The National Assembly passed the Amendment to the Act on Prevention of Divulgence and Protection of Industrial Technology (the “Amendment to the ITA” or “the Amendment”) at its plenary session on December 27, 2024. The Amendment strengthens the systematic management of industrial technologies, including national core technologies (“NCTs”), expands the scope of covered industrial technology infringement activities and increases related penalties. On the same day, the Ministry of Trade, Industry and Energy (the “MOTIE”) also announced the Fifth Comprehensive Plan for the Prevention of Divulgence and Protection of Industrial Technology (the “Fifth Comprehensive Plan”), which is scheduled to be implemented over the next three years.
The key provisions of the Amendment and the Fifth Comprehensive Plan are as follows, with the Amendment to the ITA scheduled to come into force on July 22, 2025.
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Key Provisions of Amendment to ITA
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Improved Systematic Management of NCTs
The ITA previously required technology-holding institutions to initiate the NCT designation process by submitting an application to the MOTIE. Now, the Amendment introduces a provision that allows the MOTIE to notify technology-holding institutions that it identifies as potentially possessing NCTs to submit an application for determination.
In addition, the Amendment establishes a registration system for NCT-holding institutions whereby an institution that has received the determination that it holds an NCT must register the specifics with the MOTIE.
If an NCT-holding institution receives a notice from the MOTIE to submit an application for determination but subsequently fails to submit the required application or register relevant information related to an NCT designation, it may be subject to an administrative fine of up to KRW 10 million.
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B.
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Strengthening of Regulations to Prevent Overseas Leakage of Industrial Technology
Previously, if a company exported NCTs without obtaining the necessary prior approval or filing a report to the MOTIE, remedial orders, such as the suspension or prohibition of exports or an order to restore to the original state, could only be issued after an investigation by relevant intelligence agencies and deliberations by a review committee. However, the Amendment now authorizes the MOTIE to issue orders without waiting for an intelligence agency’s investigation or for the findings of a review committee.
Similarly, the MOTIE is now authorized to immediately issue orders blocking overseas mergers and acquisitions (“M&As”) involving NCT-holding entities that have failed to obtain prior approval from or report to the MOTIE. The MOTIE has also been given the power to impose administrative fines if its orders are not complied with within a specified period.
In addition, whereas in the past only the export of NCTs developed with government R&D funding underwent an assessment of their impact on national security and the economy during the approval process, the recent Amendment broadens this requirement. Now, national security/economy impact assessments are mandated in the context of approvals for overseas M&As of NCT-holding entities.
Moreover, the Amendment stipulates that national security assessments must be conducted by the MOTIE when deciding whether to accept reports on the export of NCTs developed without government R&D funding, as well as in cases of overseas M&As involving entities that possess these NCTs.
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C.
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Expansion of Scope of Industrial Technology Infringement and Strengthening of Penalties
The Amendment expands the scope of industrial technology infringement to include: (i) unauthorized disclosure of industrial technology by individuals with access rights, either to locations outside designated areas or the use of the technologies for unauthorized purposes, (ii) the introduction, solicitation or inducement of acts of industrial technology leakage, and (iii) the failure to file or fraudulent filings pertaining to the export of NCTs. These actions are now categorized as acts of industrial technology leakage or infringement. Additionally, the Amendment clarifies that the ITA applies to acts of industrial technology leakage or infringement committed abroad.
Moreover, in cases of willful industrial technology infringement, the upper limit on punitive damages has been increased from three times to five times the actual damages. Further, (i) the maximum fine amount for individuals implicated in the overseas leakage of NCTs has been raised from KRW 1.5 billion to 6.5 billion, and (ii) the maximum fine amount for individuals involved in the overseas leakage of industrial technologies has been increased from KRW 1.5 billion to 3 billion.
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Key Provisions of Fifth Comprehensive Plan
The MOTIE’s Fifth Comprehensive Plan includes several strategic initiatives aimed at bolstering the protection of NCTs, including: (i) the designation of additional NCTs in critical sectors with significant impact on national security or the economy, such as the battery and aerospace sectors, (ii) the establishment of an M&A division within the Industrial Technology Protection Expert Committee, (iii) the expansion of support measures, including security consulting, for universities and small and medium-sized enterprises with vulnerable security practices, (iv) the management of essential personnel associated with NCTs through the use of big data analytics, and (v) the implementation of cloud protection measures for institutions that possess NCTs.
Notably, the MOTIE plans to develop and release a “Technology Scope Guideline” by the second half of 2025, which is expected to clarify the detailed technical parameters of designated NCTs and address the current challenges related to determining whether an entity holds an NCT. Additionally, the MOTIE will establish a dedicated M&A division within the existing Industrial Technology Protection Expert Committee, which currently operates by sector based on technology, in order to ensure a more specialized review process for M&As involving foreign entities. This initiative will be further supported by proposed amendments to the enforcement decree that will redefine what constitutes a foreign entity under the ITA, as well as modify the threshold for foreign ownership and control (presently set at 50% or more). These changes aim to broaden the scope of covered transactions and strengthen the standards applied in the review process.
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The Amendment to the ITA is a demonstration of a substantial overhaul that addresses issues and concerns raised by industry practitioners. In particular, the MOTIE has been given the authority to initiate the submission of applications for NCT determination. A registration system for entities holding NCTs has also been established. In addition, the standards for reviewing and blocking the export of NCTs or the overseas M&As of entities holding NCTs without first reporting to or obtaining approval from the MOTIE have been significantly strengthened. As a result, companies that may hold NCTs are advised to carefully assess the classification of their technologies to ensure compliance with applicable regulations.
Finally, the Amendment to the ITA is being implemented in accordance with the Fifth Comprehensive Plan announced by the MOTIE. It is expected that subordinate regulations, including implementing regulations and notices, will continue to be issued. Therefore, stakeholders should not only follow the ITA but also its subordinate regulations.
[Korean Version]