On June 16, 2018, the jury has ordered Samsung Electronics Co., to pay a $400M damage to KAIST IP US (“KIP”), the licensing arm of a South Korean University the KAIST. Samsung is committed to appealing the verdict. At its core, the lawsuit is over a key patent related to mobile 3D transistors, known as fin field effect transistors that replaced conventional bulk silicon beginning in 2012. Samsung refused to pay for the technology, claiming that KIP leaked the national core technology overseas which is prohibited under the Act on Prevention of Divulgence and Protection of Industrial Technology in South Korea (“Act”). Samsung requested the Ministry of Trade, Industry and Energy of South Korea to investigate whether KIP’s intellectual property fits into one of the categories that either have technological and economic value in markets at home and abroad or have great growth potential that are stipulated in the Act.
National Core Technology
Fearful of technology leakage overseas, South Korea has very strict rules on which technology can or cannot be exported to foreign countries. Relevant laws include Foreign Trade Act, Defense Acquisition Program Act, and Unfair Competition Prevention and Trade Secret Protection Act.
What distinguishes Korea from other countries is that the Korean government has a separate law for exporting certain technologies. The government lists core national technologies and requires companies and organizations to request for state approval before certain technologies are exported under the Act on Prevention of Divulgence and Protection of Industrial Technology.
Under the Act on Prevention of Divulgence and Protection of Industrial Technology, if anyone wishes to export national core technology, it is required to:
(i) obtain approval of the export from MOTIE if the technology was funded by government or
(ii) declare the export to MOTIE where the technology was not funded by the government.
If improperly exported, MOTIE may suspend or prohibit the export or order “restoration to the original state” (e.g., revoking export contract). Violators of the ITA will also be subject to criminal prosecution. The maximum penalty is up to 15 years in prison or up to KRW 1.5 billion (approximately USD 1,350,000) fines.
State-funded National Core Technology
If technology at issue is directly or partly funded as part of government related project, then it is required to consider national (i.e. Korean) companies first prior to exporting the technology under the Special Act on the Promotion of Growth and the Strengthening of Competitiveness of Middle-Standing Enterprises. It means Korean companies should be the first priority when considering selling or licensing the technology.
When it is not possible to find any Korean companies that have appropriate settings for the use of the technology, then the technology can be licensed or sold after acquiring the approval from relevant government bodies.
National Core Technology in Korea
On November 28, 2016, the Ministry of Industry, Trade and Energy (“MOTIE”) published a list of the “National Core Technologies”, which if leaked, are considered to have a detrimental effect on the national economy due to their substantial economic value.
Process of Exporting National Core Technology funded by the Korean government
Acquisition or Merger
The Act on Prevention of Divulgence and Protection of Industrial Technology also regulates a foreign investor’s acquisition of, or merger with, a Korean company possessing National Core Technology which was funded through the Korean government’s support.
In a situation where the foreign investor acquires 50% or more of the shares of the Korean company or the investor will become the largest shareholder through acquisition having substantial control over the Korean company, then the Korean company must report to MOTIE prior to the closing of transaction i.e., the transaction may not be finalized until MOTIE issues an approval.
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