[Patent Talk] Nippon Steel's Patent Litigation Gamble: Who Will Lead Electrical Steel Technology?

In October 2021, Nippon Steel filed a patent infringement suit in the Tokyo District Court against Toyota Motor and China's Baoshan Iron & Steel (Baosteel), and in December 2021 it added the intermediary distributor Mitsui & Co. as a defendant. Nippon Steel alleges that the electrical steel sheets for electric motors that Baosteel supplied to Toyota infringe its patent, and that Mitsui & Co. distributed the infringing products. The patent in suit relates to non-oriented electrical steel sheets that improve the power efficiency of electric motors.

The addition of Mitsui & Co. to the suit suggests that Nippon Steel has staked a great deal on patent litigation. The Japanese media are also watching closely to see whether the two companies' decades-old "iron alliance" will break. The discord between Nippon Steel and Toyota reportedly began with price negotiations over electrical steel sheets. Toyota did not accept Nippon Steel's demand for more realistic prices and instead imported electrical steel sheets from China's Baosteel.

With profitability deteriorating due to low prices, and with heavy R&D spending required by decarbonization policies, Nippon Steel appears to have judged that losing the market to Baosteel could decide the company's fate. Toyota, however, also seems to have no intention of negotiating for now. On the 21st, the Japanese outlet Diamond Online reported that Toyota had ordered about 100,000 tons of electrical steel sheets from Korea's POSCO, apparently to minimize the risk of the patent litigation and to gain negotiating leverage.

What is unfortunate for Nippon Steel is that the patent in suit exists only in Japan and has no foreign counterparts. According to the Japanese media, the patent was filed in 2010 and registered in 2014, and its term runs until May 13, 2030. Toyota can switch suppliers to JFE Steel of Japan or POSCO of Korea for vehicles produced and sold in Japan, while continuing to source from Baosteel for overseas operations.

Viewed purely from the patent litigation perspective, therefore, Toyota does not appear to face any fatal business risk. If it loses, Baosteel is likely to bear the damages under a patent indemnity agreement, and even if a sales injunction is issued, Toyota need only switch suppliers beforehand. Recently, however, Toyota ...