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Some Thought on Technology Outflows and Other Trade Secret Leaks | Tsugio Ide Director, Asian Communication Juku, Japan China Management School Director, Global Industrial and Social Progress Research Institute [Date of Issue: 30/November/2015 No.0249-0991]

Date of Issue: 30/November/2015

Some Thought on Technology Outflows and Other Trade Secret Leaks

Tsugio Ide
Director, Asian Communication Juku, Japan China Management School
Director, Global Industrial and Social Progress Research Institute

Technology has been sought by everyone, and everyone has benefited from its use. The trade secret protection provided under law should be strictly observed, but the appropriate transmission and provision of general technology could even be said to be Japan's role in world history.

1. Economic globalization and trade secrets

The legal battle between Nippon Steel Corporation (now Nippon Steel & Sumitomo Metal, or NSSM) and South Korean steelmaker Posco over trade secrets in relation to grain-oriented electrical steel technology was recently settled through a civil suit, but the case has certainly foregrounded the issue of trade secret leaks in relation to the transmission and outflow of technology and information in today's world, as well as the various challenges of economic globalization issues that underlie this issue.

The postwar economic system was originally focused on the liberalization of trade and capital transactions under the free trade regime shaped by the GATT and the IMF. The transition from the GATT to the WTO has since changed the nature of the trade regime, while the IMF too has had to adapt to the shift to a floating exchange rate system, the 'Lehman shock' and other such events. The end of the Cold War prompted the globalization of the market economy system, on top of which the advance of information communications tools has not only promoted the free flow of goods and money but also significantly boosted the movement and exchange of people, technology and information and brought down national borders.

As this global economic system has continued to evolve, it has brought attention back to the existence and frameworks of nation-states while at the same time conversely intensifying competition among companies and prompting governments to strengthen their industrial policies, necessitating new international disciplines and frameworks as well.

When issuing its new 1000-volume Red series, the publishing company Iwanami Shoten observed that "the permeation of global capitalism has brought about constant change in modern society, giving value to speed and novelty. The change in consumer society and the information technology revolution have removed various types of borders, transforming people's lives and forms of communication from the very root."

2. Formulation of unfair competition prevention legislation and international trends

Various steps have been taken to ensure fair competition in the international economic system, including formulating anti-monopoly laws, establishing patent systems to protect rights to scientific and technical inventions, and concluding international agreements to lock in the above (a recent example is the Agreement on Trade-Related Aspects of Intellectual Property Rights, or TRIPS, which is part of the WTO Agreement). However, compared to international trade and currency rules, the prevention of unfair competition presents a number of thorny issues in terms of validity, clarity and effectiveness.

Japan's Unfair Competition Prevention Law sets out measures for the prevention of unfair competition and compensation in relation to such competition, thereby ensuring fair competition among businesses and the proper implementation of international commitments and contributing to the sound development of the national economy. That law and the related guidelines were recently revised to bring Japan up to international standards in areas where it had been slow to respond compared to the US (the Economic Espionage Act), Korea (the Act on Protection and Prevention of Disclosure of Industrial Technology and the Unfair Competition Prevention and Trade Secret Protection Act) and Germany (the Act Against Unfair Competition), for example. Particular attention appears to have been paid to clarifying what constitutes a trade secret to ensure fair market competition.

(1) Trade secrets are defined as information that is:
(a) Managed as secret (confidentiality)
Organizational management (information management systems), personnel management (information management regulations, confidentiality agreements) and confidentiality management (restricting access and marking documents as confidential), to ensure that those employees who have legal access to and/or are likely to access the relevant information will recognize it as information that the company wishes to keep confidential.
(b) Constitutes valuable commercial or technical information (utility)
In many cases, any information other than that falling beyond the scope of legal protection (information contrary to public order and morality, such as tax evasion information and information about the discharge of toxic substances) is considered to have utility. The information does not have to be actually used, and even negative information such as data on failed experiments can be deemed to have utility.
(c) Is not in the public domain (non-public)
Not generally available except under the management of the owner, such as information not noted in publications that can be obtained given reasonable effort. Even the combination of information in the public domain can be deemed non-public depending on the ease and cost of that combination.

(2) To increase the deterrence effect, the scope of punishment has been defined, statutory penalties increased, and the transfer, import and export of infringing products banned. It has also been made easier to seek damages, the burden of proof in civil suits in relation to the illicit use of production technology, etc., has been shifted, and the need to lodge a complaint has been eliminated (definition of offenses warranting complaint).

3. Technology transfer, acquisition and provision in the process of Japan's modernization

In the very first workshop of Hitachi, one of Japan's leading technology firms, we are informed as an historical fact that founder Namihei Odaira dismantled and studied motors he imported from the United States, and was delighted when he succeeded in making Japan's first domestically-produced motor. We also know that when Toyota Motor Corporation was founded, the company took apart and studied Chevrolets imported from General Motors, completing Toyota's first vehicle in 1936. These are classic examples of what today is called reverse engineering.

When it came to postwar thermal and nuclear power generation, Japanese power companies imported their first generators from GE, WH and elsewhere, but from the second generator onwards, domestic manufacturers took over production, sometimes with help from US manufacturers, and supported by power companies and the Ministry of International Trade and Industry. Going back even further, during the industrial promotion of the Meiji era, the government was the main promoter of the introduction of technology by bringing foreign experts to Japan, as well as sending many students to the West, as part of its drive to transform Japan into a modern state.

Looking back over historical facts, then, technology has been sought by everyone, and use of that technology has benefited everyone. This tendency has been particularly marked in Japan, where the government worked from the Meiji Restoration onward to develop industry and build a modern state, so it is easy to understand why developing countries who are currently seeking to build modern states might want to pursue the same path. Accordingly, while the trade secrets and respect for patent rights provided for under law should obviously be observed and implemented, the transmission and provision of technologies which do not violate these should be appropriately deployed as part of global business operations.

The history of the various successes, failures and overcoming of obstacles experienced by Japan on its road to modernization represents valuable information for developing countries wishing to modernize, and it could be argued that Japan's role in world history is to share that experience. Firms from advanced countries and people with corporate experience are already engaging in a range of activities in the developing world.

When the new legislation was being developed, there was some concern that strengthening protection for trade secrets in terms of both civil and criminal responsibility might obstruct the freedom to change jobs. However, the new legislation clarifies that the scope of trade secrets is proprietary corporate information (non-public), and that only information reasonably distinguished from general information and managed as confidential information (confidentiality) shall be protected as a trade secret. It should be borne in mind, therefore, that the legislation notes clearly that skills and memory themselves are generally unlikely to be considered trade secrets.

(original article : Japanese)
(For the Japanese version of this article)

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