Steel giants’ industrial spying suit closely watched

Kyodo

Nippon Steel & Sumitomo Metal Corp. says its lawsuit against South Korean steelmaker Posco has broader implications for other domestic businesses whose technology is leaked.

During the first session at the Tokyo District Court on Thursday, Posco categorically denied stealing technological secrets, but Nippon Steel & Sumitomo Metal claims it has solid evidence detailing the company’s industrial espionage in the alleged theft of manufacturing knowhow related to a specialty steel product. It is pressing for ¥98.6 billion in damages and an injunction to block Posco from producing it.

The Japanese firm became the world’s second-largest steelmaker with a 30 percent market share through the Oct. 1 merger of Nippon Steel Corp. and Sumitomo Metal Industries Ltd., while Posco has the fifth-largest global share, at around 20 percent. Each firm dominates its respective domestic market, and the two have also worked together as strategic partners since 2000 in research and product development.

The alleged theft concerns so-called grain-oriented electrical steel sheets, which are used in the core part of voltage transformers in the transmission of electricity to households. The now-defunct Nippon Steel used to be the market leader for the product after developing technology that boosted the efficiency of power transmission in the 1990s, although Posco has increased its presence in the sector since 2005.

Nippon Steel & Sumitomo Metal says its suit focuses on five sets of technology-related documents it claims were leaked to Posco by former Japanese employees. The documents are known to have been sold by a former Posco employee to China’s Baoshan Iron & Steel Co. for 5 billion won (about ¥365 million).

South Korean media outlets lashed out at the Posco employee after the country’s criminal courts handed down a guilty verdict in 2008. During that trial, it was proven that the titles of the five documents were written in Japanese and were identical to those of Nippon Steel.

The Japanese steelmaker claims any suggestion of a coincidence “is absolutely unnatural. It just means the documents held by Posco were leaked” from Nippon Steel.

Nippon Steel & Sumitomo Metal alleges that four Nippon Steel employees who retired during the 1980s and 1990s contacted Posco and sold it the documents in question. It has also lodged an ¥80 billion damages suit against one of them, whom the company argues played the central role in the sale.

“We have in our hands specifics, such as the amount of compensation paid and details of the contact made. But we are not divulging them until the right time,” Nippon Steel & Sumitomo Metal said.

However, Posco argues “it has hardly been made clear who contacted who and the date and time of such contact.”

Nippon Steel & Sumitomo Metal is represented by Nishimura & Asahi, while Posco has retained Abe, Ikubo & Katayama. Both law firms are known for their expertise in intellectual property cases, and court arguments are likely to be vicious.

Japanese companies usually do not contest cases of industrial espionage vigorously, believing trials could further undermine their competitiveness.

“It is an important lawsuit in which the future of Japanese businesses is at stake,” a senior official at Nippon Steel & Sumitomo Metal said. “It’s the best opportunity to show both domestically and internationally that industrial espionage in Japan does not pay.”