On the 10th (local time), the US International Trade Commission (ITC) made a final decision on LG Energy Solutions and SK Innovation’s lawsuit for infringement of electric vehicle (EV) battery trade secrets. SK Innovation made a decision to completely ban production and imports from the United States for 10 years. However, in order to minimize damage to the automakers contracted with SK Innovation, Ford allowed a grace period of 4 years and Volkswagen 2 years.
The following is the full text of the conference call held by LG Energy Solutions on the 11th regarding the ITC final decision. Participants are Han Woong-jae, head of the legal department (professional), Jang Seung-se, general manager of management strategy (executive director), and Sung Hwan-du, general manager of external cooperation (executive director).
Q. What is the meaning of the final ITC judgment and the impact of SK Innovation?
A. This decision, as LG claimed, was banned from imports in the United States for 10 years and requested a ban on production and sales, which was 100% accepted. From now on, SK includes raw materials required for battery production, finished batteries, cells, modules, and packs. The production and sale of batteries that have infringed on existing imported LG trade secrets are also prohibited.
Ford and Volkswagen, the F150 gave a four-year grace period and MEB had a two-year grace period. As for the F150, we know that mass production will begin in the first half of 2022. Only about 2.5 years out of 4 years can be produced as mass production. For reference, the life time that automobile companies have is 6 to 7 years, so even half of them cannot be produced. In addition to the F150, it is also banned from importing, producing, and selling other subsequent models. Only F1.5 is the grace period.
MEB begins mass production in the first half of 2022. Therefore, it is expected that it will be able to produce only six months after mass production. Considering this situation, I think that the meaning of the grace period gave a period to find an alternative supplier. It is explained to the same effect in the ITC ruling.
Q. About the size of the settlement amount, have you ever had a meeting with SK about this?
A. Indemnity negotiations with SK have been conducted several times from last year to the latest. The final decision was made today, so sooner or later, negotiations will begin again, so I think it will progress. The amount proposed by both sides was negotiated on the basis of US federal protection standards rather than talking about the specific proposed amount. SK proposal is difficult to answer right now, but I think there will be other opportunities.
Q. What is the size of the settlement amount or your preferred payment method? How much legal expenses have you incurred since the ITC filing?
A. It cannot be unilaterally determined, and SK will review it if it comes out with a sincere attitude. Is the accounting process reflected in the previous year’s accounting in the current state? This part seems to be still fast. As is known so far, negotiations have not been close. If you decide on the method or form, whether it will be cash, royalties, or lump sum payment, further discussions should be made only when the total amount is close to the eye level. If the final judgment comes out and the eye level about the total amount is correct, I think the payment method and the lecture will be easily concluded.
Each company’s cost will be different and can be understood as a quarterly report or level. Some say it is astronomical, but lawsuit costs are being executed at a reasonable level.
Q. Before this lawsuit, it was pointed out that the automaker was a hostage. What are the implications for the global automobile industry?
A. One is for Ford and Volkswagen to have implications for the overall OEM and the decision specific. The most important part is an important milestone that the importance of intellectual property rights and trade secrets should be protected in the electric vehicle battery industry for new growth industries. Accordingly, a condition has been established for operators whose business is based on electric vehicle battery technology for LG Energy Solutions to be properly protected and to actively contribute the value of the technology to customers. For Ford and Volkswagen, if the grace period for the import ban was not set in this final judgment, the president had to go through uncertainty, but at least a certain period of time to find a replacement.
There was an opportunity for them to continue producing electric vehicles. The impact of electric vehicle production in the US itself has resolved uncertainties, and the remaining part is how the two LG-SK companies will reasonably negotiate and finalize damages, and how to resolve the long-term uncertainty.
Q. There is a provision for the hearing, please explain it accurately.
A. ITC believes that a public hearing is not necessary. It seems that the ruling came out with that degree.
Q. What about other companies’ lawsuits?
A. It is difficult to say specifically the amount and conditions of the agreement. Guessing from what I said before. Whether other companies’ litigation is reviewed, or if litigation infringing trade secrets is revealed, review them. However, as of now, other companies are not considering litigation.
Q. What is the European Litigation Plan?
A. It looks like this. It is difficult to say that the LGES damage caused by SK Inno’s technology takeover and use is limited to the US. In other words, it was judged that such damage occurred in other flags such as Europe and Korea. Whether or not to proceed with lawsuits in other regions basically depends on SK’s attitude.
Q. Will the final ITC decision increase the amount for punitive damages?
A. The US federal standard for damages is legally entitled to punitive damages up to 200% of the amount of damages. Whether or not to pay punitive damages for the negotiated amount depends on SK’s negotiating attitude. The direction and purpose are still the same.
Q. There has not been an expert arbitration body in the settlement process so far. What are your intentions to review this in the future?
A. There was an article about how to use the arbitration procedure, but the objective and knowledgeable institutions of this case are the US ITC and the Delaware State Court. Having a third arbitration procedure has the disadvantage of having to double the time and cost of a procedure that has been conducted for nearly two years. The facts have been revealed to a large extent, so the US procedure is quick. When an agreement is reached, it must be reached between the parties, but if a third party or someone who is not familiar with the facts intervenes, it will interfere with the agreement.
Q. What are the business benefits of the judgment?
A. A company based on technology is an opportunity to be recognized for its technology. Overseas markets, including the US, China and Asia are similarly growing faster than initially anticipated. After the spin-off, through the IPO plan and the collected funds and judgment, we will once again use the technology of energy solutions to win orders, invest and grow the entire value chain in the industry. The company has major regional production bases in all regions, and strategic partnerships will also accelerate. We will accelerate our own R&D, expansion of investment in production bases, and strategic cooperation with automakers.
Q. What if SK Innovation develops a battery that does not infringe LG Energy Solution trade secrets?
A. Products that have not been infringed are not subject to import bans. However, there is a problem to prove that it has not been infringed.
Q. Still, SK Inno does not admit it. Because of the destruction of evidence?
A. According to the final ITC decision, Section 337 is acknowledged, which is an infringement of trade secrets. Even if it is difficult to disclose in detail, it is said that trade secret infringement is recognized. The infringed trade secrets claimed by LG were confirmed. This is the reason why we talked through negotiations but did not reach an agreement. SK negotiated without acknowledging the infringement of trade secrets. SK should respect the ITC ruling, acknowledge the infringement of trade secrets, and negotiate. As it is now, LG will make reasonable negotiations with a sincere attitude.
Q. In addition to compensation, LG requested public apology and prevention of recurrence.
A. Are you hoping for a public apology to prevent recurrence, basically a sincere attitude? Specifically, I hope there is a reasonable proposal based on a sincere attitude rather than an apology or promise.
Q. What if SK Inno appeals?
A. Appealing the ITC results will lead to litigation.
Q. Is there any quantity to be transferred to SK business or LG in the future? If you move to another company, it will be a good thing?
A. It is difficult to predict the possibility of future orders for SK, but we do not expect SK to be unable to do business. In order to win future orders, the settlement of a compensation agreement with the company must precede. It will be difficult if it doesn’t become this part. Only by negotiating with a sincere attitude will the business opportunity continue. Can Ford and Volkswagen supply LG come? There are two. These two companies have been our customers since before winning orders for SK. We think that we are candidates as it is a mission to find alternative suppliers within the grace period. However, the customer’s choice of whether to be LG or another company. The possibility of going to China or another company other than LG has the same effect. Opportunities and possibilities are open, and it is the domain of the customer that is judged by the customer considering the current situation.
Q. Delaware lawsuit possible to ban additional imports?
A. It is difficult to predict the outcome of the lawsuit in advance. The Delaware lawsuit is also an extension of the ITC lawsuit. All items from raw materials to finished products, cells, modules, and packs are prohibited from being imported. Whether it is raw materials or parts or finished products, it is comprehensively included.
Q. What if SK co-responds with China’s EVE Energy?
A. Basically, LGES infringing cells, modules, and pack parts are included, so if it is recognized that any type of joint venture JV is infringed, it is considered difficult to import. It doesn’t matter who the partner’s target is, but whether or not it is possible to use products or finished materials using LG trade secrets. It doesn’t matter which partner is important.
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