Monday, November 28, 2005

Industrial Espionage Grows In Korea

Korea’s National Intelligence service recently issued a report on the spread of industrial espionage in Korea.  The agency reports that 27 cases of trade theft were reported in the first 10 months of 2005, up from the same period last year. More troubling is over 85% of all industrial espionage were reported since 1998 were within the last two years. The service estimates that since 1998 the 85 reported cases of industrial espionage involved secrets worth around US$74 billion.

The National Intelligence Service further stated that the electronics, information technology, and precision instruments industries were the areas that most of the reported thefts occur. Also, bribery was the preferred method to obtain information found in the reported cases. The service went on to opine that enforcement of the laws relating to industrial espionage were either too difficult to enforce, and even if convicted the penalties are rather light.

Such statements do not come as any surprise to those who follow this area. In recent months have found a number of high profile trade secret cases involving Korean companies:

1.In July 2005, 8 current and former Hynix Semiconductor executives were arrested for stealing most of Hynix’s IP to start their own semiconductor company, LMNT.

2.October 2005, Hyundai Motor dropped a parts supplier for sharing confidential information with a competitor

3.In November 2005, 4 current and former Samsung Electronics employees were charged with stealing mobile phone technologies to set up a business. Samsung officials said the theft was from a US$25 million development project, and if the theft were successful would have caused US$500 million in lost sales for the company.

4.Also in November, in announcing their settlement with Chery Automotive, a heading grabbing infringement case, GM Daewoo noted that earlier a Daewoo executive stole trade secrets and designs regarding a small van in development.

All four of the above cases involved Chinese companies in some way, either as the aggressor or as being used as a manufacturing base for the products. The Samsung Economic Research Institute studied the trend and found that China was the preferred destination for trade secrets, one way or another, comprising 39% of the cases, followed by the United States 21%, and Taiwan 18%. The institute further estimates that 70% of all such theft was in the electronics and IT industries.

Thursday, November 24, 2005

"At least they dressed well" Award I

Things like this happen so often, I figure I should start an award. This is not necessarily limited to Korea, however it seems to crop-up here a lot. This awards the act of making a comment on a situation in which you only make it worse not better.

The name for this award comes from Chung Jae Kyung. Mr. Chung was a patron at the infamous Nazi bar, The Fifth Reich, in Seoul. When asked about what he thinks of Hitler, Nazi's, the Holocaust, and World War Two all he could offer was, "I don't hate them, I don't like them, But at least they dressed well." (See "They Dressed Well" Time Asia June 5, 2005, in case the link goes dead one day or requires a fee to read).

The first "At least they dressed well" award goes to....A researcher in Dr. Hang Woo Suk laboratory. The researcher was commenting, or perhaps defending, Dr. Hwang in the current whirlwind of ethics charges against his stem cell laboratory. I point you to this passage from an International Herald Tribune Article:

At the time [Of Dr. Hwang's breakthrough], researchers elsewhere were amazed by
Hwang's ability to obtain an ample supply of healthy eggs. For his 2004 work,
Hwang used 242 eggs to yield one cloned embryo, which is destroyed in the
process of extracting stem cells...
"Dr. Hwang did not ask about the sources
of the eggs he was using, and he was not supposed to ask," said the second
researcher. "So he did not know about the donors and about the payments."
So let me get this straight, some how Dr. Hwang received an unusual amount of eggs for his research. An amount that amazed most other experts in the field. Yet, according to the researcher, he did not even inquire as to where this bounty came from? This unusually amount of eggs did not raise alarm bells in his head?

So in other words, Dr. Hwang did not violate ethics rules because he was too careless in the first place to even consider them? Or is the defense he was too dumb to think of them in the first place?

Congratulations researcher, you get the first "At least they dressed well" award!

Wednesday, November 09, 2005

Korea Licks Its Chops

Something halfway around the world something happened that might have a profound effect on Korea and one of the largest telecom firms in the world. Last week a few telecom manufacturers got together to bring Qualcomm's pricing policies before the EU Trade commission on the grounds of price discrimination.

Most of the analysts are bringing up parallels to the Microsoft trials five years ago. In ways it is similar. One could even argue that Texas Instruments position is similar to RealNetworks. However I do not cover EU competition law, so I so not know how appropriate such a comparison is, let alone the quality of the case. It all may not matter anyway in Europe, some think this is only a negotiation tactic.

What does this all have to do for Korea? Simple, Korea for sometime has been trying to take down Qualcomm for just about anything. As mentioned here before, Korea has a mercantilist knee-jerk reaction to many things. One of the particularly strong knee-jerks is the trade deficit it has with other counties in regards to royalties. Qualcomm accounts for about 10% of all royalties going out of Korea, or 17% of the deficit. Predictably Qualcomm is the bloody shirt politicians and businessmen wave as they want to drive home the idea of Korea becoming a knowledge economy.

I am willing to wager that Qualcomm will be the target of some Korean Fair Trade Commission inquiry next year. Based on what I can decipher I can give three reasons:

1. Korea Fair Trade Commission does not like to launch investigations on their own, they usually wait for others to launch first. This is true of the recent cases against Microsoft (restrictive agreements with PC makers) and Intel (same) Both of those were first tried by other countries well before similar investigations were launched in Korea. The European case (pursued fully or not) will give good impetus (or even political cover) to take up a Qualcomm investigation.

2. I mentioned in the Oracle case, there (as I recall) the issue was whether Oracle can bundle, and charge, for features not used by the average user (in Economic parlance a tie between goods). This is likely due to the fact that whatever updated Qualcomm CDMA chipsets sold in Korea will likely be able to work with Qualcomm 3G standards (most notably WiMAX, where Korea uses its own standard WiBro instead).

3. The troubling hidden aspects of the Microsoft/Daum Fair Trade Commission fight over messenger services. One thing unsaid in this fight is that many of the things Microsoft includes for free in it OS now and in future are things that the Korean Government paid billions of dollars for Korean companies to develop and export (messenger programs, VoIP, media players, etc.). WiMAX threatens WiBro, and the Korean government as well spent millions on the development and the export promotion of WiBro. A similar situation.

Lastly all this is particularly scary to Qualcomm. Last year Qualcomm had a total income of about US$1.5 billion. The annual Korean royalty of US$500 million represents ONE THIRD of their income. Qualcomm could be very vulnerable financially by any move from the Korean Fair Trade commission. Expect Q's Korean lawyers to fight hard (and be well paid).