Korea’s Fairness in Subcontracting Transactions Act Amendments of July 2021

The Korean National Assembly passed a bill in July of 2021 that amends the Fairness in Subcontracting Transactions Act (“Subcontracting Act”). The Act makes major changes with regard to discovery in litigation and aims to protect the intellectual property/confidential data/technical data (“Technical Data”) of subcontractors from poaching by prime contractors.

For another article on Korea’s Subcontracting Act please see: Fair Transactions in Subcontracting Act of Korea: So Buyer Beware or Simply Avoid the Risk and Buy the Seller.

IPG Legal Korea Subcontracting Act

2021 Amendments to the Fairness in Subcontracting Transaction Act of Korea

  1. Amended Article 2 (15) of Fairness in Subcontracting Act’s Revision of Definition of Protected Data under the Act.

The amendment to the Subcontracting Act of Korea deleted ” through reasonable efforts” from the definition of protected data. The prior version of the Act noted that for data to be protected under the Act the data must be “maintained confidential through reasonable efforts.” The amendment, thus, takes “reasonable efforts” out of the act, thus, alleviating a burden on the subcontractor in proving that the subcontractor made “reasonable efforts” to protect the alleged protected data.

For Prime and Subcontractors in Korea, it is essential that you consider deeply if certain data is deemed protected data under the Subcontracting Act of Korea and other rules and regulations and if the request for the data by the Prime Contractor is reasonable, necessary and justifiable under the specific circumstances. In most cases, the processes you have in place now, must be revised to meet the new burdens, risks and protection opportunities under the Act.

2. Amended Article 12-3(3) of the Fairness in Subcontracting Act’s Requirement for Execution of an NDA.

The Amended Korean Subcontracting Act mandates that Prime Contractors sign a non-disclosure agreement with a subcontractor whenever a Prime Contractor requests protected data under the Act. This NDA must contain, at a minimum, a definition of the data requested; the specific employees of the Prime Contractor that shall have access and protect the data; and the typical language in most NDAs concerning breach and the obligations to maintain the confidentiality of the protected data.

We, strongly, advise Prime Contractors and Subcontractors to get an experienced and proactive lawyer to draft for you a nuanced NDA that meets the requirements of Korea’s Subcontracting Act. Your present NDA is likely not adequate.

3. Amended Article 35-2 – 35-5 of the Fairness in Subcontracting Act’s Court Discovery Rules

In Korea, discovery is process that occurs, mainly, through the order of the court and within a court proceeding. No pre-trial discovery is typical in cases in Korea. Korean conglomerates are known to withhold necessary data from plaintiffs in cases with the court and plaintiffs having few options to compel discovery. With this in mind, the following amendment was passed by the Korean National Assembly.

The amendments allows for a court to recognize the existence of the requested document/information as true and proven by the Subcontractor if a Prime Contractor refuses to comply with a court order without a valid and accepted reason. The Amendments provide a procedure for the protection of the data. We shall write an article in the near future that shall discuss the procedures put in place to protect the discoverable data of the Prime Contractor.

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