[테크월드뉴스=이재민 기자] The U.S. International Trade Commission (ITC) raised LG’s hand in a lawsuit for infringing battery trade secrets between LG Energy Solutions and SK Innovation. On February 10 (local time), ITC finally ruled that SK Innovation’s electric vehicle batteries would be banned from production and import in the United States for 10 years. Therefore, SK Innovation cannot export lithium-ion batteries, battery cells, battery modules, battery packs and components to the United States for 10 years. However, ford and Volkswagen car batteries have an exception so that they can be imported for four and two years, respectively.
Beginning and process of conflict
Since 1995, LG Energy Solutions (at the time, LG Chem) began research and development of lithium-ion batteries, and in 1999, after Japan, it produced the world’s second lithium-ion battery. In 2001, it established a technology center in Troy, USA, and built an electric vehicle battery factory in Michigan, USA in 2012, leading the way as a pioneer in the battery industry.
SK Innovation (then SK) began researching lithium-ion batteries in 1996 and succeeded in developing mid- to large-sized lithium-ion batteries in 2006. It has been making bold investments in batteries by continuing to expand factories from Seosan in Korea to China and Hungary, and recently in Georgia, USA.
Between 2017 and 2018, over 100 employees of the battery business division of LG Energy Solutions moved to SK Innovation. During the transition process, LG claimed that major trade secrets were infringed by making it necessary to write the project experience and core process technology related to electric vehicle batteries in the job application documents. In addition, it was revealed that the new employees had downloaded 400-1900 related documents per person from the LG company system. On April 29, 2019, LG Energy Solutions filed a suit against SK Innovation to ITC and the Federal Court of Delaware in the United States for infringement of trade secrets.
SK Innovation argued that “the recruitment of career workers was carried out according to the official procedure,” and “we have not been able to reveal which core technologies were leaked and LG Energy Solutions suffered damage.” In September 2019, it filed a lawsuit against the ITC and the Delaware Federal Court of LG Energy Solutions for infringing patents on electric vehicle batteries (modules, pouches). LG Energy Solutions immediately filed a lawsuit against infringement of other patents (separator, cathode material), and criminally sued SK Innovation and personnel in charge of the Seoul Metropolitan Police Agency for violating the Industrial Technology Leakage Prevention Act.
In February 2020, the ITC decided to lose SK Innovation early in an interim judgment. In the process of opening the evidence for the SK Innovation server requested by LG Energy Solutions, SK Innovation’s suspicion of destroying the evidence was revealed, and the decision was defeated. However, SK Innovation complained that it had nothing to do with infringement of trade secrets because the document was deleted due to regular security checks. The final decision of the ITC was scheduled to be issued on October 5, 2020 last year, but it was postponed three times to October 26, December 10, and February 10, 2021.
It was not that there was no opportunity for negotiations between the two sides during the litigation process. Whenever the ITC’s final judgment date approached, we sat face to face at the negotiation table, and at the end of 2020, LG Energy Solutions President Kim Jong-hyun and SK Innovation President Kim Joon met twice for negotiations. In January 2021, Prime Minister Chung Sye-gyun tried to arbitrate, but it had no effect. Both sides only expressed their stance that “I will do my best for a smooth solution,” but the negotiations could not be concluded as the stances on the level of settlement money diverged greatly.
In the end, SK Innovation’s early defeat led to the final decision. The ITC final decision will take effect on April 10 (US time) at the home of President Joe Biden within 60 days.
Why did LG file a complaint with ITC?
Litigation between companies is more complicated and competition is fierce, so it usually takes three years for a first trial decision. However, ITC is a quasi-judicial independent institution directly under the presidential office, and a ruling comes out within 12 to 15 months. In addition, there is a discovery system (both sides disclose all documents of evidence before the trial begins), enabling strong evidence investigation. This system is also the biggest reason LG Energy Solutions filed a complaint with ITC.
Since ITC is affiliated with the presidential office, the president of the United States finally has the power to reject the judgment (can be exercised within 60 days of the judgment). In June 2013, in a patent lawsuit between Samsung Electronics and Apple, ITC gave Samsung’s hand, but at the time, former President Obama exercised his right to veto the judgment in consideration of his interests.
Number of expected cases
The number of cases expected in the future is largely three.
① When President Biden exercises his right to veto the final judgment
This is the best scenario for SK Innovation. President Biden announced an economic stimulus plan that would invest $2 trillion in eco-friendly sectors, and announced plans to replace all vehicles in government offices with electric vehicles.
Currently, SK Innovation is constructing a plant capable of producing 430,000 electric vehicle batteries per year (21.5GWh) by investing about 3 trillion won in Georgia, the US. If SK exits the battery business in the United States, the United States will lose that much jobs. In fact, Georgia Governor Brian Kemp demanded a veto from President Biden, saying that the final ITC ruling could hurt SK’s EV battery plant construction. If President Biden exercised his veto, the final ITC ruling would be invalid, and the battery lawsuit between the two sides would be concluded in a civil lawsuit pending in the Delaware Federal Court.
② If President Biden does not exercise his right to veto the final judgment
The general position is that it is unlikely that Biden will veto. In recent years, Biden has questioned infringement of intellectual property rights and forcing technology transfer to pressure China. It is an opinion that it is difficult to take a position to defend SK in this situation. If Biden does not veto and the final ITC ruling takes effect, SK Innovation will appeal to the Federal High Court. Even if an appeal is made, the import ban will remain the same, and during the appeal period, SK must bear these losses. If it loses the appeal, it becomes even more disadvantageous in negotiations with LG.
③ When the two sides agree early before the final judgment takes effect
If the two sides agree before the final ITC ruling takes effect, the ruling is invalid. Reparation is the key to early agreement. While LG Energy Solution requested about 3 trillion won, it was analyzed that SK Innovation offered around 600 billion won, including some of its stake in SK IE Technology, a subsidiary scheduled to be listed within this year, and litigation costs. According to this analysis, the amount of compensation set by the two sides will show a large difference, making the agreement process difficult. Once the amount of compensation is determined, the method of paying compensation is expected to be another problem. Currently, SK Innovation’s current assets are approximately 1.8 trillion won. If the compensation exceeds 2 trillion won, it is not enough as a current asset, so it was discussed how SK provides shares of battery-related affiliates.
According to the investment banking (IB) industry on February 18, it is imminent that SK Innovation will sell its stake in its subsidiary, SK Lubricants. SK Lubricants is the dominant No. 1 company in the global high-end lubricant raw material market. The target is 49% of SK’s 100% stake in SK Lubricants, and the sale price is estimated at about KRW 2 trillion. The market predicted that SK would use the funds secured by the sale of SK Lubricants shares as compensation for an agreement with LG.