Gov't approval to be mandated for sale of chip, battery, vaccine firms

Trade secret of core tech firms crucial national interest amid US-China IP hegemonic war

By Lee Kyung-min

Amid the continued shortage of memory chips, more countries are rushing to manufacture components vital to electric vehicles (EVs) and COVID-19 vaccines, as these components are being treated as “a matter of national security.”

South Korea's competitiveness lies in manufacturing as the country is the home to the world's top two memory chipmakers ― Samsung Electronics and SK hynix. Also, LG Energy Solution (LGES) is a top-tier EV battery manufacturer, followed by Samsung SDI and SK Innovation (SKI). Plus, President Moon Jae-in is hoping the country will become the global leader in COVID-19 vaccine manufacturing, as Samsung Biologics is set to produce Moderna's COVID-19 vaccine at its plant in Incheon.

The ruling Democratic Party of Korea (DPK) and the government are seeking to legislate a plan prohibiting the sales of semiconductor, vaccine or battery firms without prior government approval, in an effort to prevent the trade secrets of core growth driver industries from falling into the wrong hands.

The moves come after the United States recently passed a bill that includes the establishment of funding that could be as high as $52 billion to back up semiconductor research, design and manufacturing initiatives. The EU has also established funding to expand European semiconductor manufacturing.

A number of attempts by China aimed at recruiting IT experts in these designated areas have failed. The country's intelligence agency is known to keep tabs on experts in specific fields amid an intensifying hegemonic war with the U.S. over intellectual property.

Recent National Intelligence Service (NIS) data showed 111 incidents of attempted industrial technology leaks from January 2016 to June this year, as cited by a local newspaper. This would have translated to over 21 trillion won ($18.1 billion) in losses, with factors including R&D costs and sales losses. Of them, 35 concerned major technologies directly related to national security and the economy.

Of the total 111, 66 incidents occurred at small- and medium-sized companies (SMEs), pointing to their vulnerability due to lax corporate security and workforce management. This was followed by 36 incidents at large companies, eight at universities and research institutes and one at a state-run institution.

“Trade secret leakage methods are advancing rapidly, with an increasing number of Korean companies left vulnerable and the critical national interest being compromised. Measures are needed to prevent leakages at small players,” an industry watcher said.

A special committee on semiconductor technology under the DPK is seeking to introduce an amendment to a bill to prohibit those who hold what the government considers “core technology” from selling their firms or technologies without the approval of the trade minister.

Also subject to the minister's approval would be corporate mergers and acquisitions involving foreign firms and investments from overseas.

Behind the rationale is the notion that the government's deep involvement is a plus factor in terms of alleviating some of the supply shortage pressures, because only a few global companies dominate the supply chains. That means South Korea could be well-positioned to enjoy a “competitive edge” to raise prices given its strengths in manufacturing.

Harsh penalties

The government and the DPK plan to establish harsh penalties for violation of contractual non-compete clauses, which are a type of clause that restricts an individual's ability to work in a particular industry for a period of time after ending one engagement. It is to protect employers from departing employees who may unfairly use what they have learned at their previous job to compete against their former employers.

This is to establish a legal basis for penalizing employees in the semiconductor and battery industries, most of whom have thus far been able to nullify such contracts following court decisions that found for them on constitutional grounds that guarantee freedom of employment.

The amendment will include ways to impose harsher penalties on those who leak trade secrets.

Under the law governing industrial technology protection, trade secret leakage is a criminal offense punishable by up to three years in prison. However, only three cases of convictions leading to a prison term were seen between 2017 and 2019, due to Supreme Court sentencing guidelines, whereby those who have not realized profit and first-time offenders are sentenced to between 10 months and a year and a half in prison, are seen as grounds for a suspended sentence.

The DPK plans to work out the specifics by Aug. 31 before seeking to have the bill passed at a regular session of the National Assembly in September.