technology is patented and its value fully realized, typically setting compensation at 200,000 to 1,000,000 won per technology. Compared to companies that receive trillions of won in royalties from selling patented technology or licensing agreements, this amount is considered meager. Additionally, some lawsuits arise when companies modify internal regulations related to compensation payments without consulting employees.

Concerns Over Technology and Talent Leakage

If proper compensation is not provided for new technology development, it may lead to the leakage of technology and talent. There is growing concern that researchers may develop resentment toward domestic companies and move overseas, resulting in the loss of both technology and skilled personnel. This concern has intensified amid fierce global competition in advanced technology sectors such as semiconductors.

However, some positive trends are also emerging. As related lawsuits increase and social interest grows, more companies are reportedly striving to provide clear compensation for job inventions. According to industry sources, some companies recently have begun encouraging discussions with employees about immediate compensation methods when new technologies are invented during work.

Discussions on job invention compensation are also active within the government and the National Assembly. In particular, attention is focused on whether the income tax system will be improved. Under current law, employees who receive job invention compensation from their companies bear a significant tax burden, leading to calls for raising the tax exemption limit to alleviate this burden. Since the 2017 amendment to the Income Tax Act that subjects job invention compensation to comprehensive taxation, the current tax exemption limit has been adjusted to 7 million won. In a February policy brief released by the Science and Technology Policy Institute (STEPI), Kim Hak-hyo, a senior researcher at STEPI’s Innovation Law and System Research Group, argued that "to enhance the quantitative and qualitative levels of patent achievements and promote excellent research outcomes, tax incentives should be strengthened," predicting that "if the tax exemption limit is set between 20 million and 40 million won, approximately 90 to 96% of employees reporting job invention compensation would not bear income tax on it."