Advanced Technology Developed Over Years, Lost in an Instant [SME Technology Theft Trap] ①

<1> Years of Advanced Technology Development Lost in an Instant
After Contract Signing, Technical Documents Demanded for "Business Needs"
Materials Handed to Another Partner, Contract Terminated
Technology Theft Mainly Occurs During Supply and Pa

Editor's Note
When small and medium-sized enterprises (SMEs) fight against large corporations after having their technology stolen, the outcome is often nothing but scars, regardless of victory or defeat. Not only is it difficult to win such lawsuits, but even in rare cases of victory, the awarded damages are so minimal that many businesses are forced to shut down. This has led to the unwritten rule: "If your technology is stolen, consider it bad luck and do nothing." Each year, about 300 such battles are fought-fights that are nearly impossible to win, and even when won, are tantamount to losing. Over the course of five articles, The Asia Business Daily will examine the current state and causes of technology theft that drives SMEs to ruin, and seek potential solutions.

In 2018, Kim Taeil, CEO of Quantum, had his company’s technology, which he had spent four years developing, completely stolen by Company A. The technology, which involved manufacturing natural silk masks using silkworm cocoons, had never been attempted in Korea and was highly anticipated in the industry. Kim invested about 500 million won traveling between Korea and Thailand to develop the technology-a significant sum for an SME, but Kim said, "I had confidence in the technology."

Kim Taeil, CEO of Quantum, is being interviewed by The Asia Business Daily. Photo by Lee Seohui

Company A, one of the leading mask pack manufacturers in Korea, approached Kim with supply terms that were hard for an SME to refuse. Quantum immediately signed an exclusive supply contract with Company A and expanded its production plant to 3,300 square meters. A year later, Company A requested all technical documents from Quantum, claiming it was necessary to explain the production process for exports to China.

When Kim refused, citing concerns over technology leakage, Company A rebuked him, asking, "What will you do if you can't get orders because you can't do business?" In the end, Kim sent all the manufacturing documents and dozens of videos in three separate batches. Kim recalled, "I couldn't refuse, fearing it would jeopardize the business." In November 2018, Company A passed the complete technical documents received from Quantum to another partner, Company B, and notified Quantum of contract termination.

Using the materials Kim shared, Company A even filed related patents. While running the company, Kim spent over four years embroiled in civil and criminal lawsuits, but the court concluded that although Company A’s patent filing was illegal, Quantum’s damages could not be proven. Unable to withstand the financial and psychological pressure, Kim ultimately closed the business last year. On the 24th, Kim reflected on the past: "What I want to say is, don't even start a lawsuit. I wish I had just said, 'Bad luck, my technology got stolen.' There is absolutely no way to win."

"I Gave In When They Said It Was for Business Purposes..."

The case of Kim and Quantum starkly reveals the structural issues that leave Korean SMEs exposed to the risk of technology theft. No matter how much effort is put into developing good technology, it cannot succeed without sales channels or a business network. As a result, SMEs are forced to take risks and rely on larger companies in the same industry or potential competitors.

Large corporations, after identifying innovative technologies held by SMEs, propose supply or partnership deals. Once a formal contract is signed, they demand the sharing of technical documents under the pretext of "business necessity." Sometimes, technology leaks even during the negotiation phase before a contract is finalized, as large corporations later use business concepts discussed with SMEs as their own. By the time SMEs realize their technology has been leaked, it is often too late to assert their rights.

This entire process unfolds within a strict power imbalance. SMEs have little capacity to oppose the demands of large corporations that control their financial lifeline. Even when warning signs appear during contract negotiations, SMEs often turn a blind eye, fearing that insisting on including detailed clauses about technology leakage could cause the deal to fall through before the contract is signed.

It is also common for SMEs to sign contracts without fully understanding the details due to a lack of legal knowledge. Even if large corporations, backed by professional legal teams, include unfair terms in the contract, SMEs often only realize it much later.

Bae Sooyoung, an attorney at Part One Law Firm, said, "Many SME owners sign contracts knowing they are unfair, because they understand their demands are unlikely to be accepted and fear the contract will fall apart if they push too hard." She added, "While the Act on the Promotion of Collaborative Cooperation includes basic confidentiality clauses, it is impossible for SMEs lacking legal expertise to scrutinize every detail."

Average Damages Reached 2.5 Billion Won Last Year..."Theft Methods Are Becoming More Sophisticated"

In this environment, cases of technology theft targeting SMEs are increasing every year. According to the Ministry of SMEs and Startups’ "2024 Technology Protection Status Survey," there were about 299 annual cases of technology infringement involving SMEs. The problem is exacerbated by the fact that the methods of technology theft are becoming more sophisticated each year, increasing the scale of damages. The average amount of damage per SME due to technology theft rose sharply from 1.23 billion won in 2022, to 1.49 billion won in 2023, and to 2.48 billion won in 2024.

Most companies stealing SME technology were either in a "business relationship" (37.5%) or a "competitive relationship" (37.5%) with the victimized SME. Nevertheless, 60% of affected companies responded that "they could have refused, but it was difficult due to ongoing business relationships," or "they could have refused, but accepted the risk considering future business expansion."

A representative from the SME technology sector commented, "In the past, theft usually involved stealing completed technology, but now, under the guise of joint development, large corporations frequently approach from the idea stage, request data, and then siphon it off. As the types and methods of theft diversify and become more sophisticated each year, the average damage per case inevitably increases."