On June 28, 2023, the Ministry of Trade, Industry and Energy (the “MOTIE”) pre-announced proposed amendments to the Act on Prevention of Divulgence and Protection of Industrial Technology (the “Industrial Technology Protection Act” or “ITA”) which would broaden the scope of the application of the ITA and reinforce the regulatory framework (MOTIE Public Notice No. 2023-538, the “Proposed Amendment”). The Proposed Amendment will expand the scope of technology exports and M&As regulated by the ITA, broaden the definition of divulgence or misappropriation of national core technologies (“NCTs”), and strengthen overall regulatory oversight.
The ITA was designed to manage high technologies or technologies with considerable economic value that would have a significantly adverse effect on the national security or economy if they were to be exported outside of Korea.
However, in practice, the law has been subject to criticism that (i) the current legal framework is insufficient to control the increasingly diverse forms of divulgence that have come to light, (ii) the basis for criminal punishment is conditioned on specific intent, which is difficult to prove, and (iii) the management of NCTs and oversight of the entities that hold NCTs remain insufficient.
As a result, the Proposed Amendment attempts to strengthen the regulatory basis for the prevention of technology leakages by expanding the scope of the ITA and establishing a more effective management system for the protection of NCTs in line with global trends regarding their protection.
The key details of the Proposed Amendment are as follows:
- Expansion of the Scope of Application of the ITA (Article 2 of the Proposed Amendment)
The Proposed Amendment introduces definitions for several key terms such as “foreigners,” “export of NCTs,” and “overseas M&A” for the first time, clarifying the scope of transactions covered by the ITA. At the same time, the Proposed Amendment leaves the specifics regarding the regulatory application to the Enforcement Decree, laying the groundwork for expanding its applicability. As the definitions of the abovementioned terms serve as the basis for evaluating whether certain transactions fall under the scope of application of the ITA, entities holding NCTs or foreigners (companies) with related interests should take notice of and become familiarized with the content of the Enforcement Decree to be issued.
- Establishment of Notification System for Pre-Determination as to Whether a Technology is an NCT and Registration System for Entities in Possession of NCTs (Articles 9-2 and 9-3)
Currently, a MOTIE determination as to whether a technology is an NCT is initiated only upon application by the entity in possession of the technology. In practice, however, businesses often have concealed that they hold technologies that may be NCTs, or failed to apply for NCT determination due to a lack of awareness that pre-determination is necessary when exporting NCTs. In response to the aforementioned circumstances, under the Proposed Amendment, if the MOTIE believes that there is a high likelihood that an entity is in possession of an NCT, it will request the entity to apply for the MOTIE’s review (Article 92-2). If it is determined that a business possesses an NCT, said business will be obligated to perform its legal obligations as a target entity possessing an NCT, such as registering as a holder of an NCT (described below) and putting into place protective measures as required by the ITA.
Moreover, to systematically manage NCTs, the Proposed Amendment imposes registration obligations on entities possessing NCTs and stipulates relevant procedures, thereby establishing a registration-based NCT management system (Article 9-3).
- Strengthened Review Procedures for Export of NCTs and Overseas M&As (Articles 11, 11-2, and 11-3)
The Proposed Amendment sets forth the legal grounds for imposing conditions to approve NCT exports or accept an export report to ensure the protection of NCTs. In addition, the Proposed Amendment makes it clear that an act of carrying out the intended export is prohibited until the MOTIE issues an approval or accepts the entity’s report. The MOTIE may suspend or prohibit the export, issue an order to restore to the original state, or take other necessary measures in the event unlawful acts have been committed (Article 11).
In addition, to protect a target entity in possession of an NCT from unexpected hostile overseas M&As, the Proposed Amendment provides that the application for approval or report of the overseas M&A must be jointly filed by the target entity and the foreigner seeking to carry out the overseas M&A. The act of carrying out an overseas M&A or cooperating with parties conducting such an act before the MOTIE notifies the parties of the result of its review is prohibited. The MOTIE may suspend or prohibit the export, issue an order for restoration to original state, or take other necessary measures when unlawful acts have been committed (Article 11-2).
Furthermore, if conditions are imposed on the approval or acceptance of an NCT export and/or overseas M&A, the target entity must submit a plan implementing the conditions and the MOTIE may conduct verification and audits on whether the target entity is in compliance (Articles 11-3).
- Expanded Scope of Investigation (Article 17)
Even when a leakage of an NCT is suspected, the current law does not permit the MOTIE to start an investigation if the relevant entity is not listed as a target entity in possession of an NCT. The Proposed Amendment grants the MOTIE the authority to initiate an inquiry when there is a suspicion that the ITA has been violated.
- Strengthened Penalties for Technology Leakage (Article 36)
The ITA’s deliberate intent requirement for criminal penalties has been criticized as setting the bar too high to adequately punish technology divulgence. The Proposed Amendment relaxes the requirement to allow violators to be found guilty upon showing a general intent and also expands the scope of aggravated punishment for overseas leakages.
The public comment period for the Proposed Amendment ended on August 7, 2023. Following a review period and the President’s approval, the Proposed Amendment is expected to be submitted to the National Assembly at the end of this year.
The Proposed Amendment to the ITA and the forthcoming Enforcement Decree entails substantial revisions that respond to issues and concerns raised by industry practitioners. However, as many of the specific details will be set forth in the Enforcement Decree, please stay tuned.
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