The recent culmination of a long-running dispute between two giants of the electric vehicle battery-making sector has shone a spotlight on the increasingly important area of trade secrets in intellectual property protection. The case of LG Chem vs SK Innovation outlines the key takeaways for energy storage specialists and provides practical guidance for market players looking to safeguard their innovations for the long term.
This article was first published in BEST magazine Issue 73 and can be read in full here.
LG CHEM'S TRADE SECRETS IN FOCUS
In a major ruling issued on 10 February this year, the US International Trade Commission (ITC) ruled on a dispute relating to claims that SK Innovation made use of LG Chem trade secrets surrounding their electric vehicle battery technology. The ITC investigation under US trade law centred on alleged instances of IP infringement and other unfair practices in the import of lithium ion batteries, battery cells, battery modules, battery packs and related components and processes.
The investigation, which began in 2019, was based around the allegation by LG Chem that between 2016 and 2018, SK Innovation misappropriated a vast number of the company’s trade secrets directed to the design, development and manufacture of electric vehicle batteries by conspiring with then-LG employees - who have since moved to SK. The trade secrets were said to relate to highly proprietary manufacturing processes and systems for the production of EV batteries.
TRADE SECRETS VS OTHER FORMS OF IP
While patent rights and trade secrets can sometimes be viewed as interchangeable, the reality is there are marked differences between the forms of IP protection each provides. On the one hand, a patent is an IP right that describes an invention and includes claims that define a scope of protection for an invention that is deemed, among other things, to be novel and inventive. Patents are published and therefore the information within them is shared with the public. In exchange for sharing the information with the public, the patent holder is given a time-limited legal right to stop others from making, selling or using their invention as claimed.
A trade secret on the other hand is quite different and relates to business information that is secret, has value and is subject to reasonable protection. In contrast to a patent, trade secrets are not available to the public and therefore their exclusivity is dependent upon the measures put in place to keep them confidential within a business. Trade secrets are especially broad in scope and can be anything from a formula, practice, process, design or instrument, to a pattern, commercial method or compilation of information.
BRIDGING THE IP GAP
The hard-fought battle between SK Innovation and LG Chem underlines just how important trade secrets can be in IP disputes. Yet, while businesses employ increasingly sophisticated strategies to protect their IP using rights such as patents, trade marks and designs, recent studies show that, despite their value, many companies still do not afford their trade secrets the same degree of protection.
Sometimes this is because a business hasn’t taken the time to identify the trade secrets they have. Sometimes it might even be because they feel they don’t have any. When we think of a trade secret, the Coca Cola or KFC recipes may be the first things to come to mind, but they can be applied in many settings - and to great effect.
For LG Chem, the trade secrets related to manufacturing processes were acknowledged as having great value. While some market operators could be forgiven for thinking their manufacturing processes could be thought of as mere implementation details and not worthy of diligent protection, the reality is that all businesses should be taking steps to identify and protect their trade secrets. LG Chem were able to show that the information passed to SK could be classed as a trade secret and therefore was worthy of protection despite the seemingly blatant nature by which it was alleged the information was transferred. This case highlights that in the digital age, accessing and copying large quantities of valuable information can be achieved quickly and easily and it can be difficult to keep track of where the information is flowing.
It is also true that many innovative companies have higher staff churn, increased data security risks and changing working environments caused by Covid-19 to manage.
In addition, laws around the world on trade secrets are changing. This means loopholes are likely to be exposed. The regulatory environment is changing too. Globally, legal reforms are challenging the efficacy of other forms of IP and tax authorities are increasingly taking a greater interest in companies’ intangible assets.
Against this highly challenging backdrop, innovators in the energy storage space can take a number of practical steps to get to grips with their trade secret provisions. Of course, different IP advisors will approach the challenge in various ways, but typically, the overall process should revolve around three key elements - reviewing and auditing your current awareness of trade secrets and provisions, implementing a bespoke policy and ensuring continued compliance through regular monitoring.
As LG Chem and SK Innovation have found in this high-profile and long running case, trade secrets can make a vital contribution to the commercial and financial success of a business, as well as its ultimate valuation. They remain fragile however and in effect, can only exist as long as the trade secret is maintained. Once trade secrets are gone, they really are gone forever.
As innovators strive to continue growing in the wake of the pandemic, they overlook this important area of IP protection at their peril.