500 billion won, 3 trillion won, 9 trillion won… SK-LG battery settlement fund forecast’pole and pole’

Input 2021.02.26 14:07 | Revision 2021.02.26 14:28

LG Energy Solution Department SK innovation (096770)The US International Trade Commission (ITC) in a lawsuit for infringement of electric vehicle battery trade secrets LG(003550)Two weeks have passed since the hands of the side have been raised, but the two companies are still unable to close the gap in the settlement amount. If the two companies fail to reach an agreement within 60 days, the deadline for exercising their veto by the US President, the ITC ruling will take effect immediately, and SK Innovation will be banned from producing and importing batteries in the US for 10 years.

The industry expects the two companies to reach an agreement someday, but the outlook for the settlement amount differs by up to 16 times. It is known that LG Energy Solution is asking for more than 3 trillion won, while SK Innovation is hoping for less than 500 billion won.

SK innovation (096770)Claims that the level of demand from LG is too high. SK Innovation said that it is difficult to accept, saying, “It is a story to close the business to pay compensation for several trillion won in a situation where the battery business has made a deficit in recent years.” In the industry, it is predicted that SK Innovation has offered less than 500 billion won, including a part of its subsidiary SK IE Technology (SKIET), which is scheduled to be listed within this year, and litigation costs.

LG Energy Solutions is in a position that it has set the size of the settlement based on the Federal Trade Secret Protection Act (DTSA). LG said, “According to DTSA, the compensation standard for infringement of trade secrets is calculated based on the amount of damage in the past and in the future, and in the electric vehicle market, the amount of orders can be the basis for calculating the damage,” claiming that compensation for several trillion won is reasonable. It is argued that the amount of damages amounted to 6 trillion won by applying only 5% of royalties to the 60 trillion won orders received after SK Innovation steals LG manpower and trade secrets in 2017, plus the amount of future orders.

If this lawsuit goes to civil lawsuits, it is predicted that SK Innovation may pay more than 9 trillion won by adding punitive damages to the actual amount of damage. Punctual damage compensation can be added up to 200% of the damage amount. If the amount of damage is 3 trillion won, 6 trillion won is added to the punitive damages.

In fact, earlier this year, the Northern Federal District Court in Illinois reported that three Motorola Solutions’ R&D employees transferred to Hytera Communications in China and took over DMR-related trade secrets for damage. About 450 billion won). This is a case where an unfair profit of $135 million and punitive damages equivalent to 200% of the $275 million was applied.

Considering that the global DMZ market was worth 4 trillion won in 2018, accounting for only about 10% of the EV battery market, and in the case of Motorola, there were only 3 personnel who stole trade secrets. It is also analyzed that it will reach several trillion won. Since 2017, the number of employees in the battery division that has moved from LG to SK has reached about 100.

In response, SK Innovation refuted, “As the electric vehicle battery market has just entered a growth trajectory, we cannot apply the same criteria for calculating damage and selecting future values ​​as in traditional industries.” In addition, it is argued that it should be taken into account that the average amount of damages in the top 10 ITC trade secret infringement lawsuits conducted in the United States over the past 10 years was about 22.7 million dollars (about 250 billion won).

SK Innovation is preparing for a long-term lawsuit because it has earned a grace period of two and four years for the existing orders for Volkswagen and Ford, respectively. If President Joe Biden does not exercise his veto within the remaining 40 days, he will immediately appeal to the Federal High Court. Regarding this, an official at LG Energy Solutions said, “If (SK Innovation) chooses to take a wasteful litigation, we plan to respond firmly to the end, and competitors will have to take all responsibility for the result.”

In the industry, competition for preoccupation in the electric vehicle battery market is increasingly fierce, and it is highly likely that the two companies will reach an agreement instead of entering into a long-term lawsuit. This is because Chinese battery makers, such as CATL, are aggressively launching a few weeks ago with the support of the Chinese government on their backs. We cannot rule out the possibility of automakers changing battery suppliers to Chinese or Japanese companies due to the risk of litigation.

It is also observed that the two companies will resume negotiations as early as next week if ITC releases the full text of the ruling specifically specifying the reasons for SK Innovation’s loss. Originally, the ITC released the full text two weeks after the announcement of the final decision, but from last year, due to the corona, the release date is delayed by 2-3 weeks from the scheduled date. An industry official said, “As SK Innovation is preparing cash through the sale and listing of its subsidiaries, we believe that an agreement will be possible soon.”