[Attorney Taejin Kim’s Trade Secret Series 2] Complete Analysis of Non-Disclosure Requirements – The Core of Reverse Engineering and Competitive Protection
Table of Contents
- 1. Core Concepts of Trade Secret Non-Disclosure
- 2. Practical Meaning of “Not Generally Known or Readily Ascertainable”
- 3. Relationship Between Independent Economic Value and Non-Disclosure
- 4. Judgment Criteria and Practical Issues for Non-Disclosure Requirements
- 5. Setting Target Subjects for Non-Disclosure Assessment (General Public vs Industry Players)
- 6. Reverse Engineering Possibilities and Loss of Non-Disclosure Status
- 7. Risk Management for Marketing Reverse-Engineerable Products
- 8. Effectiveness of Contractual Reverse Engineering Restrictions (International Case Analysis)
- 9. Increased Importance of Non-Disclosure Due to Relaxed Secrecy Management
- 10. Need for Establishing Clear Non-Disclosure Assessment Standards
- 11. Practical Conclusions and Response Strategies
1. Core Concepts of Trade Secret Non-Disclosure
Non-disclosure is one of the most crucial requirements in trade secret protection. According to the Unfair Competition Prevention Act, “trade secrets” refer to production methods, sales methods, and other technical or business information useful for business activities that are not generally known, have independent economic value, and are managed as secrets. The state of being “not generally known” constitutes the non-disclosure requirement.
Non-disclosure is directly connected to the essential characteristic of trade secrets as ‘competitive property.’ Once information becomes generally known, it loses its value as a secret and is excluded from legal protection. This stems from policy considerations to allow free circulation of disclosed knowledge in society and prevent hindrance to information use and distribution.
For proprietary information to be recognized as deserving protection, it must generally be unknown information. As a corporate legal specialist, I continuously experience in practice that many companies find the non-disclosure requirement the most challenging aspect of trade secret protection.
2. Practical Meaning of “Not Generally Known or Readily Ascertainable”
“Not generally known” means that the information has not been disclosed to an indefinite number of people through publications or other media, making it impossible to normally obtain such information without going through the holder.
While the term ‘secret’ in trade secrets already includes the concept that the target information has not been disclosed, the disclosure of a secret does not mean that all parties involved actually know about it. It is sufficient that the target of the secret is in a state where it can be obtained outside the manageable scope of the holder.
In other words, even if people other than the holder know the information and multiple people know such information, if these people have confidentiality obligations, they are within the holder’s manageable scope and thus remain in a non-disclosed state.
Conversely, even if only one unspecified external person knows the information, the fact of external leakage remains unchanged, rendering it worthless for protection.
Trade secrets need not be generally known but do not require absolute secrecy. Relative secrecy, where information is known only to those with confidentiality obligations in a limited manner and such limited state is maintained, satisfies the non-disclosure requirement.
This can be compared with novelty in patent law. In patent law, disclosure in publications before application results in loss of absolute secrecy based on objective facts alone. However, trade secret non-disclosure is relative in that secrecy is not lost even if there are disclosed facts, provided secret management is maintained.
3. Relationship Between Independent Economic Value and Non-Disclosure
One requirement for trade secrets is to ‘have independent economic value.’ This means that the information holder can gain competitive advantages over competitors through use of the information, or that considerable cost or effort is required to acquire or develop such information.
If information cannot provide ‘competitive advantage’ or ‘competitive benefit’ over competitors, it cannot be considered a trade secret. Non-disclosure is closely related to such economic value.
When information becomes generally known, secret managers lose their advantageous position over other competitors, and since there is no proprietary value to protect, non-disclosure is required. Assessment of economic utility tends to be influenced by the results of non-disclosure assessment.
4. Judgment Criteria and Practical Issues for Non-Disclosure Requirements
While legal principles regarding secrecy management requirements have been accumulated and relaxed, standards for assessing trade secret non-disclosure remain somewhat unclear.
Information sought for trade secret protection often consists of combinations of multiple pieces of information, and how to contrast such combined information with already known information becomes an important issue. When formed by combining known information, it is necessary to determine whether it is a simple listing of information or whether it creates new technical and economic value by combining existing known information.
For combination information to be recognized as valuable and achieve non-disclosure recognition, it must meet one of the following criteria:
- When combining information is not easy for industry practitioners
- When combination itself is not difficult, but the combined information exhibits technical effects beyond the simple sum of individual information
- When accumulation of combination information itself contributes to cost reduction in design, development, etc.
Information that simply collects known information may not need legal protection. This is because difficulty in distinguishing from known information may harm third-party predictability.
5. Setting Target Subjects for Non-Disclosure Assessment (General Public vs Industry Players)
Our precedents use the expression “not known to an indefinite number of people” for ‘not generally known,’ giving the impression that the target subjects for non-disclosure assessment standards are based on ‘indefinite number of people’ or ‘general public.’
However, regarding trade secret non-disclosure concepts, it is realistically difficult to prove that information has become generally known due to its nature, and non-disclosure may be lost if information becomes known to even one unspecified person (outsider).
Considering regulations regarding trade secret non-disclosure assessment in the United States, Japan, and Germany, there is criticism that using the expression ‘indefinite number of people’ in Korean Supreme Court precedents is undesirable.
While being known to the general public means anyone can obtain such information, the scope that can be considered disclosed in trade secret non-disclosure assessment is sufficient if some unspecified people, for example, those engaged in the same industry, can obtain such information.
Particularly when related products are launched in the market and non-disclosure becomes an issue, significant differences in assessment results can occur depending on whether the target subjects who can understand the technical content of such products are set as the general public or industry practitioners.
There is a view that it is reasonable to set the assessment target subjects for non-disclosure as competitors (industry practitioners) and that clarification of such standards is necessary.
6. Reverse Engineering Possibilities and Loss of Non-Disclosure Status
When products or facilities embodying trade secrets are launched in the market and third parties can technically analyze (reverse engineer) such products to obtain information, this may be recognized as legitimate acquisition of trade secrets, potentially negating infringement or serving as grounds to challenge trade secret establishment requirements.
Reverse engineering can be defined as starting from known objects and analyzing in reverse how such objects were developed. While there is no clear definition in Korean trade secret protection law or precedents, there is no basis to consider reverse engineering of trade secrets not subject to patent protection as illegal.
Supreme Court precedents also ruled that competitors cannot be prohibited from acquiring identical technical information through legitimate methods such as independent research and development or reverse engineering.
However, non-disclosure is not automatically lost simply because reverse engineering is possible. Even when reverse engineering is possible, if such reverse engineering requires special technology or advanced expertise and takes considerable time, making it difficult for anyone to easily grasp the information, it is judged as a “reverse engineerable area.”
In such cases, trade secrets cannot be considered disclosed simply because products are launched in the market. Conversely, when time and costs required for reverse engineering are minimal, allowing anyone to simply analyze products and acquire trade secrets, this is viewed as a “readily ascertainable area.” In such cases, trade secrets are considered effectively disclosed as soon as products are marketed, losing non-disclosure status.
In other words, the difficulty of reverse engineering (technical difficulty) and required time and costs (economic burden) become important considerations in non-disclosure assessment.
7. Risk Management for Marketing Reverse-Engineerable Products
Even when reverse engineering requires special technology or advanced expertise and takes considerable time, satisfying trade secret non-disclosure requirements, marketing reverse-engineerable products carries certain risks.
This is because even if reverse engineering requires much time and effort, non-disclosure may be lost the moment someone actually performs reverse engineering to discover trade secrets and discloses them.
Particularly with technological advancement, reverse engineering techniques are also developing, making reverse engineering that was difficult in the past relatively easier today. Therefore, companies must fully consider such risks when launching products in the market.
8. Effectiveness of Contractual Reverse Engineering Restrictions (International Case Analysis)
German Trade Secret Protection Act (GeschGehG) Article 3, Paragraph 1(b) stipulates that confidentiality obligations can be imposed while prohibiting reverse engineering even when persons observing, examining, disassembling, or testing lawfully possess products.
Therefore, when contracts clearly include clauses prohibiting reverse engineering, performing reverse engineering in violation of such clauses may be recognized not only as contract breach but also as trade secret infringement.
Such German regulations need to be referenced in terms of strengthening trade secret protection, and there is possibility for development in this direction through precedents or legislation in Korea as well.
9. Increased Importance of Non-Disclosure Due to Relaxed Secrecy Management
The revised Unfair Competition Prevention Act relaxed secrecy management requirements by changing trade secret recognition requirements from ‘maintained as secret through reasonable efforts’ to ‘managed as secret.’
This also intends to improve problems where many cases could not receive trade secret protection due to past precedents’ strict interpretation of secrecy management requirements.
As legal principles regarding secrecy management are accumulated and relaxed, the importance of non-disclosure assessment among trade secret establishment requirements is expected to increase further. As secrecy management requirements are relaxed, the role of non-disclosure requirements in trade secret protection will become more important.
10. Need for Establishing Clear Non-Disclosure Assessment Standards
As examined above, there are still unclear aspects regarding trade secret non-disclosure assessment standards, particularly regarding who should be the assessment targets and assessment standards related to combination of known information or reverse engineering.
The need for clarifying such standards is pointed out, and it is necessary to clarify reverse engineering-related non-disclosure assessment standards (technical difficulty, required costs and time, etc.) to be applicable to our practice by referring to major countries’ operational cases.
As a corporate specialist attorney, I believe such clarification of assessment standards is essential to provide clear standards to clients and offer predictable advice.
11. Practical Conclusions and Response Strategies
Trade secret non-disclosure is a core requirement for trade secret protection, representing a relative concept more relaxed than novelty in patent law. However, there are still unclear aspects in assessment standards, causing difficulties in practice.
Particularly, clear standards are needed for non-disclosure assessment of reverse-engineerable products, recognition standards for combination information non-disclosure, and setting non-disclosure assessment targets.
With the 2019 revision of the Unfair Competition Prevention Act relaxing secrecy management requirements, the importance of non-disclosure assessment is expected to increase further, requiring companies to prepare sufficiently.
K&P Law Firm recently successfully responded to non-disclosure issues surrounding reverse engineering possibilities in trade secret protection litigation for manufacturing companies, achieving favorable results through professional arguments regarding recognition standards for combination information non-disclosure.
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