** How South Korean Courts Calculate Trade Secret Damages: The ₩5.76 Billion Nexon v. Iron Mace Verdict

1. What Formula Do South Korean Courts Use to Calculate Trade Secret Damages?

Article 14-2(2) of South Korea’s Unfair Competition Prevention Act (부정경쟁방지법) creates a statutory presumption: the infringer’s profits are presumed to equal the plaintiff’s damages. This shifts the burden — the defendant must rebut the presumption rather than the plaintiff bearing the burden of proving lost profits directly.

In practice, however, courts do not simply award 100% of the infringer’s gross revenue. Three variables progressively narrow that figure:

Each variable is a separate legal determination: Variable 1 (the time-bounded revenue base) depends on the protection period doctrine; Variable 2 (the marginal profit rate) converts gross revenue into economic profit; and Variable 3 (the contribution rate) isolates the causal share attributable to the trade secrets. The sections below address each in turn.

2. What Happened in Nexon Korea v. Iron Mace (“Dark and Darker”)?

The case spans roughly five years of events. For clarity, this post uses the following labels, consistent with the court’s anonymization conventions:

Timeline of Key Events

Between April 6 and June 23, 2021 — roughly ten weeks before resigning — Y2 transferred core P3 development files (source code, build files, data assets, and development program files) to a personal server in Seosan. In the three days following that transfer, Y2 and Y3 individually met with 22 P3 team members and encouraged them to follow. Eight ultimately joined Iron Mace. By September 2021, Y2 and Y3 had begun developing Dark and Darker; they incorporated Iron Mace in October 2021. The game was released on August 8, 2023 and generated ₩37,635,186,613 in revenue from release through December 31, 2023.

Claims and Outcome

Nexon Korea filed a main action seeking injunctive relief and ₩8.5 billion in damages; Iron Mace filed a counterclaim seeking a declaration of non-infringement and an injunction against interference. The trial court (Seoul Central District Court, February 13, 2025) granted Nexon Korea’s claim in part and issued a provisional execution order, under which Nexon Korea received ₩9,370,739,725. On appeal, the Seoul High Court reduced the award to ₩5,764,644,688. The Supreme Court rejected Iron Mace’s further appeal on April 30, 2026.

3. What Qualified as Trade Secrets — and Why Does “Combination Data” Matter Under Korean Law?

Iron Mace raised two distinct challenges to trade secret status: first, that the individual files were not sufficiently identified (the specificity objection); second, that many components were commercially available assets or open-source code (the public-domain objection).

The Specificity Requirement

South Korean courts have established that a trade secret need not be catalogued element-by-element, as long as the plaintiff identifies the materials by list or attachment in a way that allows the court and the defendant to assess scope (referencing Seoul High Court 2014Na4592, affirmed at Supreme Court 2017Da24113). The court found that Nexon Korea’s schedule of materials — a set of development files that functioned organically as a unified development package — met this standard.

Combination Information and the Non-Public Knowledge Doctrine

On the public-domain objection, the court applied the legal framework confirmed in Supreme Court 2022Do16851 (April 12, 2024): even where individual components are publicly known, their combination can constitute protectable trade secret information if (a) that specific combination is not generally known in the relevant industry and (b) the combination as a whole contains value beyond the sum of its public parts, such that it could not normally be obtained without access to the holder. The court found that the P3 Game’s combination of gameplay elements, technical configurations, and design choices satisfied this test.

Confidentiality Management Under the 2019 Statutory Threshold

South Korea’s Unfair Competition Prevention Act has progressively lowered the confidentiality management threshold: “reasonable efforts” (1998–2015), then “efforts” (2015–2019), and since January 2019, simply “managed as a secret” (비밀로 관리된). The court emphasized that some affirmative management act by the holder remains essential regardless of which formulation applies. Nexon Korea’s documented security policy and server access restrictions were sufficient to meet even the pre-2019 standard.

4. How Did the Court Determine the 2.5-Year Trade Secret Protection Period?

Legal definition: Under South Korean law, a trade secret does not merely become unenforceable after a certain period — it ceases to exist as a legally protected right once its confidential status expires (Supreme Court 97Da24528, February 13, 1998). This extinguishment principle is critical: it means that revenue generated after the protection period ends is entirely excluded from the damages base, making the period determination the single most consequential variable in South Korean trade secret litigation.

The protection period is the first and most consequential variable in the damages formula because it defines the temporal scope of the revenue base. A difference of six months in the protection period can translate to hundreds of millions of won in damages.

The Legal Foundation: Trade Secrets Expire

The Supreme Court has consistently held that a trade secret ceases to exist once the period during which it remains a secret has elapsed (Supreme Court 97Da24528, February 13, 1998). This is not merely a statute of limitations on claims — it extinguishes the trade secret itself, meaning that profits generated after expiration cannot be included in the damages base.

Commencement: Actual Departure Date

The starting point of the protection period is the date the employee actually left the relevant role, not the date of the wrongful act (Supreme Court Order 2016Ma1630, April 13, 2017). In this case, the court used the mid-to-late July 2021 resignation dates of Y2 and Y3.

How the Court Arrived at 2.5 Years

The court weighed the following factors when setting the endpoint at January 31, 2024:

• Intrinsic value and industry pace. The gaming industry evolves rapidly; the trade secrets’ market value erodes faster than in slower-moving industries.
• Asymmetric starting positions. Nexon Korea brought substantial accumulated resources, personnel, and prior development history (including the H Project, which ran from September 2018 to June 2020). Iron Mace started from scratch. Independent development of equivalent content would have taken Iron Mace substantially longer than it took Nexon Korea.
• H Project continuity. Because P3 built on H Project content, the protection period partly reflects the cumulative investment beginning in 2018.
• Y2’s pre-employment design notes. Y2 had written design memos in 2017–2018 touching on elements like medieval fantasy and dungeon exploration. This somewhat shortened the gap, as those elements were attributable to Y2’s independent prior thinking rather than Nexon Korea’s investment.

Nexon Korea had argued that no endpoint should be set at all, citing Supreme Court Order 2018Ma7100 (March 14, 2019), which permits a court to decline to specify an expiration date when the possibility of independent discovery or reverse engineering is not demonstrable. The court rejected this argument because other game developers could credibly have developed similar content through independent means — unlike trade secrets in fields where independent replication is practically impossible.

The Supreme Court confirmed on appeal that protection period determinations fall within the trial court’s exclusive fact-finding authority and will not be disturbed unless the result is manifestly inequitable (referencing Supreme Court 2017Da34981, September 10, 2019).

5. How Is the Marginal Profit Rate Calculated When the Infringer Won’t Disclose Its Costs?

Legal principle: Under Article 14-2(2) of South Korea’s Unfair Competition Prevention Act, the infringer’s “profit” for damages purposes means marginal profit — gross revenue minus variable costs (Supreme Court 2005Da36830, October 13, 2006). When an infringer refuses to produce reliable cost data, South Korean courts substitute the industry-specific marginal profit rate published in the Bank of Korea’s Annual Report on Corporate Management Analysis (기업경영분석), an officially published statistical reference compiled from corporate tax filings of nearly one million companies annually.

Variable cost deduction is conceptually straightforward: the infringer’s “profit” for purposes of Article 14-2(2) is marginal profit — gross revenue minus variable costs — not gross revenue itself (Supreme Court 2005Da36830, October 13, 2006). The practical difficulty is proving variable costs when the infringer has not cooperated in discovery or when its accounting records are contested.

Revenue Base: ₩45.6 Billion

The court confirmed Iron Mace’s 2023 revenue at ₩37,635,186,613 through a court-ordered tax data production from the Bundang Tax Office. Since Dark and Darker was Iron Mace’s only product, the entire 2023 revenue (representing August 8 through December 31, 2023, or 146 days) was attributable to the game. Revenue for the remaining protection period — January 1 through January 31, 2024 — was estimated by prorating the December daily rate, yielding ₩7,991,032,773. Combined: ₩45,626,219,386.

Applying the Bank of Korea Marginal Profit Rate

Rather than attempting to reconstruct Iron Mace’s actual variable costs — a complex task that Iron Mace could frustrate through non-disclosure — the court turned to the Bank of Korea’s Annual Report on Corporate Management Analysis (기업경영분석, published under Article 86 of the Bank of Korea Act). This report, based on corporate tax filings of 935,597 companies, publishes industry-specific financial ratios. For “Software Development and Supply” in 2023, the variable cost-to-revenue ratio was 15.77%, implying a marginal profit rate of 84.23%.

The practical implication for plaintiffs is significant: when the infringer refuses to produce reliable cost data, plaintiffs can substitute the Bank of Korea statistics as an objective, court-accepted benchmark. Defense counsel should be prepared to challenge this substitution by producing affirmative evidence of higher actual variable costs.

6. Why Was the Contribution Rate Set at 15% When Trade Secrets Covered Only 3.6% of Game Elements?

The three-factor test: The Supreme Court of Korea identifies three primary factors for contribution rate determinations: (1) whether the trade secret constituted an essential component of the infringing product; (2) the technological and economic value of the trade secret; and (3) the proportionate share of the trade secret in the overall product structure (Supreme Court 2017Da34981, September 10, 2019). The contribution rate is within the trial court’s exclusive discretion and will not be reversed on appeal unless the outcome is manifestly unreasonable. Quantitative element count (3.6%) is only one of the three factors — qualitative value can and frequently does override it.

The contribution rate bridges the gap between the infringer’s total marginal profit (approximately ₩38.4 billion) and the damages awarded (₩5.76 billion). The plaintiff sought 75% or higher; the defendants argued less than 3%. The court landed at 15%.

Governing Legal Standard

The Supreme Court in 2017Da34981 identifies three primary factors for the contribution rate determination: (1) whether the trade secret constituted an essential component of the infringing product, (2) the technological and economic value of the trade secret, and (3) the proportionate share of the trade secret in the overall product structure or pricing. The contribution rate is explicitly within trial court discretion unless the result is grossly unreasonable.

Factors Favoring a Higher Rate

• Design-stage cost savings. The misappropriated data allowed Iron Mace to bypass the concept and early development phases, significantly accelerating the project timeline and reducing development costs.
• Resource asymmetry. Nexon Korea’s established infrastructure meant its development investments were more valuable than Iron Mace’s startup-stage alternatives would have been.
• First-mover advantage. Dark and Darker was among the first games to successfully combine extraction-shooter mechanics with a medieval dungeon setting. The evidence suggested this market position contributed substantially to its early revenue success.
• Asset continuity. Evidence suggested that modified assets from Nexon Korea’s P3 development appeared in Dark and Darker.

Factors Favoring a Lower Rate

• Genre gap. The court found that the P3 Game (battle royale: survive-to-win) and Dark and Darker (extraction shooter: escape-with-loot) are not substantially similar as game products. This undermined the argument that the P3 trade secrets were “essential” to Dark and Darker’s design.
• Publicly known individual components. Most individual elements identified as trade secrets — the “P3 trade secret information” category — were derived from common gaming conventions already known in the industry.
• Low quantitative weight. Dark and Darker had over 2,200 identified elements; the trade-secret-corresponding elements numbered approximately 80, or about 3.6%.
• Post-launch independence. Iron Mace’s ongoing service operations, content updates, and marketing after launch were conducted independently and could not be attributed to the P3 trade secrets.
• Iron Mace’s total operating costs. Iron Mace’s 2023 operating costs were approximately ₩15.6 billion, compared to Nexon Korea’s H Project and P3 Project total investment of roughly ₩24 billion — suggesting that the infringing developer’s own post-misappropriation investment was substantial.

7. Why Did Korean Courts Reject Copyright Infringement Despite Overlapping Game Content?

Nexon Korea’s copyright claim argued that Dark and Darker reproduced expressive elements of the P3 Game. Both the High Court and the Supreme Court rejected substantial similarity.

Battle Royale vs. Extraction Shooter

The court defined the genres with precision. Battle royale games center on a single objective — the last player or team standing wins. All players begin on equal footing with scattered loot, and the experience revolves around rapid resource acquisition and combat survival. Extraction shooter games are fundamentally different: players enter a session carrying equipment they own, must complete objectives or gather resources, and must then physically escape the map. Failure means losing carried items. The psychological stakes — the fear of losing accumulated assets rather than merely failing to survive — create a distinct gameplay identity.

Because genre determines the entire structure of player interaction and emotional experience, the court treated these as different types of creative works, making substantial similarity analysis across genre lines unavailable in the way it might apply within a genre.

Rejection of the Novel Analogy

Nexon Korea cited a Seoul Southern District Court decision (2012Na4904, January 17, 2013) in which a court found substantial similarity between two novels despite genre differences, based on shared character relationships and thematic structure. The court distinguished this: novels can share character and theme across genre lines while remaining substantially similar in expression, but games are constitutively defined by their genre mechanics — the same thematic or visual elements produce entirely different player experiences in different game genres. The genre distinction is a primary expressive element in games, not merely a secondary classification.

8. Why Did the Court Refuse to Award Punitive Damages?

Article 14-2(6) of the Unfair Competition Prevention Act (in its pre-amendment version applicable here) authorizes courts to award up to three times actual damages for intentional trade secret misappropriation. Nexon Korea sought this trebling. The court declined.

No Superior Bargaining Position

The most significant negative factor was the absence of the power imbalance that typically justifies punitive awards. The defendants were former employees — not competitors with superior market leverage. Nexon Korea, as the employer of record and the entity with substantially greater resources, occupied the stronger structural position. Punitive damages are most appropriate when an infringer with power advantage exploits a weaker party; that was not the posture here.

The Criminal Decision Complicating the Record

The Gyeonggi Nambu Provincial Police (사법경찰관) issued a no-prosecution decision on September 10, 2024 for the criminal trade secret charge against Y2 and Y3, citing insufficient evidence. While the decision acknowledged that Y2 “likely referenced the misappropriated files in developing Dark and Darker,” the criminal non-prosecution outcome informed the court’s assessment of willfulness for punitive purposes — even though it did not affect the civil liability finding.

9. How Was the Provisional Execution Overpayment Recovered After the Appeal?

Under the trial court’s provisional execution order, Nexon Korea received ₩9,370,739,725 on April 15, 2025. When the High Court reduced the award to ₩5,764,644,688, the excess became repayable.

Calculating the Overpayment

The repayable amount was ₩3,355,323,975 — the ₩9,370,739,725 received minus the principal and interest on the affirmed award as of April 15, 2025 (₩6,015,415,750). That interest-adjusted amount reflects two components: (a) pre-judgment interest on ₩1 billion from March 6, 2024 to April 15, 2025 (406 days at 5% per annum = ₩55,616,438), and (b) pre-judgment interest on ₩4,764,644,688 from June 21, 2024 to April 15, 2025 (299 days at 5% per annum = ₩195,154,624).

Interest Commencement Rule

The court confirmed that interest on a repayable provisional execution amount begins to accrue on the day after receipt, not on the day of receipt — citing Supreme Court 2015Da19117·19124 (September 30, 2016) and 2017Da220058 (May 14, 2020). This is a frequently litigated procedural point in cases involving provisional execution followed by appeal-stage reduction.

10. What Should Foreign-Invested Companies in South Korea Do to Protect Trade Secrets?

This decision carries concrete lessons for foreign enterprises operating in South Korea, particularly those in the technology, software, and manufacturing sectors.

The Protection Period Starts When the Employee Leaves — and the Clock Is Running

Foreign companies often do not commence legal action until long after employee departure. The protection period clock starts from the actual departure date. If trade secret misappropriation is suspected, early legal assessment is essential to determine whether a meaningful protection period remains and what remedies are still available. Companies operating in the Incheon Free Economic Zone (IFEZ) — encompassing Songdo International Business District, Cheongna International City, and Yeongjong International City — should be aware that Korean courts treat IFEZ companies identically to domestic Korean companies in all trade secret proceedings.

Documented Security Management Remains Non-Negotiable

The 2019 statutory amendment lowered the threshold to “managed as a secret,” but the court reaffirmed that no threshold eliminates the need for affirmative management acts by the holder. Foreign companies that rely on group-level global security policies without Korea-specific implementation documentation — e.g., localized access logs, Korean-language security policies, and documented departing-employee review procedures — risk being unable to prove confidentiality management in a Korean court.

The Bank of Korea Statistics Are a Double-Edged Sword

The use of industry-wide Bank of Korea marginal profit rates benefits plaintiffs when infringers refuse to produce accounting records. However, if a defendant’s actual variable cost structure results in a lower marginal profit margin than the industry average, the Bank of Korea figures will overstate infringer profits. Defendants in high-cost sectors should consider proactively producing audited cost data to displace the statistical substitute.

Trade Secret Protection Survives Genre Transformation

This decision confirms that a departing employee cannot avoid trade secret liability simply by developing a product in a different genre or market segment. Even though copyright infringement was rejected on genre-difference grounds, trade secret liability attached because the underlying development knowledge was misappropriated regardless of how the final product was positioned. For foreign software companies concerned about employee departures to competitors or startups, this is significant: the applicable legal protection is broader than copyright.

Criminal Clearance Does Not Equal Civil Clearance

The no-prosecution decision in the criminal trade secret case had no preclusive effect on the civil proceeding. South Korean criminal and civil proceedings use different standards — criminal cases require proof beyond reasonable doubt, while civil cases use a preponderance-of-evidence standard. Foreign companies should not treat a criminal case outcome as dispositive of civil exposure.

This analysis is based on the publicly reported decisions in Seoul High Court 2025Na206557 and Supreme Court 2026Da200492, together with the established case law cited therein. Trade secret litigation in South Korea involves fact-intensive determinations on protection period, marginal profit rate, and contribution rate, all of which are within trial court discretion and heavily influenced by the specific evidentiary record. Atlas Legal is based in Incheon Songdo and advises both Korean and foreign-invested companies on trade secret strategy, corporate disputes, and white-collar defense throughout South Korea.

About the Author

Taejin Kim | Managing Partner

Corporate Counseling, Corporate Disputes, White-Collar Crime

Former Public Prosecutor | Judicial Research and Training Institute (Yoosikkyeong, JRTI), 33rd Class

Korea University LL.B. & LL.M. (Criminal Law), University of California, Davis LL.M.

Atlas Legal | Incheon Songdo, South Korea

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