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Battery dispute settlement

SK agrees to pay $1.8 billion to LG, settles battery legal dispute

By Apr 11, 2021 (Gmt+09:00)

SK agrees to pay />.8 billion to LG, settles battery legal dispute

LG Energy Solution Ltd. and SK Innovation Co. have reached an 11th-hour agreement to end their two-year legal dispute in the US over trade secret infringement and battery-related patent violations.

The deal between South Korea’s two leading electric vehicle battery makers comes hours before a US administration deadline to decide whether to initiate a 10-year import ban on SK Innovation's batteries and components to the United States or take the rare step of reversing an earlier international trade body ruling.

Analysts say the dramatic settlement will remove uncertainty clouding both companies' US battery projects and also spare President Joe Biden from choosing between undermining intellectual property rights and dealing a blow to his clean energy initiative with an import ban on EV parts. 

“The two companies agreed to work to help the development of the EV battery industry in South Korea and the US through healthy competition and friendly cooperation,” LG Energy Chief Executive Kim Jong-hyun and SK Innovation CEO Kim Jun said in a joint statement on Apr. 11.

“Both sides also agreed to make joint efforts to strengthen the EV battery supply chain and the eco-friendly policy the Biden administration is pursuing.” 

Under the agreement, SK will pay 2 trillion won ($1.8 billion) – one trillion won in cash compensation and one trillion won in royalties – to LG. Previously, LG Energy, wholly owned by LG Chem Ltd., had sought at least 3 trillion won in compensation, while SK had capped its payment at 1 trillion won.

Both sides have also agreed to drop all lawsuits against each other over the battery-related trade secret and patent violation cases filed since April 2019 in Korea and the US, and to refrain from entering into another legal battle over the next 10 years.

Each company’s board of directors held an emergency meeting on Sunday and approved the agreements between the two sides.

BATTERED BY PROTRACTED LEGAL FIGHT

The two Korean EV battery players had been locked in a protracted legal battle in the US over several cases, including the allegation of misappropriation by SK of LG’s battery-related trade secrets.

EV battery system platform Ultium, jointly developed by LG Energy and GM
EV battery system platform Ultium, jointly developed by LG Energy and GM

Last month, the International Trade Commission ruled in favor of LG Energy over the trade secret case. Under its final verdict, the SK Group unit was set to be banned from importing some lithium-ion batteries and their components to the US over the next 10 years, rendering it almost impossible to run its battery plants in Georgia.

President Biden had until the Apr. 11 deadline to decide whether to overturn the import ban or allow it to take effect. He had to choose between two of his key policy issues – his desire to promote EVs to curb climate change and the nation’s longstanding and vigorous backing of intellectual property rights.

In a separate case over a battery patent suit, the ITC on Apr. 1 gave a preliminary ruling in favor of SK, saying it didn’t violate LG’s battery-related patents.

In the run-up to the settlement, the Korean rivals made extraordinary efforts to lobby the Biden administration, with near-daily meetings in recent weeks involving senior executives and government officials from both South Korea and the US. LG and SK combined reportedly spent more than $1 million on these lobbying efforts in addition to some 1 trillion won in legal costs.

According to foreign media, both governments put pressure on the two companies to reach a deal while the US Trade Representative (USTR) played a role by arranging meetings with relevant parties as the deadline loomed.

More recently, SK Group Chairman Chey Tae-won and LG Group Chairman Koo Kwang-mo reportedly met in Seoul in late March to negotiate a settlement.

GREEN LIGHT FOR SK, LG IN US PROJECTS

Following the settlement, both SK and LG are expected to increase their influence in the US battery market by continuing their expansion as planned – a move that will also help the Biden administration limit Chinese battery makers’ growing clout in America.

SK Innovation is currently constructing two battery plants in Georgia, which will supply EV batteries to Ford Motor Co. and Volkswagen AG. The first plant is set to begin operations in the first quarter of next year, with the second plant scheduled for mass production in 2023.

Once the two factories are fully operational, they will have a combined capacity of 21.5 GWh, second only to Tesla Inc.’s 35 GWh Gigafactory in the US.

SK Innovation's EV battery plant under construction in Georgia
SK Innovation's EV battery plant under construction in Georgia

Meanwhile, LG Energy, which operates a lithium-ion battery factory in Michigan, announced last month it will invest more than 5 trillion won ($4.5 billion) by 2025 to expand its US battery business, including building a new plant and creating at least 10,000 jobs.

The new investment will help LG secure a capacity of 70 GWh a year in the US in addition to 5 GWh capacity at the Michigan facility, which supplies battery cells to clients such as General Motors Co., Ford and Chrysler.

If all its expansion plans are realized, LG will become the largest battery maker in the US with its total capacity in the US rising to 145 GWh a year, including production from Ultium Cells LLC, LG’s joint venture with GM.

According to market research firm SNE Research, China’s Contemporary Amperex Technology Co. (CATL) is the world's top battery maker with 31.7% market share as of February, followed by LG Energy Solution with 19.2%. SK Innovation ranks sixth with 5% market share.

Write to Jae-Kwang Ahn and Kyung-Min Kang at ahnjk@hankyung.com

In-Soo Nam edited this article.

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