[Attorney Taejin Kim’s Trade Secret Series 5] Complete Analysis of Breach of Trust and Joint Ownership – Essential Legal Issues and Response Strategies for Practitioners
Table of Contents
- 1. Relationship with Breach of Trust
- – Trade Secret Infringement and Breach of Trust Application
- – Fundamental Legal Principles of Breach of Trust
- – Trade Secret Leak and Breach of Trust Establishment
- – Accomplice Liability of Competing Companies
- – Trade Secret Protection Law Amendment and Breach of Trust
- – Systematic Issues in Unfair Competition Prevention Act
- 2. Joint Ownership of Trade Secrets
- 3. Conclusion
1. Relationship with Breach of Trust
Trade Secret Infringement and Breach of Trust Application
Due to certain limitations in the current criminal elements of the Unfair Competition Prevention Act, legal practice has actively utilized the property crime of breach of trust under the Criminal Act for more effective criminal punishment.
Case law holds that technical information must possess non-disclosure, utility, and confidentiality management requirements to be protected as trade secrets. However, even if such information does not fully meet these requirements and does not constitute trade secrets, if the information possesses non-disclosure and utility and constitutes important business assets, breach of trust may be established.
In other words, even in cases where protection is not available under the Trade Secret Protection Act, punishment through breach of trust is possible through the concept of ‘important business assets’ according to case law.
Fundamental Legal Principles of Breach of Trust
The essence of breach of trust is considered to be a violation of the duty of good faith or breach of trust relationship, which is the position of Korean legal theory and case law.
The elements of breach of trust are as follows:
- The actor must be ‘one who handles another’s affairs’
- Performance of ‘acts contrary to duty’
- Occurrence of ‘property damage and benefit acquisition’
However, there is a view that strict interpretation is necessary as extreme application of the breach theory may lead to unlimited expansion of the constituent elements.
Whether a former employee was in the position of ‘one who handles another’s affairs’ in breach of trust should be determined by comprehensively considering the timing of resignation, motives, circumstances of document leakage, and content.
Trade Secret Leak and Breach of Trust Establishment
A corporate employee who knows trade secrets and can use them should already be considered to have acquired the relevant trade secrets. Therefore, when such a person simply removes trade secrets from the company without authorization, while it may constitute breach of trust, it does not correspond to the ‘acquisition’ of trade secrets specified in the relevant provisions.
According to case law, even if a company employee lawfully removes trade secrets or important business assets and such removal does not constitute breach of trust, if there is an obligation to return or delete such trade secrets upon resignation but fails to return or delete them with the purpose of leaking to competitors or using for personal benefit, such conduct constitutes breach of trust.
Even in cases of lawful removal for business purposes, there must be a breach-related purpose of ‘leaking to competitors or using for personal benefit’ for breach of trust to be established. This breach-related purpose is subjective and difficult to confirm, and often the improper purpose is inferred from subsequent objective acts such as actual leakage or use.
‘Important business assets’ means assets that are not disclosed to an unspecified number of people, were created by the employer with considerable time, effort, and cost, and through their use, competitive advantages can be gained over competitors. Important business assets, similar to trade secrets, require non-disclosure and economic value, but differ in that confidentiality management is not an essential requirement.
Accomplice Liability of Competing Companies
When a competing company hires an experienced employee, if they are unaware that the employee uses trade secrets from the previous company, no crime is established for the hiring company.
However, if hiring the experienced employee was a means to acquire trade secrets from the previous company for use in their own business, the competing company may also be seen as actively participating in the breach of trust acts of the hired employee and could be liable as an accomplice to breach of trust.
Since breach of trust is a dual status crime, if a competing company without status relationship conspires with someone with such status relationship to commit breach of trust, according to the proviso of Article 33 of the Criminal Act, they should be punished according to the penalties prescribed for simple breach of trust.
A competing company that participates in non-punishable subsequent acts of a company employee (e.g., use of trade secrets after resignation) may become an accomplice to breach of trust, and depending on the degree of participation, may be punished as an accessory even if not a co-principal.
Trade Secret Protection Law Amendment and Breach of Trust
Past case law strictly interpreted the ‘confidentiality management’ requirement, resulting in a considerable number of cases that could not be protected as trade secrets, leading to criticism and the need to relax the confidentiality management requirement.
Recent legal amendments have been continuously made to strengthen trade secret protection by relaxing the confidentiality management requirement. These amendments may expand the scope of recognition as trade secrets.
Some suggest the need to limitedly apply breach of trust in trade secret infringement cases. This is related to various legal issues that arise when trade secret infringement cases are prosecuted under breach of trust.
Systematic Issues in Unfair Competition Prevention Act
The Unfair Competition Prevention Act has inconsistencies between the unfair competition prevention and trade secret protection systems as parts related to trade secret protection were added contrary to the original legislative intent. There are particularly imbalance issues between the civil liability section and the criminal liability section of the penalty provisions.
While the Unfair Competition Prevention Act specifically enumerates trade secret infringement acts (civil), the penalty provisions stipulate acquisition, use, and disclosure to third parties of trade secrets as criminal elements, which may not align with civil infringement acts.
Depending on the interpretation of punishment provisions, the scope of application may be broader than civil liability targets. This approach creates imbalance between civil and criminal liability and may violate the principle of supplementarity in criminal law.
2. Joint Ownership of Trade Secrets
Requirements for Joint Ownership Recognition
For trade secrets produced and developed through joint research by multiple entities, if the ownership is not determined by separate agreement, relevant court decisions have held that such trade secrets jointly belong to research and development entities that made ‘substantial contributions’ to the production and development process.
Representative cases include Supreme Court Decision 2021Da289399, Supreme Court Decision 2023Do4058, and Seoul High Court Decision 2020Na2038172 dated September 9, 2021, which took this position.
‘Substantial contribution’ is determined by whether there was concrete and substantial technical contribution such as provision of source technology and manufacturing technology, presentation of detailed specifications, design work, drawing creation, performance testing, presentation of improvements, and provision of other experience and know-how. Development cost burden may also be considered. This is similar to the criteria for joint invention.
Legal Nature of Joint Ownership Relationship
Relevant court decisions have held that the legal relationship between joint owners of trade secrets is governed by analogous application of civil law provisions on joint ownership, and the legal nature corresponds to (quasi-)ownership under civil law. Unlike patent law, the Unfair Competition Prevention Act has no provisions regarding joint ownership and its legal nature.
In Supreme Court Decision 2021Da289399, the Supreme Court specified that when there is no separate agreement, trade secrets jointly belong to substantial contributors, and civil law principles of joint ownership apply between joint owners.
Self-Use Rights of Joint Owners
There is scholarly debate regarding whether consent from other joint owners is required when one joint owner uses trade secrets independently:
- ‘Consent Required Theory’ – consent is necessary
- ‘Consent Unnecessary Theory’ (or unlimited theory) – consent is not necessary
- ‘Compromise Theory’ – consent is not necessary within certain limits
Recent lower court decisions have mainly adopted the ‘Compromise Theory’. Seoul High Court Decision 2020Na2038172 dated September 9, 2021, and decisions 2020Na2016653 and 2038875 of the same date held that one joint owner of trade secrets may freely use the entirety within the scope that does not cause loss of trade secret nature.
The original court decision of Supreme Court Decision 2023Do4058, the Suwon High Court decision, also held that self-use by joint owners is possible if it does not cause loss of confidentiality.
According to the ‘Compromise Theory’, if a joint owner must reasonably provide technical information to a third party for the purpose of implementing the technical information, provision to third parties may also be included in the scope of self-use if confidentiality is maintained by imposing confidentiality obligations.
Seoul High Court Decision 2020Na2038172 dated September 9, 2021, held that “it is possible not only when joint owners directly implement technical information, but also when they must reasonably provide technical information to third parties for the purpose of implementing the technical information, by imposing confidentiality obligations to maintain trade secret nature.”
Under the current industrial structure where division of labor and specialization are common, subcontracting and supply methods are frequent, so the view that only pure self-use cases constitute legitimate self-use does not align with reality.
Meanwhile, Supreme Court Decision 2016Da8503 dated June 9, 2016, held that “if technical information jointly created by employees of a company is managed as trade secrets of that company, even if one is a joint creator, they cannot be considered to be in a position to freely dispose of such technical information, so if they use or disclose such technical information without authorization, it constitutes infringement of the company’s trade secrets.”
K&P Law Firm recently successfully provided legal strategy to coordinate the interests between two companies regarding the ownership and use of trade secrets in joint R&D projects by creating contracts that adjust the interests between the two companies.
Balance with Unfair Competition Prevention Act Purpose
The legislative purpose of the Unfair Competition Prevention Act is to maintain sound transaction order, strengthen the competitiveness of domestic industries, and contribute to national security and the development of the national economy.
When determining the scope of self-use by joint owners of trade secrets, there is a view that free use by one joint owner of trade secrets should be permitted, similar to patent rights, considering not only the nature of trade secrets with non-disclosure and economic utility but also the legislative purpose of the Unfair Competition Prevention Act.
Supreme Court Decision 2023Da224303 dated June 15, 2023 (high-speed train technical information case) specified that “joint owners of trade secrets may use trade secrets they jointly own without consent from other joint owners, unless there are different agreements between them, as long as they do not cause loss of trade secret nature by disclosing trade secrets.”
3. Conclusion
The application of breach of trust in trade secret infringement cases is controversial but actively practiced, with particular issues regarding non-return/non-deletion acts after resignation and accomplice liability of competing companies.
The joint ownership relationship of trade secrets applies civil law joint ownership by analogy, but the ‘Compromise Theory’ that the scope of self-use by joint owners should be permitted within the range that does not cause loss of trade secret nature is presented as a leading interpretation.
This can be evaluated as a balanced approach considering the legislative purpose of the Unfair Competition Prevention Act and the reality of technical information utilization, and is particularly suitable for modern industrial environments where subcontracting and third-party provision are common.
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