The Ministry of Trade, Industry and Energy (the “MOTIE”) announced proposed amendments to the Act on Prevention of Divulgence and Protection of Industrial Technology (the “Industrial Technology Protection Act” or “ITA”) in the second quarter of last year, which expanded the scope of regulated national core technologies (Public Notice No. 2023-538 of the MOTIE, the “First Series of Amendments”). This First Series of Amendments was approved in the State Council meeting on September 25, 2023.
On September 26, 2023, the MOTIE proposed additional amendments to the ITA, further strengthening the regulatory framework (Bill No. 2124745, the “Second Series of Amendments”). Other legislative proposals that seek to increase the protection for national core technologies are also pending at the National Assembly.
The ITA specifically aims to protect “national core technologies” (“NCTs”) which, compared to other industrial technologies, hold greater technical and economic value in domestic and international markets or exhibit more substantial growth potential in respective industries. The need for this oversight is due to the potentially adverse impact on national security and economic development that could result from such technologies being leaked abroad. Therefore, businesses in possession of NCTs (“Target Entity”) are subject to various regulations. For example, a Target Entity must either apply for approval or report to the Government before exporting its NCT. The Government may also conduct a review of a Target Entity’s NCT management practices.
In our previous newsletter (Link), we examined the First Series of Amendments to the ITA, which expanded the scope of the ITA’s application and strengthened the administration system for managing NCTs. Since then, the State Council has approved the First Series of Amendments. Following this, the MOTIE has recently proposed the Second Series of Amendments, further expanding the Government’s regulatory authority in alignment with global trends towards enhancing the protection of critical technologies.
- Second Series of Amendments Proposed by the MOTIE
(1)Clarifying that notification of an NCT export requires acceptance by the MOTIE (Draft Article 11)
Before a Target Entity can export its NCT, (i) it must first obtain “approval” from the MOTIE if Government R&D support was received during the development of the NCT; or (ii) if it has not received such support, it must submit a “notification” to the MOTIE of the export. However, in the case of (i) mentioned above, the nature of the “notification” was unclear. The Second Series of Amendments clarifies that the notification requires “acceptance” and stipulates that the MOTIE shall review the export for potential impacts on national security. The MOTIE will accept the notification when it finds that national security concerns are not present and the transaction adheres to the requirements under the ITA.
(2) Streamlining process for initiating corrective action against non-compliant NCT exports and M&A transactions (Draft Articles 11 and 11.2)
Under current regulations, if a Target Entity (i) exports or engages in overseas M&As without approval; (ii) exports or engages in overseas M&As without notification; or (iii) obtains approval or notification through false or other fraudulent means, the MOTIE is required to first request an investigation by intelligence investigation agencies. After the findings are reviewed by a committee, the MOTIE can issue corrective orders, such as ordering the suspension or prohibition of export, or requiring restoration to the original state.
However, the Second Series of Amendments provides that in cases (i) and (ii) mentioned above, the MOTIE may take direct action against a Target Entity without waiting for an investigation by intelligence investigation agencies.
(3) Requiring joint application by both parties for overseas M&A approval (Draft Article 11.2)
Under the current regulations, only the Target Entity is required to obtain the MOTIE’s approval for an overseas M&A transaction. However, the Second Series of Amendments requires both the overseas party and the Target Entity to jointly seek the MOTIE’s approval.
(4) Allowing the imposition of daily fines to enforce compliance with corrective orders (Draft Article 11.3)
Under current regulations, criminal penalties may be imposed on Target Entities that fail to comply with a corrective order but there are no enforcement mechanisms in place. However, the Second Series of Amendments allows the MOTIE to enforce compliance by imposing a daily fine of up to KRW 10 million.
- Other Bills Pending at the National Assembly
In addition to the MOTIE’s proposals, other proposed changes to the ITA are currently pending in the National Assembly. These changes include (i) raising the statutory penalties for technology leakage crimes; (ii) lowering the burden of proof from proving a “purpose” to proving “intent”; (iii) prohibiting activities that involve brokering, facilitating or encouraging infringement or leakage of NCTs; (iv) imposing restrictions on those who have been employed at a Target Entity for over three years from joining overseas companies in related industries; and (v) enhancing oversight of Target Entities’ NCT management practices.
In conclusion, the MOTIE’s First and Second Series of Amendments, as well as other proposed amendments to the ITA, contain significant revisions that further strengthen the regulation of NCTs and reflect the issues and concerns raised by practitioners. Target Entities and businesses that may possess NCTs are strongly advised to keep abreast of these proposed amendments and corresponding revisions to the enforcement decree.
https://www.kimchang.com/en/insights/detail.kc?sch_section=4&idx=28566