Ceragem Fined 432 Million Won for Diverting Mold Drawings from SMEs to Its Chinese Subsidiary

Unfair Special Clauses Violate Subcontracting Act
Design Fee Payments Alone Do Not Justify Ownership

Ceragem Co., Ltd., a well-known healthcare and medical device manufacturer, has been found by the Fair Trade Commission to have unilaterally assigned the ownership of mold drawings—core technical materials belonging to its small and medium-sized partner companies—to itself, and to have provided them without authorization to its subsidiary in China.

Perspective view of Ceragem Gwacheon new headquarters. The Asia Business Daily database.

On August 6, the Fair Trade Commission announced its decision to impose corrective orders and a fine of 432 million won on Ceragem for violating the Act on the Fair Transactions in Subcontracting, including unfair special agreements and misappropriation of technology.

According to the investigation, Ceragem entered into 17 mold manufacturing consignment contracts with 12 subcontractors between August 2019 and January 2024. During this period, the company included unfair special provisions in the contracts that assigned the ownership of intellectual property related to mold production unilaterally to itself. Ceragem then requested and obtained 33 sets of mold drawings from three subcontractors, ostensibly for the development activities of its local subsidiary in China, Tianjin Ceragem Medical Devices Co., Ltd. Of these, seven sets of drawings were provided to the Chinese subsidiary without any agreement or consent from the subcontractors. The investigation also found that Ceragem requested specifications and external diagrams for motor parts without issuing the required formal “written request for technical data.”

During the review process, Ceragem argued that the intellectual property rights were clearly stated as belonging to the company in the contract, and that since the design fee was paid, the company owned the drawings. The company also claimed that, because the prime contractor's technology was reflected in the drawings, the materials in question did not constitute solely proprietary technical data owned by the subcontractors.

However, the Fair Trade Commission did not side with Ceragem. It found that there was no separate or specific contract for the transfer of ownership, and that the design fee described in the estimate was merely a detailed cost item within the mold manufacturing fee, not valid consideration for the transfer of ownership. Even if the manufacturing process of the prime contractor had been partly reflected in the materials, the commission clarified that, under the Subcontracting Act, technical data developed with the subcontractor's own technology and know-how must still be protected.

The Fair Trade Commission stated, “This measure reaffirms that any agreement under a subcontract that unilaterally assigns a subcontractor’s technical data rights to the prime contractor constitutes an unfair special provision and is in violation of the Subcontracting Act. The significance of this case lies in the fact that it makes clear that, without a consensus-based and specific contract, setting unfair special agreements or simply paying a design fee cannot be used to unilaterally restrict subcontractors’ rights to their technical data.”

This content was produced with the assistance of AI translation services.