On July 23, 2020, in a dispute involving the alleged misappropriation of advertising ideas, the Supreme Court issued its first decision interpreting Article 2.1(j) of the Unfair Competition Prevention and Trade Secret Protection Act ("UCPA"), which prohibits unfair use and provision of another person's technical or business ideas conveyed during the course of business negotiations/transactions without authorization, and affirmed its application to the defendant in the case. The Court also found the alleged conduct to violate Article 2.1(k) of the UCPA (the so-called "catch-all" unfair competition provision), which generally prohibits unauthorized use of another person's commercially-valuable work product, and thus apparently confirmed that the "catch-all" provision can apply to infringing activity even if such activity may infringe under other more specific statutes. The Court affirmed the lower court's finding of infringement by the defendant and its award of damages and injunctive relief.
In this case, the plaintiff executed a marketing agency contract with the defendant and provided the defendant with a storyboard with a script for an ad video clip and the name of the plaintiff's chicken product. When the contract expired, the defendant handed over to the plaintiff's competitor the name of the product and the ad storyboard provided by the plaintiff, without either paying the plaintiff or obtaining the plaintiff's permission, whereupon the competitor used the name for the defendant's chicken product and the ad storyboard to produce an ad for the product. The plaintiff then sued the defendant under Articles 2.1(j) and (k) of the UCPA.
Prior to the Supreme Court's decision, there has been some controversy in Korea regarding the proper scope of Article 2.1(j). While the purpose of this provision (which was added in 2018) was to protect smaller parties who are often forced to disclose technical or business ideas in the course of business negotiations with larger companies (to prevent the larger company from misappropriating those ideas without permission or compensation), there has been concern that if this provision were too broadly interpreted, it might allow parties to improperly monopolize abstract ideas and potentially discourage legitimate business activities.
The Supreme Court tried to address these potential concerns by proposing the following rules for applying Article 2.1(j) to a given case:
- Whether an idea has economic value eligible for protection under the UCPA must be determined in each case based on whether the holder of the idea can obtain a competitive advantage against the competitor through the use of the idea, or if it would require substantial effort or cost to acquire or develop the idea; and
- Whether the idea has been unfairly used requires evaluating whether the use constitutes a breach of trust in the course of the relevant transaction or negotiations, considering the specific content and nature of the transaction or negotiation, the motives and circumstances underlying the sharing of the relevant information, the purpose of providing the information, and whether a reasonable price was paid for the information.
In this particular case, the Supreme Court determined that the plaintiff's ad storyboard and product name were ideas that were the outcome of substantial effort and investment and thus worthy of protection, and that because the defendant failed to pay any compensation for its use of the plaintiff's work product, the defendant's conduct was contrary to their business contract and common commercial practices. The Supreme Court therefore upheld the lower court's judgment that the defendant's conduct violated Article 2.1(j). Significantly, on the same grounds, the Supreme Court also upheld the judgment that the defendant used the plaintiff's work product without authorization in violation of Article 2.1(k), thus indicating that the same conduct can give rise to violations of both the "catch-all" UCPA clause as well as other more specific provisions. The Supreme Court further ruled that even if the plaintiff's ideas were originally misappropriated prior to the enactment of Article 2.1(j), if the unauthorized use continued after the enactment, Article 2.1(j) would still apply.
The Supreme Court's ruling provides significant guidance in how to apply the Article 2.1(j) to protect business or technical ideas that may need to be disclosed in the course of negotiations with potential business partners, which should improve the consistency of courts in applying this provision, and also affirms the Court's strong intention to protect against unfair competition in general by affirming the independent applicability of the UCPA "catch-all" provision regardless of whether other causes of action might apply.
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