The Shape of a Potential Settlement Is Emerging in a Knockdown Battery Dispute
Administrative judges in Washington, D.C., were flabbergasted last month when they studied an arcane trade secrets case. Amid high stakes — blood rivalry between two of the leading companies in one of the world’s most important new technologies — South Korea’s SK Innovation had concealed reams of evidence when accused of stealing the know-how behind its newest battery. Meanwhile, SK workers were irretrievably destroying pertinent files, emails, and other documents. By the time their existence was known, the documents were gone.
Now, in a public version of its decision released yesterday, the International Trade Commission (ITC) paints a damning portrait of SK, which, faced with the potential loss of tens of billions of dollars in business, set out to erase the record and mislead the court as to what it was doing. “It was not enough for SK to destroy or hide its records once, because SK then, unchastened, collected more LG proprietary information, only to destroy or hide those records as well,” the judges said.
The case involves a battery aimed for two of the leading new electric vehicles of the next couple of years — the Volkswagen ID.4 crossover SUV and the Ford F-150. In its gasoline version, the F-150 has been the best-selling vehicle in the U.S. for four decades, but now Ford is issuing an electric version, using SK’s battery. The fate of the two EVs will influence the future of Ford and VW, thousands of U.S. jobs, the U.S. ability to compete with China, and tens or even hundreds of billions of dollars in revenue for both companies.
But LG alleged that SK only managed to win the Ford and VW contracts by poaching around 100 of its employees, who arrived with the secrets of LG’s latest batteries. The ITC said it found LG’s arguments plausible, using the phrases “stolen,” “pilfered,” and “theft” to refer to SK’s actions. The agency found that, on its own, SK would have needed a decade replicate LG’s battery. “Clear and convincing evidence shows that SKI’s destruction of documents… was done with a culpable state of mind and with the intent to hide evidence of trade secret misappropriation,” the ITC said. The ruling was harsh, barring SK from using the technology in the United States for a decade.
The outlines of a potential settlement may be taking shape. In an interview last evening, Dave Callahan, lead lawyer for LG, would not be drawn into a discussion of precisely what the two sides were or were not saying to one another. But when I asked for an analogy to understand where the case could go, he pointed me to a 2018 trade secrets settlement in which a federal jury awarded Motorola $764 million from Hytera Communications. “The market was smaller,” he said, but that is the idea.
In a negotiation, Callahan said, SK would have to say how many years it intends to use its current battery — the one that LG says is stolen — in the Ford and VW vehicles until it introduces a successor. Then, the companies would arrive at a value for that period of time, he said. “SKI understands that a settlement is going to have to reflect the gravity of what they did,” Callahan said. “They stole our trade secrets and will be using them against us.”
The pressure will be high on SK. It has a slight reprieve — the ITC has allowed it to temporarily continue to sell its battery to Ford and VW. But the wording of the decision appears to leave SK little reason to depend on its rearguard hope — that the Biden administration, intent on the establishment of a U.S. battery industry, will overrule the ITC. Late last month, both SK and LG made their case to the White House — SK urging that Biden overturn the ruling, and LG arguing that the decision be left alone, according to an account in the Wall Street Journal.
Also hanging over SK is a U.S. federal court case, in which LG has made the same trade secret claims. If a court decision goes against SK, it could be assessed actual damages plus up to two times the figure in punitive damages.
SK emailed me the following statement: “The ITC’s decision threatens to undermine the U.S. national interest in multiple dimensions. It would harm the U.S. economy by destroying thousands of high-tech green energy jobs. It would frustrate U.S. plans to protect the environment by producing batteries for electric vehicles and stationary storage. It would endanger U.S. national security by making us more dependent on Chinese companies in this fast-developing, critically important field. That’s a lot of damage from one decision. Thankfully, it is entirely within the discretion of the Biden administration to undo it.
“LG continues to obscure the actual record of this case. Its carefully crafted statements leave out the fact that no judicial process or legal authority — including the ITC — has ever found that SK has ever stolen any of its technology. There has certainly never been ‘a trial,’ as LG’s website falsely states. It also hides its real goal in this case, which continues to be to use the U.S. government to give it an effective monopoly over the production of EV batteries in the U.S. for the open market. LG is further manipulating the U.S. government by assuring it that it can increase its capacity to make batteries in the U.S. enough to make up for a ban on SK. This is patently untrue.”