A copycat controversy has erupted in the Korean startup world as a healthcare startup locks horns with a corporate giant on allegations of poaching product ideas. Algocare, an AI healthcare startup, has alleged that Lotte Healthcare has stolen its AI-backed nutrient dispenser business idea and launched a copycat product.
Lotte Healthcare is a healthcare unit of Lotte Group, Korea's fifth-largest conglomerate operating dominant businesses in retail, food & beverages, tourism, and chemical/engineering & construction. Algocare is an artificial intelligence-based personalized nutrition management solution founded in November 2019.
Algocare is known for winning Innovation Award three consecutive years at CES, the world's largest consumer electronics exhibition. Incidentally, the allegation of a copycat also came up during the CES 2023 exhibition. Algocare CEO Joung Ji-won said she realized the situation when visitors to Algocare's booth at CES 2023 told her they saw a similar product at Lotte Healthcare's booth.
According to her allegations, Lotte Healthcare obtained information about Algocare's 'Nutrition Engine,' a cartridge-type nutrient dispenser, and business strategy information during a 2021 meeting with Algocare.
According to Joung, Algocare received business cooperation and an investment offer from Lotte Ventures and Lotte Healthcare from September to October 2021. Algocare claims that Lotte Healthcare's product Cazzle is a copycat work. Cazzle is the nutrient dispenser product that Lotte Healthcare unveiled at CES 2023.
Algocare representatives met with Lotte Healthcare Executive General Manager, Woo Woong-jo According to news reports, Woo has an extensive healthcare business-building career, having worked with Korean conglomerates such as Samsung Electronics and SK Telecom. During the meeting with Woo, Algocare shared information on its products and business strategies under development, Joung said.
"However, after the discussion on Algocare investment broke down by the end of October (in 2021), Lotte Healthcare introduced a new nutritional supplement dispenser product similar to Algocare (this year)," Joung said. She alleged that Lotte Healthcare stole ideas such as the cartridge structure and principle, which are the core technology and the dispenser concept.
"Lotte Healthcare, along with Lotte Ventures, approached the company and said that they had no intention of developing a product but wanted to introduce Algocare products in the Lotte Healthcare platform," Joung said. "After the investment discussion broke down, both companies suddenly changed their words and demanded that they give Algocare a license fee to make its product."
Joung also explained that shortly after Algocare and Lotte Healthcare stopped discussing, an employee of Lotte Healthcare used a photo of Algocare provided by Algocare to check whether the same business model would not break any regulations on "e-People," a government-operated website that addresses people's complaints against government agencies.
"We plan to take all legal action, both civil and criminal, after judging Lotte Healthcare's action as a violation of the Fair Trade Act and the Unfair Competition Prevention Act," Joung told Korea Biomedical Review. "In his 2023 New Year's address, Lotte Group Chairman Shin Dong-bin asked Lotte Healthcare and Lotte Bio to innovate and discuss coexistence with small and medium-sized enterprises." Algocare hopes that Shin's remarks were not empty words, Joung added.
Lotte Healthcare has denied all allegations
In a press release to reporters, Lotte Healthcare said that providing personalized health functional food is a business that had an idea from when the healthcare industry was selected as a new growth engine at the Lotte Group level.
"After the investment discussion with Algocare broke down, we decided to manufacture our dispenser that fits the business direction. The dispenser and cartridge were manufactured by referring to the automatic tablet sorting and packaging system machine used in commercial pharmacies," Lotte Healthcare said.
The company stressed that Algocare's model was something familiar. In around 2021, when Algocare participated in CES, Lotte Healthcare said that a personalized, water purifier-like drug dispenser was a common concept in the global market. The company also argued that its Cazzle dispenser and Algocare's Nutrition Engine were two different products.
"While Algocare dispenses the nutrition pills by inserting memory chips containing product information into cartridges, Lotte Healthcare uses RFID stickers, commonly used in the distribution industry, to recognize nutritional information in cartridges," Lotte Healthcare said. "RFID stickers are similar in concept to barcode stickers in the distribution industry, and contain general information such as product ingredients and expiration date." It is different from the core technology of Algocare, which stores replacement time alarms, delivers the drug automatically, and tracks nutritional supplements in a memory chip, it added.
Ministry of SMEs and Startups investigating the allegations
After Algocare raised allegations against Lotte Healthcare, the Korean Ministry of SMEs and Startups (MSS) has deputed a public official to the administrative investigation of technology infringement to identify the damage and discuss countermeasures.
"The Ministry of SMEs and Startups plans to quickly achieve mediation when Algocare applies for an administrative investigation of technology infringement and technology dispute. It plans to support the cost of litigation if mediation is not successful," the Ministry said. "In addition, to respond to idea theft allegations by the victim company, we plan to secure evidence through digital forensics and provide legal support related to the protection of SME technology."
The Ministry also stressed that it may provide further legal advice for reporting to relevant ministries, such as the Fair Trade Commission and the Korean Intellectual Property Office, at the company's request. "The government is pursuing to put an end to technology theft targeting small- and medium-sized businesses as a national task," the Ministry said. "To enhance the effectiveness of technology theft damage relief, the ministry will strengthen the punitive damages system and overhaul related laws and systems."