ANALYSIS Daewoong-Medytox settlement to affect LG-SK dispute
This pictured image shows SKI's battery plant under construction in the U.S. state of Georgia, left, and LGES's battery plant in the U.S. state of Michigan. Courtesy of each company
By Kim Yoo-chul
A settlement between Daewoong Pharmaceutical and Medytox is emerging as a precedent for a possible settlement in a legal dispute between LG Energy Solution (LGES) and SK Innovation. The possibility of a settlement increased after a senior LGES executive confirmed plans to receive compensation from SKI with the United States International Trade Commission (USITC) reaffirming its ruling against SKI in an intellectual property dispute involving electric vehicle (EV) batteries.
Daewoong agreed with Allergan and its Korean partner MedyTox to end their legal dispute after Daewoong paid $35 million in cash as compensation for MedyTox with the latter receiving undisclosed royalties for 21 months and gaining a 16.7 percent stake in Daewoong's U.S. partner Evolus. The USITC earlier ruled that Daewoong stole proprietary information from MedyTox. But the agreement also allows Daewoong to sell its products in the United States.
Just a few hours after the USITC released more details, Friday, about the LGES-SKI misappropriated intellectual property court clash that resulted in a 10-year ban for SKI, LGES held an online press conference and said the form of compensation is negotiable.
“We are not seeking a one-off compensation from SKI, since LGES does not have any plans to use the possible compensation to split recall costs for Kona [EV] fires. For us, what matters is compensation in the form of equity or royalties,” LGES Senior Vice President Jang Seung-se told reporters.
The remarks are widely regarded as LGES's de-facto call to restart settlement talks. The LGES vice president was referring to his company's share of the cost of recalling Hyundai Motor's Kona EVs after a number of batteries catching on fire.
Local patent experts said Sunday that the LGES-SKI case would be settled after LGES accepts a cash compensation, plus equity and royalties. SKI said it cannot accept LGES' request for a “few billion dollars” in compensation despite the USITC's findings. SKI is hoping for Biden to veto the USITC's verdict, banking on its plans for massive investments in an electric vehicle battery plant in the state of Georgia entailing large-scale hiring in accordance with Biden's green-growth initiatives.
While several settlement scenarios are being discussed, the core points are that SKI is counting on Biden's veto and is not ruling out the possibility of bringing the case to U.S. federal courts, because it claims that the USITC did not fully cover all possible weaknesses in the case. Plus, U.S. politicians are also asking Washington officials to review the estimated impact of the USITC ruling on the U.S. economy as SKI is one of the top foreign investors in the state of Georgia.
LGES is asking SKI to accept the USITC ruling and take full responsibility. The LGES executive said, while the firm has no plans to force SKI to abandon its battery business just because of the ruling, if SKI continues to refuse accepting the USITC's ruling, LGES could start the related legal proceedings possibly in Delaware, where the lawsuit began, potentially resulting in greater cost to SKI.
“Because the USITC ruling isn't final and a presidential review is still underway, any visible progress in the settlement talks between LGES and SKI is likely just a few days before the end of the review. As LG has specified detailed terms and conditions, the two sides are set to engage in behind-the-scenes negotiations,” an experienced patent expert in Seoul said, Sunday.
Korea's top-tier law firm Yoon & Yang or Hwawoo has been involved in the Daewoong-MedyTox litigation since the very beginning.
“Because Hwawoo is representing SKI in its battery dispute with LGES in Korea, details of terms and conditions seen in the Daewoong-MedyTox case were given to people in charge as a reference,” said one expert.
In a similar dispute between Motorola Solutions and Hytera Communications, the U.S. District Court for the Northern District of Illinois initially awarded Motorola $764.6 million in damage compensation after determining that Hytera stole Motorola's trade secrets and incorporated them into its products. But jurors said the profit damage was an advisory figure.
But unlike the two cases, the market potential for EV batteries is huge and SKI cannot afford to lose. SKI is considering seeking an initial public offering (IPO) of its affiliate and it said Sunday that it will sell its stake in U.S. shale oil mines as part of its “business reorganization strategy.” SKI did not provide the estimated value of the deal. A few days ago, SKI said it will sell a 49 percent stake in SK Lubricants for an estimated 2.3 trillion won.
SKI officials said the recent moves regarding the unloading of its affiliates coincide with group-wide plans to secure capital to use in its next-generation businesses including its battery business.