A Hitachi (HTHIY) offshoot and its U.S. subsidiary are suing their Chinese rivals in an ongoing patent "war" over trade secrets they say were stolen by a retired employee. The legal machinations link Tokyo, Beijing and the bustling metropolis of the Myrtle Beach, S.C. suburbs. And they're a sign of things to come.
Hitachi Metals (HMTLY) and its Conway, S.C.-based subsidiary Metglas have sued Beijing-based Advanced Technology & Materials and its affiliates. The complaint filed with the U.S. government claims the Chinese manufacturers stole its trade secrets to make super-thin metal ribbons with glass-like qualities that are used in items such as medical devices and anti-theft tags.
The suit comes as China announces that it is kicking off a four-month campaign to protect the intellectual property rights of overseas companies in China. The drive, the first of its kind, will run through the end of December, according to China's Ministry of Commerce. The ministry and 12 other agencies, including the Supreme Court and Ministry of Public Security, will crack down on the theft of trade secrets, trademark violations and patent infringements.
That's an apparent response to the decision by the United States to investigate China broadly over the theft of intellectual property. And it comes as President Donald Trump prepares to visit China in November.
U.S. Trade Representative Robert Lighthizer last month agreed with a memorandum from Trump that Lighthizer's office should investigate China's "unfair trade practices" over technology theft.
Washington will release the results of the probe before Trump's summit with Chinese President Xi Jinping, former White House chief strategist Steve Bannon told the South China Morning Post in an interview here in Hong Kong during the brokerage CLSA's annual investor forum.
The result could see the United States impose unilateral punitive tariffs on Chinese goods. China would almost certainly appeal any result to the World Trade Organization, which has its own intellectual-property agreement, and would probably win, as I explained last month. But in the meantime, it would also install tariffs of its own, triggering a trade war.
Meanwhile, private industry is letting its own lawyers unleash reams of paperwork, too.
Tokyo-based Hitachi Metals makes specialized steel, metal rolls and ceramics, as well as magnets and high-end car parts, including alloy wheels. It and Metglas filed a complaint with the U.S. International Trade Commission against the Chinese companies for importing products that it says were made with "misappropriated trade secrets."
The complaint alleges that two former Hitachi employees, Hideki Nakamura and Nobrou Hanai, stole the company's trade secrets and then disclosed them to the Chinese companies. The Chinese companies have been attempting to sell amorphous steel for use in the electricity grid, allegedly stealing business from Hitachi. It bought Metglas from Honeywell International (HON) in 2003.
The other companies that Hitachi alleges absconded with its intellectual property are: AT&M International Trading, CISRI International Trading, Beijing ZLJG Amorphous Technology, and Qingdao Yunlu Energy Technology.
Metglas and its Japanese parent are suing under the Tariff Act of 1930. So besides asking the trade commission to investigate the "unfair acts," the Hitachi units are also requesting a ban on the Chinese companies importing the steel ribbon into the United States. A cease and desist order would, equally, ban the sale of the products that are already inside the United States.
The trade commission should decide whether to launch an investigation within a month.
Hitachi Metals and China have history, by the way. They go waaay back.
Advanced Technology & Materials filed a complaint with the Chinese Ministry of Commerce accusing Hitachi Metals of dumping cheap product in China. Hitachi said its secret production technique made it more competitive.
In another case, seven entirely different Chinese rare-earth companies banded together to sue Hitachi Metals in U.S. court in 2014 over patents covering neodymium-iron-boron magnets. That substance is used in engineering-related, wind-power and high-tech industries. Hitachi has more than 600 patents on the highly magnetic rare-metal compound, but had licensed only a few of them.
The Chinese companies said that unfairly stopped them from selling their 10,000-ton capacity of neodymium-iron-boron products overseas. The Chinese companies said their products were 10% to 30% cheaper than Hitachi's. Oh, and Hitachi had sued 12 Chinese rare-metals companies in 2012 to block imports of their cheaper magnets. When a Hitachi material patent expired in the United States in 2014, the Chinese companies saw their chance to counter sue to force through their sales.
Let the lawyers figure that all out. I'm betting the Chinese crackdown will knock over some easy knock-off targets making fake Frozen merchandise or copying CDs that no one uses these days.
Theft that's far harder to track down, let alone prove, will continue -- while at the same time, Chinese companies with government backing will insist on their rights to sell cheap products overseas.
If a trade war does erupt, expect it to be fierce, far-reaching and, like the Hitachi lawsuit, incredibly hard to unwind.