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Barry Engle

Barry Engle, president of GM International, who served as the US headquarters’ representative in talks on GM Korea’s management normalization, has recently held successive meetings with Lee Dong-gull, chairman of second-largest shareholder Korea Development Bank (KDB).

Engle’s visit, which has also included meetings with Democratic Party floor leader Hong Young-pyo and other politicians, suggests GM is back to negotiating after a court threw up a roadblock on its attempts to push ahead with splitting off a GM Korea R&D corporation.

According to accounts on Dec. 6 from KDB and financial authorities, the key issues that emerged during Lee and Engle’s discussions included the GM Korea R&D spinoff, amendment of the R&D cost-sharing agreement (CSA), and the matter of KDB’s scheduled investment of 400 billion won (US$358 million) for management normalization during December.

Engle requested cooperation with the split, citing the increased allocation of global R&D resources to the South Korean subsidiary, while KDB insisted on an R&D development plan and safeguards that would satisfy the union and other opposed stakeholders, sources said.

“GM’s position is that even within its global group, subsidiaries are competing to be given more R&D assignments, and that the R&D corporation needs to be split off so that the South Korean subsidiary can do more work,” an official with one financial oversight institution said.

“Their argument is that the interests in the production sector are complicated with things like the restructuring issue, and with fears of conflict with the union, they’re in a difficult position in terms of assigning global projects,” the official said.

The union and other critics countered that the split would allow GM to pull out of South Korea easily when the need for restructuring arises, taking its R&D intellectual property rights with it.

“Despite two meetings with Mr. Engle, the differences between us have yet to be bridged, and we’re continuing with talks at the working level to reach an agreement,” a KDB source said.

At present, the R&D split issue ties in with the matter of ownership of intellectual property rights for technology. Having invested over 15 years and more than 7 trillion won (US$6.3 billion) to develop the technological fruits of its R&D efforts, GM Korea could lay some claim to them, such as rights to their free use.

The key question is what happens to those rights. According to data submitted to the 19th National Assembly, GM Korea established a mechanism for the right to permanent free use and protection of its rights in terms of co-developed technology – the result of KDB spearheading an amendment of the 2010 CSA concluded between GM Korea and the head office. KDB reported to the National Assembly at the time that GM Korea had acquired rights on part with co-ownership, as it was entitled to continue receiving technology royalties according to its percentage of costs even if the agreement was canceled.

GM appears to want to the pass those rights on to an R&D entity that is completely independent from GM Korea’s production sector. A GM Korea board meeting held on Dec. 3, the day Engle launched his efforts in South Korea, reportedly consisted chiefly of an explanation on a CSA amendment presuming the R&D entity split would go ahead. The current agreement, which was amended in 2010, expires this month.

Since 2007, GM has reverted to an approach of using CSAs with its subsidiaries to establish separate companies, sharing and managing all of those subsidiaries’ intellectual property rights. In effect, it has the global subsidiaries transfer their intellectual property rights to their headquarters, while establishing the authority to calculate royalties and other management rights.

In exchange, R&D spending has been tied to subsidiary sales: in cases where the cost burden exceeds 5%, the head office covers the difference, while the subsidiary has had to accept reduced profits from technology royalties. It was in response to this that KDB pressured GM to amend the CSA in 2010.

“Based on the 2010 agreement, the South Korean subsidiary will continue to have some intellectual property rights, but that’s potentially a burden for GM, since it leaves the potential for a dispute over the use of technology if it pulls out South Korea in the future,” explained a source with the National Assembly National Policy Committee.

“It appears to be arguing for the R&D entity split on the grounds that that burden is going to increase with additional future investment in the global R&D project,” the source added.

“Now that the courts have thrown the brakes on the split, they’re going to need to find an agreement that establishes a maximum basis for the South Korean subsidiary’s independent survival.”

By Jung Se-ra, staff reporter

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