LG, SK may seek settlement after ITC's final ruling, damage claim is the key

Lee Yoon-jae and Minu Kim 2021. 2. 1. 16:09
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[Graphics by Song Ji-yoon]
South Korean battery majors LG Energy Solution and SK Innovation are fighting to come to an out-of-court settlement amid mounting political pressure from home and the United States ahead of the final ruling by the U.S. International Trade Commission (ITC) on Feb. 10 although difference over damages remain big.

LG wants 2 to 3 trillion won ($2.68 billion) whereas SK sticks to damages within million dollars range. The claim would hinge on ITC ruling.

There can be four possible scenarios of the outcome.

Scenario 1: ITC to uphold preliminary ruling against SK

ITC may uphold its preliminary ruling against SK Innovation, given the 1996-2019 statistics where preliminary rulings have rarely been reversed in the case of infringement of trade secrets.

The consequence would be enormous if SK loses. For example, SK Innovation will be banned from importing battery products and parts to the U.S. in the future. Its battery plant in Georgia would virtually come to stop. SK must bear the burden of compensations to EV finished car makers due to delivery failure. Sources said SK has so far received battery orders worth about 20 trillion won in the U.S.

Scenario 2: Re-examination ruling or U.S. President’s veto

The ITC could order its judges to re-examine the case, which is the best scenario for SK Innovation. The re-examination could mean the case should be revisited. Experts said this cannot be generalized but the odds are low based on the statistics of the ITC’s past rulings.

In addition, there is a possibility that the ITC partially upholds the preliminary ruling but recommend investigating 'public interest'. Even if SK Innovation loses in the ITC, it may be saved by President Joe Biden’s veto exercised the importance of SK’s Georgia plant in job creation and local economy.

This also bodes favorably for SK Innovation, which could use the veto to lower its settlement money.

But there has been no single case of presidential veto exercised over the ITC’s ruling on trade secret infringement. Even if the presidential veto allows SK to import EV batteries to the U.S., it cannot change the fact of trade secret infringement, which means SK could face a problem in its business.

In this case, LG may take a step to file a civil suit with the federal District Court in Delaware against SK based on the ITC’s ruling to raise the amount of damages sought as much as possible.

3. Civil suit with Delaware court

If the two companies fail to reach an agreement even after the final ITC decision, it will eventually lead to a civil lawsuit in the Federal District Court in Delaware. Some say that if LG's allegations are accepted by the court, the court may rule a compensation of over 6 trillion won against SK.

The compensation was calculated based on SK’s global orders worth up to 50 trillion won between 2017 and 2019 when LG argues it was suffered by SK’s trade secret infringement, unfair profits taken by SK due to infringement of trade secrets against LG, and future damages to LG from EV battery business with high business potential.

The amount of settlement LG requested to SK is known to be up to 3 trillion won, and industry watchers said punitive damage compensation is excluded from this amount.

4. Settlement after ITC ruling

Industry watchers said the two companies are more likely to enter into an agreement after the ITC ruling. An industry official said the two are unable to narrow down their disagreements, but the mood can change after the ITC ruling.

In most IPR lawsuit cases, the parties concerned end up in agreement, an expert said.

Even if the ITC upholds its preliminary ruling, there would be no problem with their settlement. Since it is a civil lawsuit, a potential U.S. ban on SK can be lifted if the two companies reach an agreement later. However, if SK loses, LG will have increased bargaining power, demanding more settlement money.

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