The fate of a $2.6bn lithium ion battery plant, currently under construction in the US state of Georgia, rests in the hands of an administrative law court which must decide whether its owner, SK Innovation (SKI), misappropriated trade secrets from its rival LG Chem (LGC) in order to develop its technology.
At stake is not only the plant itself, but contracts for SKI’s batteries with Ford and Volkswagen, which plan to install them in their new electric vehicles; the 2000 jobs the plant would directly create, plus others linked to suppliers; the considerable investment of the state and county; and SKI’s reputation.
The case has attracted global attention, especially from South Korea where both SKI and LGC are based.
In briefs supporting LGC, the governors of Michigan (where LGC has a battery plant in the city of Holland), and Ohio (where it plans to build a plant with General Motors), argue that SKI’s use of allegedly stolen technology would put it in direct competition with workers in their states. Congressional representatives in the US have written letters of support for each side. Volkswagen has weighed in, warning that its planned launch of a new electric vehicle will be threatened if SKI cannot supply the necessary batteries.
However, it is not just the jobs, investment and tax revenue that are on the line in Georgia. The state also aims to seize the opportunity to become a hub for the electric vehicle industry of the future, says Pat Wilson, commissioner of the Georgia Department of Economic Development. “We are entering a long-term strategic effort to recruit the entire supply chain for e-mobility into the state: from the minerals needed in the beginning of the process all the way to the production of the battery,” he says. “We hope to attract a number of suppliers across the entire ecosystem.”
And two South Korean companies, Enchem and Dongwon Tech, have already committed to building factories near the SKI plant in Jackson County. Two foreign makers of parts for electric vehicles, Germany’s Gedia Automotive Group and Turkey’s Teklas, also have announced FDI projects.
SKI’s troubles began in April 2019, when LGC filed a lawsuit against it before the US International Trade Commission (ITC), an independent body authorised to investigate and make determinations in cases involving imports that injure a domestic industry or violate US intellectual property (IP) rights. LGC called for an investigation of SKI under Section 337 of the US Tariff Act, which applies to unfair imports, including those resulting from misappropriation of trade secrets.
LGC alleged that, between 2016 and 2018, SKI “misappropriated a vast number of LGC Trade Secrets” by conspiring with LGC employees to download and transfer highly sensitive material to SKI, and by hiring 80 LGC employees with knowledge of its technology. The trade secrets passed on included “highly proprietary manufacturing processes and systems for the production of electric vehicle batteries” covering the full spectrum from research and development to manufacturing and sales.
“Once SKI realised that LGC had become aware of these actions and intended to take action, SKI organised a top-down campaign to destroy or hide as much of the evidence of their involvement as they could,” says David K. Callahan, Chicago-based chair of the IP practice at global law firm Latham & Watkins, lead counsel for LGC. This led the administrative law judge to issue a default judgment in LGC’s favour, which is very unusual, Mr Callahan says.
Subsequently, however, the ITC decided to review the judge’s decision, and requested additional briefings from the parties. A final judgment is expected on December 10. If the ITC finds a violation of Section 337, it can issue an exclusion order directing customs officers to prevent infringing imports from entering the country, as well as a cease and desist order.
SKI’s website features a special section on the litigation. The company describes LGC’s claim as “baseless”, saying it has developed its own technology. SKI states that it is interested in a settlement for the sake of its customers, “not because SKI is acknowledging that trade secrets were misappropriated”.
“As with all disputes of this type, settlements are certainly possible,” says Mr Callahan. “The only remedy we have asked for is that they stop using our trade secrets. It doesn’t mean they have to shut down the plant in Georgia, provided the batteries they make don’t use our trade secrets.”
One question that arises is whether Georgia could or should have done more due diligence on SKI’s IP rights before backing the project. “There’s really no way for the state to do due diligence on IP,” says Mr Wilson. “It’s out of our purview.”
However, Timothy R. Holbrook, a professor of IP law at Emory University in Atlanta, advises that the state could adopt a standard principle from commercial contracts: the duty of good faith and fair dealing. “You represent that this is your technology, and if it is not, the other party should be able to get compensation for violation of the contract. There could be some form of covenant stating that you did not appropriate the technology from any source,” he explains.
“Generally, states could ask companies to disclose their IP and get an assessment of the validity of their patents — it’s fairly low cost — as well as an assessment of whether someone else owns the patent. They should also have a clause in there about a covenant that the company does in fact own its IP assets,” says Mr Holbrook.
Even though Georgia will suffer if SKI loses its case, Mr Holbrook argues that those impacts should not excuse the theft. And if SKI’s actions are overlooked, he warns it may cause other companies to worry that their IP may not be protected by the state.
The ITC’s decision may not be the last word. ITC decisions are sent to the president, who has 60 days to approve or disapprove them for policy reasons. A final appeal may be made to the US Court of Appeals.
Meanwhile, Mr Wilson remains optimistic. “We have done everything we can to make the administration aware of the project’s positive impact, and we stand by that,” he says.
This article first appeared in the December/January print edition of fDi Intelligence. View a digital edition of the magazine here.