Insider Advantage

LGES will invest $4.5 billion in its US battery production operations after the USITC found rival SKI had stolen its trade secrets. Now, SKI is trying to hold Georgia hostage.

The US International Trade Commission, a federal administrative law agency that most Americans have no reason to recognize, suddenly became the most-discussed government body across the state when it ruled last month that Korean battery maker SK Innovation had misappropriated a competitor’s intellectual property.

That decision, which followed SKI’s attempts to obstruct justice by destroying troves of evidence that it had stolen LG Energy Solution’s trade secrets, has prompted understandable concerns that it could negatively impact a new manufacturing center the company is building in north Georgia. Understand, though, that this ruling will not hurt the people of Georgia—not now, not ever.

A THOUGHTFUL SOLUTION
The Commission carefully balanced its mandate to protect technical advancement with the imperative to preserve jobs in this case. Beyond those provisions, LGES is prepared to do whatever it can to help Georgia’s working families if SKI ultimately abandons its plant and the state. That includes our best efforts to fill-in any voids created by SKI’s irresponsible business practices.

In finding that SK Innovation had stolen 22 of LG Energy Solution’s battery trade secrets covering all areas of lithium ion battery technology, the Commission actually broke precedent in the interest of Georgia and the electric vehicle supply chain. It will allow SKI to continue exploiting its theft by producing batteries in Georgia for at least four years. Following that time, SKI can either begin using its own intellectual property or can legally obtain rights from LGES to what it stole. But because it wants to do neither, SKI is now threatening to abandon Georgia’s working families when those four years are up.

AN UNTRUSTWORTHY PARTNER
SK Innovation has a credibility problem, though. They lied when they said they had the technology to mass-produce batteries for electric vehicles. They lied when they said they would use local labor but really hired illegal immigrants with falsified documents. And they’re lying to you now when they say they will vacate their $2.6 billion plant if their ransom isn’t met.

In the course of the US International Trade Commission’s two-year investigation into SKI’s theft, the company presented no evidence of an imminent plant closure. In fact, SKI has told its customers and Korean regulators that it would continue to move forward with the Georgia site regardless of the Commission’s decision.

ANYTHING TO AVOID MAKING AMENDS
The Commission’s decision already provides unprecedented allowances for SKI to finish work on its plant, hire Georgians to staff it, and produce batteries despite its theft, and further provides a simple, legal framework for their US operations long-term.

But rather than paying fair compensation to LG Energy Solution for what the US government said it stole, SK Innovation is now spending millions of dollars in a lobbying strategy that involves holding Georgia hostage. Rather than developing its own intellectual property, SK Innovation is scheming instead to secure a pardon for its malicious, repeated illegal actions.

The electrification of America’s automotive fleet is coming, which means demand for batteries will grow exponentially. In addition to existing manufacturing operations in the Midwest, LGES announced a major US expansion plan this week. The company is actively scouting new locations for it, and Georgia is a uniquely attractive one. As a business decision, LGES certainly understands why SKI chose Georgia; we only wish they had planned to use their own intellectual property here. But if LGES is to grow and invest in Georgia, we must be confident that the billions of dollars and millions of hours of careful engineering will be protected.

Georgia will be making batteries for next-generation cars for decades, and nothing about the US International Trade Commission’s ruling will change that.

The US International Trade Commission on Thursday published the agency’s findings following its two-year investigation into SK Innovation’s unfair trade practices, concluding that it misappropriated 22 of LG Energy Solution’s trade secrets worth billions of dollars spanning the entire electric vehicle battery business.

This public release follows the USITC’s orders last month blocking the importation, domestic production, and sale of SK batteries with certain exceptions to prevent job losses or any interruption or delay in the domestic supply chain. The exceptions were unprecedented and allow SK Innovation to continue to exploit the trade secrets it stole for a period of several more years.

“LG Energy Solution’s multi-billion dollar investment in its lithium-ion battery business was a down payment on a carbon-free future and an investment we believed was safe from intellectual property thieves,” stated Denise Gray, President of LG Energy Solution Michigan Inc. Tech Center. “SK Innovation stole a technology that required tens of thousands of hours of careful and costly engineering. The release of the ITC’s decision puts to rest any questions of whether SK Innovation did anything wrong—they did, repeatedly, and now they must be held accountable.”

The 96-page final determination provides indisputable evidence of SK Innovation’s deliberate, repeated illegal actions and extraordinary bad faith efforts to hinder the Commission’s investigation.

The Commission wrote that “SK has a history of collecting documents about LG and SK’s competition with LG, and then destroying those documents. For one example, among many, as recently as 2018 … an SK battery supervisor, ordered his team to hide or destroy ‘the documents you took from ‘L’ company’ and ‘please don’t save this email as well!!’… What is most remarkable about SK’s spoliation … is the combination of the scope of spoliation with its frequency. It was not enough for SK to destroy or hide its records once, because SK then, unchastened, collected more LG propriety information, only to destroy or hide those records as well.”

The Commission wrote that it considered “SK’s destruction of evidence in this case to be extraordinary” and that “[t]he destruction was ordered at a high level and was carried out by department heads throughout SK.”

The Commission found that “[a]s the evidence indicates, SK misappropriated LG’s business trade secrets, including LG’s competition pricing information. It is therefore consistent with the record that SK’s proposal would be the lowest cost.” It added that “the record supports the Commission’s finding that it would take ten years for SK to develop products without the 22 trade secrets. Accordingly, the Commission finds that the duration of any orders issued should cover a period of 10 years from their effective date.”

Finding a violation of Section 337 of the US Tariff Act, the Commission imposed a 10-year-long exclusion order preventing SK Innovation’s importation of batteries, battery cells, battery modules, battery packs, and components. The USITC, however, provided a carve-out to allow SK to import identified technology for use in the manufacturing of batteries for Ford and VW at its Georgia facility for four and two years, respectively. The carve-outs protect Ford and VW by providing a window to transition to a new supplier or for SK to develop its own technology or reach a settlement.

“LG Energy Solution is a 20-year partner to America’s automotive sector and is working diligently to scale to meet the needs of the country’s electric vehicle ecosystem,” Denise Gray, President of LG Energy Solution Michigan Inc. Tech Center said. “The protection of trade secrets, as the ITC has provided, will allow those critical investments to continue apace.”

In 2019, LGES entered into joint venture with General Motors to build a $2.3 billion manufacturing facility in Ohio to mass-produce battery cells. It also operates an additional battery plant in Michigan and will presently announce further US operations.

By F. Scott Kieff and Thomas D. Grant, Bloomberg Law

A trade secret case about lithium-ion batteries decided Feb. 10 by the International Trade Commission offers an important opportunity to affirm support for American jobs and innovation, rule of law, and the integrity of international commitments to respect intellectual property. 

LG and SK are South Korean companies with significant investments in U.S. operations. Both manufacture batteries for the growing market in electric vehicles. In 2019, LG brought the ITC case against SK for trade secret misappropriation. Last year, the ITC’s administrative law judge grappled with this complex factual dispute and concluded, after careful review, that SK had engaged in a disturbing effort to destroy evidence and that the available evidence points to a culpable state of mind on the part of SK and an intent to hide evidence of trade secret misappropriation by SK.

On Feb. 10, the panel of ITC commissioners affirmed the ALJ. While the ITC has broad power to issue general remedial orders, it showed wise restraint in issuing a strong but limited remedial order that protects internationally shared interests in IP and trade enforcement, and respects customers as well as the interests of the losing party that don’t relate to the violations. 

The case is now up for 60 days of presidential review. Only twice in the past 30 years has the White House found the exceptional circumstances to set aside an ITC enforcement order.

Public Interests in Enforcement Are Wide-Ranging

This case is too ordinary and enforcement too important here to merit that kind of extraordinary White House intervention. The public interests in enforcement here are wide-ranging. With shared desire to improve the global environment for generations, policymakers worldwide are priming the market for improved electric vehicle batteries. 

Everyone sees the need for vital innovations to commercialize complex technologies like these. That’s why IP laws, including to protect trade secrets, exist around the world—they enable the cycle of risk, innovation, and reward that ultimately benefits all. It’s also why IP protection is codified in the long-standing and strategically powerful economic and security relationship between South Korea and the U.S. in Article 18 of the U.S.-Korea Free Trade Agreement entered into force in 2012 (KORUS).

Against this backdrop of high-minded talk, it’s essential to ensure a matching walk. IP adjudication at the ITC has a well-earned long-standing tradition of being non-partisan, fair, well-reasoned, and well-supported by a detailed factual record. Transparency is baked into the ITC process. While some administrative tribunals—both in the U.S. and abroad—operate, by design, with fast procedures, issue only short determinations, and openly take direction from political overseers, the ITC operates under exacting procedures, gives detailed reasons for its decisions, and functions independently.

The case between LG and SK did raise a noteworthy difficulty—namely, the lack of evidence due to the actions that the ALJ found SK to have committed. After careful examination, including exacting questions directed at SK and relevant witnesses, the ALJ entered a default judgment.

Though labeled “default,” the substance of the procedure reveals much more careful assessment than the label might suggest out of context. At the ITC, litigating parties before the ALJ are guaranteed the chance to tell their side of the story, examine witnesses, and present evidence—or, in SK’s case, to try to explain the disappearance of evidence. 

In addition, ALJs at the ITC are independent adjudicators duty-bound to explain their decisions. Moreover, the ITC’s Office of Unfair Import Investigations (OUII) is a veritable institution within the institution that litigates on behalf of the public’s interest, further ensuring full and fair adjudication. The skilled IP trial attorneys from OUII bring yet an additional independent scrutiny to both parties’ legal theories and factual claims. All of this resulted in a not-atypical ALJ initial determination that runs to 142 close-reasoned pages.

Furthermore, the ITC commissioners themselves are removal-protected and serve in staggered nine-year terms. The ITC’s statute ensures that the six commissioners are balanced between the two political parties, with a chair that rotates every two years between the two political parties. This all ensures the ITC reaches decisions through reasoned collaboration, not partisan preference.

The transparent and detailed nature of the entire ITC process means that any objections to an ITC determination must themselves be particular as well. But absent some particular factual or legal error, such a sound and fair process should otherwise run its ordinary course.

From the record of facts and orders produced in the lithium-ion battery case, it is clear that the ITC has afforded both parties a fair and transparent forum, while upholding the vital national economic and security interests in cooperation between the U.S. and South Korea by giving life to the commitments in KORUS Article 18. All of this fosters public trust in rule of law and investor confidence in commercializing the innovations of tomorrow.

By Peggy Hollinger, the Financial Times

US president Joe Biden has been handed a poison chalice. Barely a month into the job, he has to decide between saving a Georgia battery factory that promises to provide 2,600 jobs and clean power for 330,000 cars a year, or defending a foreign company to protect the principle that intellectual property rights are inviolable.

The US International Trade Commission last week ruled in favour of South Korean conglomerate LG Chem in its battle with rival SK Innovation over alleged misappropriation of trade secrets concerning electric vehicle batteries. It banned SKI from importing components to make EV batteries in the US using the contested technology for the next decade. The decision was based on evidence that SKI deliberately destroyed thousands of documents that might have helped LG prove its case.

The ITC is an independent agency charged with defending US industry against unfair trade practices, such as trade secret misappropriation. But it must also consider the impact of its rulings on American industry and jobs; in this case, on carmakers Ford and VW Group of America, which were relying on SKI to provide batteries for their new electric models.  The ITC solution was to impose the full 10-year ban requested by LG Chem on SKI.

But at the same time it granted a grace period allowing SKI to supply Ford for four years and VW for two years. This gives both carmakers time to find new suppliers and have the batteries they need for their new electric vehicles.

The problem now is that the dispute moves out of the legal arena and into politics. President Biden has 60 days to override the ruling, if he judges this is in the national interest. A presidential override of an ITC judgment is rare but not unprecedented. Former president Barack Obama did just that in a dispute between Apple and Samsung in 2013. Over the next two months SKI, carmakers, lawmakers and Georgia officials will be lobbying the White House to do the same for SKI. 

They will focus on the Biden administration’s promise to accelerate electric vehicle adoption in the US as part of its green agenda. SKI’s $2.6bn factory is the biggest investment in Georgia’s history. Furthermore, with 22GW of annual capacity scheduled by the end of 2022, it was set to give a meaningful boost to US battery production. The political pressure in the coming weeks will be intense.

Yet the grounds for overturning the ITC’s ruling are flimsy. SKI’s investment in Georgia is hardly likely to go to waste. The shortage of EV battery production in the US makes the facility highly attractive to others, should SKI decide the remedies are too severe to continue.  State officials may call publicly for the ruling to be reversed. But some say privately they are confident of finding new investors for the facility if necessary. They also point out that those 2,600 jobs have not yet been created — barely 300 so far, according to local reports. So it is not as if thousands of people will be out of work.

Moreover, Ford has said it believes the ruling allows it to launch the electric version of its iconic F-150 truck on time. If the company — which lobbied for SKI during the ITC investigation — did not begin seeking alternative suppliers a year ago when damning preliminary findings were handed down, its risk managers have not done their job.

SKI admits to destroying documents but says that preservation is not a legal requirement in South Korea ahead of a lawsuit. It also argues that the allegations of misappropriation of trade secrets were never tested in court.

Read more at the Financial Times.

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