On July 23, 2021, the National Assembly passed a bill to amend the Fairness in Subcontracting Transactions Act (the "FSTA"), which aims to (i) reinforce the protection of technical data of SMEs by expanding the scope of technical data protected under the FSTA and by requiring the signing of a non-disclosure agreement ("NDA"), and (ii) make it easier for a subcontractor engaged in a damages lawsuit against a contractor to obtain evidentiary materials from the contractor through a court subpoena.  The amendment will become effective six months after promulgation by the President.  Key details of the amendment are as follows.
 

1.   Easing of the confidentiality criteria to qualify as protected technical data (Article 2 (15))

The amendment eases the confidentiality criteria that must be met in order to qualify as protected technical data under the FSTA.  The previous definition was data that are "maintained confidential through reasonable efforts," but the amendment deletes the "through reasonable efforts" qualifier.

In order for data to be eligible for protection from technology misappropriation under the FSTA, certain conditions must be met to show that such data are technical and confidential in nature.  However, because the pre-amendment FSTA requires technical data to be "maintained as confidential through reasonable efforts," there have been cases where subcontractors, which are often relatively ill-equipped to manage the confidentiality of their data, failed to demonstrate that they have been making reasonable efforts and failed to have their technical data recognized as eligible for protection under the FSTA.  

To address this issue, the amendment will delete the "through reasonable efforts" qualifier so that technical data will be recognized as confidential in nature even if the confidentiality had not been maintained through reasonable efforts.  Going forward, as a broader range of technical data managed by subcontractors will be eligible for protection under the FSTA, it is important that companies sufficiently review beforehand whether the data they request from subcontractors can be deemed as technical data under the FSTA, and whether the request for data is justifiable.  It will also be important to avoid failure to provide a written request to subcontractors for the technical data or misuse of subcontractors’ technical data, which are types of technology misappropriation prohibited under the FSTA.
 

2.   Requirement for the signing of NDAs (Article 12-3 (3))

The amendment requires companies to sign NDAs when requesting subcontractors to provide technical data because, in practice, it is difficult for the subcontractors, due to their weaker bargaining power, to demand that the contractor sign an NDA regarding the technical data they provide to the contractor.

Furthermore, the amendment specifically requires that such NDAs specify the scope of the technical data, names of the contractor's executives/employees who will be holding the technical data, obligation to maintain confidentiality, prohibition of use of the technical data for other purposes, duty to compensate upon violation of the NDA, and other requirements prescribed by the Presidential Decree.

Therefore, it will be necessary for companies to prepare a standardized NDA template regarding subcontractors' technical data going forward.  We also recommend that the companies review their signing protocol before the amendment takes effect in order to avoid violating the FSTA.
 

3.   Introduction of new court orders to produce materials (Articles 35-2 to 35-5)

The amendment enables the courts to order the contractor to produce evidentiary materials that are necessary to prove harm or calculate damages when a subcontractor files a damages lawsuit against the contractor.  If ordered by the court to produce materials, the contractor must produce those materials even if they are trade secrets, unless there is a legitimate reason for refusing to do so.  Furthermore, the amendment prescribes that, if the contractor refuses to comply with a court order to produce materials without a legitimate reason, the subcontractor’s claim in court will be recognized as a fact by the court.

In order to protect the contractors’ interest, the amendment implements a set of rules to minimize the leakage of the contractors’ trade secrets produced to the court in a damages lawsuit, which includes a confidential deliberation process, court orders to maintain confidentiality, and notification of requests made to view court records in the case.  Details of these rules are as follows.
 

[Korean version]