On May 30, 2024, the Korean Supreme Court rendered a landmark decision (2022 Do 14320) on a criminal violation of the Unfair Competition Prevention and Trade Secret Protection Act (“UCPA”). The decision has a significant impact on the level of proof required to show whether an individual who has misappropriated trade secret has acted with the intent or purpose of making improper profits or injuring a trade secret holder, as set forth in Article 18(2) of the UCPA of 2018.

▶Background

The case involved four defendants: a former employee (Defendant 1) of an adhesive manufacturing company ("the victim company"), the director of the R&D center (Defendant 2) of a first competing company where Defendant 1 worked after leaving the victim company, and the director of the R&D center (Defendant 3) of a second competing company (Defendant 4) where Defendant 1 subsequently worked after leaving the first competing company.

Defendant 1, while employed at the victim company, had access to proprietary information for the manufacture of waterproof adhesives used in certain mobile phones and made unauthorized photo copies of relevant documents containing the manufacturing information. After leaving the victim company, Defendant 1, at the coaxing of Defendants 2 and 3, unlawfully disclosed the trade secret information and materials to the two competing companies, so as to help them develop competing products.

▶Lower Court Decisions

In the first instance, heard by a single judge of the Daejeon District Court, all defendants were found guilty of violating Article 18(2) of the UCPA of 2018--which stipulates that: “[a]ny person who has acquired, used, or disclosed to any third party, trade secrets for the purpose of making an improper profit or causing damage to a person who holds the trade secrets shall be punished by imprisonment with labor for not more than five years or by a fine not exceeding 50 million won.”

On appeal, a collegiate panel of the court overturned the lower decision. The appellate court read the relevant statutory clauses, i.e., Article 18(1) and (2) of the UCPA, to the effect that, in order to hold an accused criminally liable thereunder, a showing or proof of the presence of, in addition to intent, an extra element is required: existence of a specific “purpose of gaining improper profit or causing damage to the trade secret holder.” This extra proof requirement, reasoned the court, stemmed from the Constitutional mandate for the protection of individual’s freedom of employment or changing jobs; and this fundamental right, directly related to human dignity, should not be lightly disturbed or restricted for the protection of economic interests, such as property rights. The court, orbiter dicta, further stated that the existence of such purpose, if easily recognized, would unduly hamper individual’s career opportunities; and that there is a question as to whether general skills, knowledge, experience, and customer relationships accumulated while working for a company should be considered as the company's trade secrets. The appellate court was of the view that even if these were accumulated at the company’s expense, they should be attributed to the individual employee and not be considered as the company’s trade secrets.

Accordingly, the court found that while Defendant 1 had taken confidential information, it could not be concluded that he had clear knowledge of the adhesive manufacturing methods being trade secrets, nor could it be said that Defendant 1 took the photo copies of the documents with the specific purpose of obtaining unfair profit or damaging the victim company, nor that the other defendants had used this information for such purpose.

▶Supreme Court Decision

The Supreme Court disagreed with the appellate court and held that the proprietary methods for manufacturing adhesives, which had never been made available to the public, constituted trade secrets within the purview of the UCPA. The Highest Court noted that the proprietary manufacturing information included specific formulations and processes that provided a competitive advantage to the victim company; the victim company invested significant amounts of money to develop the relevant technology; and Defendant 1 signed a non-disclosure agreement that imposed on him a duty to hold the information in confidence for a substantial period even after leaving the victim company.

The Court ruled that, since the information constituted trade secrets, the Defendants knew or should have known that they could not use or disclose the relevant information without the victim company’s permission. The Court concluded that, in light of the Defendants’ profession and experience, the motivation and circumstances of their actions, and the relationship between the victim company and the Defendants, there was sufficient reason to find that Defendant 1 used the manufacturing information and disclosed same to the other Defendants with the intent to gain unjust profit or cause damage to the victim company, and that Defendants 2 to 4 also acquired the trade secrets and used them with the intent to gain unjust profit or cause damage to the victim company.

▶Implications

The present decision, in effect, strikes down the appellate court’s attempt to introduce a higher level of mens rea in defining or proving a crime violative of UCPA and annihilates any distinction between intent and purpose to commit a crime under the UCPA; and further elucidates that a violator’s intent or purpose to misappropriate trade-secrets may be inferred from circumstantial evidence once the information used or leaked is established as trade secrets, even in the absence of direct evidence showing such intent or purpose. This ruling sends a strong deterrent message to the industry that acts of industrial espionage or trade secret misappropriation will no longer be condoned with impunity under the aegis of Constitutional right of freedom of employment, buttressing the recent sentiment prevalent in Korea calling for a stronger determent of trade secret misappropriation.