ANALYSIS LG asks SK to present follow-up measures after final USITC ruling
Ford Motor Co displays a 2021 Ford F-150 pickup truck at the Rouge Complex in Dearborn, Michigan, U.S. September 17, 2020. Reuters-Yonhap
By Kim Yoo-chul
The United States International Trade Commission (USITC) gave a final ruling Thursday (KST) in favor of LG Energy Solution (LGES) in its legal dispute with SK Innovation (SKI) over the theft of trade secrets related to battery technology.
A few hours after this, LGES asked SKI to present follow-up measures to end the dispute.
“LGES is asking SKI to accept the USITC's final ruling,” an LGES official said in a statement, adding the company was expecting SKI to offer settlement details that would protect the best interests of its shareholders and investors.
“Based on the USITC's final ruling, LGES has no option but to continue in other cases (against SKI) pending in courts in South Korea and the U.S. state of Delaware, if SKI fails to present proper remedies,” a senior LGES executive said, Thursday.
The USITC issued a limited 10-year exclusion order prohibiting imports into the United States of components for battery cells, modules and packs by SKI, but permitted it to import parts for the production of lithium-ion batteries, battery cells, modules and packs for Ford Motor's F-150 electric vehicle (EV) program for four years, and for Volkswagen Group of America's modular electric drive matrix (MEB) platform for North America for two years, according to a copy of its original ruling. The commission added that SKI could replace or repair its EV batteries in Kia vehicles sold in the United States.
The move effectively bans SKI from selling EV batteries in the United States unless it can source all necessary components domestically ― which many analysts view as unfeasible. Ford and Volkswagen earlier filed briefs with regional U.S. governments detailing the estimated impact of the LGES-SKI dispute.
Volkswagen and Ford, both of which procure EV batteries from SKI, said the final USITC ruling won't affect their EV production schedules in the United States.
Settlement talks, Georgia contribution
But because LGES doesn't want to see SKI's battery business suffer the worst-case scenario in the United States, top LG and SK Group management are expected to accelerate negotiations to settle the dispute, according to sources directly involved in the matter.
SKI could appeal the USITC ruling in a federal court, and there is the possibility that President Joe Biden could exercise a veto during the 60 days he has to review it.
“We look forward to having detailed discussions with Biden administration officials charged with reviewing the USITC ruling and carrying out the president's policies related to EVs and the environment,” SKI said in a separate statement.
The best possible scenario is for LGES to ask the USITC to drop the case after reaching a financial settlement with SKI; and South Korean Prime Minister Chung Sye-kyun did recently ask top management at the two groups to come to an agreement.
The dispute started after LG Chem claimed SKI stole some of its intellectual property. Last year, LG Chem spun off its battery unit to form LGES which has continued the legal battle.
“This fight is a matter between two private companies, therefore, it's unlikely for President Biden to issue a veto as the final USITC ruling permitted SKI to import parts for production in the U.S. by Ford and Volkswagen for a limited period,” a noted patent expert here said. He added that top management at SK and LG could soon initiate an “exit strategy” to close the case.
Among key conditions for this, LGES is said to have asked SKI to accept responsibility for the infringement of its intellectual property and to pay “a few billion dollars” in compensation. SKI is known to have offered a “few million dollars” as a financial settlement.
“LGES is clearly in a better position. The financial settlement SKI should pay LGES is estimated to reach 2 trillion won, and that would hurt its profits as the company didn't allocate reserves for this,” said Lee An-nah, an analyst at E-Best Securities.
Also, SKI's plant in Georgia, part of which is still under construction, was made possible with the financial and administrative backing of the local administration as it is one of the top economic development projects in the state's history. The state has provided SKI $300 million in grants, free land and various other incentives.
“In terms of SKI's contribution to the regional economy in Georgia, some politicians are set to file requests with LGES to find the middle ground at the earliest possible date,” said a local official.
After the stated period in the ruling, SKI must stop importing the components into Georgia it needs to make EV batteries, which would leave Volkswagen and Ford having to find a new supplier.
“We remain committed to SKI and interested in the impact of the project on the state,” said Pat Wilson, commissioner of the Georgia Department of Economic Development.
In a separate statement, SKI said while it regretted the USITC decision, “it's a relief that we will continue to supply Ford and Volkswagen.” The statement added the company has serious concerns about the commercial and operational implications of the USITC decision for the future of its EV-battery facility in Commerce, Georgia, which is expected to employ 2,600 people when completed.
SKI has denied all allegations of wrongdoing, but a preliminary USITC ruling was given last year in favor of LG, prior to it spinning off LGES.