Wednesday, January 29, 2020
S. Korea to Toughen Rules on Foreign Firms' Acquisition of Korean Companies
Part of Efforts to Prevent Tech Leaks
S. Korea to Toughen Rules on Foreign Firms' Acquisition of Korean Companies
  • By Jung Suk-yee
  • January 4, 2019, 09:06
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The Korean government will introduce an approval system for foreign firms' attempts to acquire Korean companies. 

The South Korean government will benchmark the United States and introduce an approval system for foreign companies’ attempts to acquire Korean companies to prevent technology leaks. It will also increase the penalties for those who leak core national technologies, including fines of up to three times the damage incurred.

The Ministry of Trade, Industry and Energy (MOTIE), Korean Intellectual Property Office (KIPO) and Ministry of Justice (MOJ) announced a set of measures to cope with industrial technology leakage at a government meeting chaired by Prime Minister Lee Nak-yeon on Jan. 3. This came after there were growing calls for stronger technology protection systems. More than 20 cases of technology leaks take place in South Korea every year, mainly in key industries, such as memory chips. Most recently, executives of Toptec Co., a local supplier for Samsung Display, were indicted by prosecutors in November last year for allegedly attempting to sell the tech giant’s latest organic light-emitting diode (OLED) display technology to China’s BOE Technology Group.

Currently, foreign companies only need to report their deals to the South Korean government when they take over local companies which have core national technologies developed with government subsidies for research and development (R&D).

Under the new regulations, however, they will be required to receive government permission in advance. Until now, foreign firms did not have to report their deals when they acquired local companies which developed new technologies without government R&D support. However, they are required to report their M&A deals in the future. The new system will allow South Korean government to ban M&A deals when there is any adverse effect on national security and the national economy.

The South Korean government will also toughen penalties for technology leaks. It will adopt punitive damage so that anyone who leaks the nation’s key technologies or confidential business information to foreign firms will be forced to pay up to three times the actual damage in compensation. It will also raise criminal punishment for national technology leakages from less than 15 years in prison to at least three years in prison. It has also decided to revise the Act on Regulation and Punishment of Criminal Proceeds Concealment to confiscate all proceeds gained through industrial technology and trade secret leakage to foreign firms, including properties increased from the proceeds. The court will be able to ask those who leaked industrial technologies to submit data needed to calculate damage from technology theft. This is to lessen the burden of proof of damage on the part of the affected companies.

In addition, the South Korean government has decided to broaden the area subject to the new rules from current 64 technologies under 12 sectors to include newly emerging technologies such as artificial intelligence (AI), new materials and chemicals. It will also consider whether to include the equipment design technology in the OLED sector.

Many market experts point out that the latest measures excluded plans to prevent brain drain, the key to root out technology leakage. In this regard, Cheong Seung-il, MOTIE vice minister, said, “It is hard to adopt aggressive restrictions on employment because they constitutionally contradict with the basic human rights. We are looking for ways to give more legal grounds to the agreements that individual companies conclude to restrict their employees’ transfer.”

Meanwhile, the Ministry of National Defense (MND) also announced on Jan. 3 a plan to strengthen protection of defense industry technologies. The measures included toughened penalties for companies which leaked defense technologies, including the cancellation of designation as defense companies.