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| LG Chem headquarters located in LG Twin Tower in Yeouido, Seoul and SK Innovation headquarters located in SK Seorin Building, Jongno-gu, Seoul. © News1 |
While the US International Trade Commission (ITC) raised the hands of LG in a lawsuit for infringing battery trade secrets between LG Energy Solutions and SK Innovation, a tense war is taking place over the size of the settlement.
According to the battery industry on the 16th, before the final decision of the ITC, LG made a settlement amount of 2.5 trillion won to 3 trillion won, and SK made a minimum of 100 billion won, up to 500 to 600 billion won, including some of the listed shares of its subsidiaries. It is said to have been presented.
In the industry, it is highly likely that LG, who has taken advantage of the ITC’s final decision, will offer a higher level of settlement money. LG argues that, given the US Federal Confidentiality Protection Act and recent precedents, if this lawsuit goes to a Delaware civil suit, SK may pay more than 9 trillion won, including punitive damages in addition to the actual damages.
The standard for calculating settlement payments that LG has been emphasizing is the Federal Confidentiality Protection Act (DTSA). This law provides that actual damages and unfair gains, expected future damages, punitive damages, and attorneys’ fees can be compensated.
In relation to’past damages and unfair gains’, LG claims that it won a project worth about 40 trillion won only in 2017 to 2019, when SK took over its trade secrets in earnest. It is known that only orders in the US are worth KRW 20 trillion, and the current order backlog is estimated at 550 GWh or KRW 70 trillion in the market, taking into account Hyundai Motor and European orders.
Regarding the’expected damage in the future’, LG estimates that it will win orders of at least KRW 50 trillion over the next five years, even if it is conservatively predicted based on SK’s past orders. On the basis of this, LG has stated that SK Innovation aims to achieve a 10% global market share and a high single-digit operating margin in 2025 at a conference call for earnings announcement on January 29th. LG claims that the amount of compensation for future damage amounts to trillions of won, even assuming that only about 5% of the royalties used in the market are applied based on its share.
Global Investment Bank Credit Suisse reported that the agreement between the two companies could reach 5 trillion won or more immediately after the final ITC decision, and if no agreement is reached, LG will be able to file a lawsuit in Europe.
In particular, 75-125% of punitive damages are usually judged in US federal district court litigation, and up to 200% can be applied. The highest standard of 200% has been applied in the recent trade secret lawsuit between Motorola and China Hytera. In this case, three Motorola R&D employees took over radio-related trade secrets and transferred to Hytera.
If the LG and SK lawsuits show only 3 trillion won for damages and 100% of punitive damages, this means that if the total amount of damages reaches 6 trillion won and 200%, it will soar to 9 trillion won.
In a conference call to reporters on the 11th, LG said, “According to the standards for damages under the Federal Trade Secret Protection Act, legally, you can receive punitive damages up to 200% of the amount of damages.” Whether or not to include this in the amount of negotiations with SK is entirely up to SK’s attitude.”
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| SK Innovation researchers are holding battery cells. © News1 |
On the other hand, SK’s position is that the estimate of such compensation is too high given the amount of damages from previous ITC trade secrets, and it is a position that it should refer to trade secret lawsuits in the US so far.
According to SK, the average penalty amount of the top 10 lawsuits is about 27.7 million dollars, about 25 billion won. The highest amount was 990.99 million dollars from a lawsuit between DuPont and Kolon in 2011, about 1.139 trillion won, which was also destroyed and repatriated in 2014, ending with a settlement of 285 billion won. The lower the rank, the lower the amount, and the second place was $420 million (about 463 billion won) between Epic Systems and Tata Consultancy Services in 2017. The third place is $265 million, and from fourth to sixth, it drops to the low of $100 million.
In particular, SK believes that the amount of compensation in the trillions of won is difficult to bear given the current scale and financial position of SK Innovation’s battery business. SK Innovation’s electric vehicle battery business last year recorded sales of KRW 1.61 trillion and an operating loss of KRW 4265 billion, which has yet to achieve a break-even point.
Since the ITC ruling on the 11th, SK Innovation has expressed its position that “if it is reasonable, we will negotiate an agreement.”
The two companies met several times before the ITC ruling and negotiated whether or not to agree, but they could not find a contact point. Although SK is in a more unfavorable position with this loss, there is a calculation to lower the settlement amount as much as possible to say that it will not rush negotiations.
In particular, it is believed that SK Innovation has gained time to agree, as ITC suspended the import ban for Volkswagen for two years and Ford for four years, which signed a contract with SK Innovation to supply electric vehicle batteries.
An official from SK Innovation said, “There are many views that we should agree within 60 days, which is the deliberation period of the US president, but we are also considering an appeal procedure in the future, and the period when we can agree with LG for a two-year period to supply batteries to Volkswagen I’m looking at it.”
Rather, SK insists that LG is trying to rush to an agreement by holding a conference call to reporters on the 11th and urging them to’go to negotiations with a sincere attitude’.
In response, LG said,’We have nothing to rush. The more time SK takes, the more advantageous it is not only to negotiate with SK Innovation, but also to win orders for the battery business.
In particular, LG is reminding that, since Ford and Volkswagen are already supplying batteries of LG Energy Solution, there is a very high possibility of choosing LG as an alternative supplier. LG Energy Solutions is currently the only company in the US that produces automotive batteries.
In a conference call conducted by LG Energy Solutions to the media on the 11th, Seung-se Jang, executive director of management strategy, said, “Both companies were our customers before SK received the order. We have to find a supplier during the replacement period, too. I can think of it as one of the candidates,” he said, showing his will.
An official from LG Energy Solutions said, “SK Innovation’s customers Ford and Volkswagen are calling for an agreement. In particular, SK has shown anxiety, saying that although Volkswagen was practically suspended for two years, he asked to extend the grace period for the import ban to four years. “You have to keep in mind.”
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| Researchers in the battery business unit of LG Chem (currently LG Energy Solutions) are looking at lithium-ion battery cells (provided by LG Chem) © News1 |