Why Nippon Steel is suing

Court action is about alleged patent infringement and highlights the high stakes as technology transforms the car industry

Japan’s Nippon Steel is suing customer Toyota Motor to stop it manufacturing and selling vehicles that contain specialised steel made by rival supplier Baoshan Iron & Steel of China, which it is also suing. The action signals the high stakes for materials producers as technology transforms the car industry.

Japan’s Nippon Steel is suing customer Toyota Motor to stop it manufacturing and selling vehicles that contain specialised steel made by rival supplier Baoshan Iron & Steel (Baosteel) of China, which it is also suing.

It highlights the high stakes for materials producers as technology transforms the car industry and comes as Japan is increasingly concerned about safeguarding supply chains and intellectual property.

Here is what is behind the lawsuit and why it is important: What is the suit about? Nippon Steel is suing Toyota and Baosteel in a Tokyo court for patent infringement, seeking ¥20bn in damages from each.

It is also trying to stop Toyota from selling and manufacturing vehicles in Japan that use Baosteel’s non-orientated magnetic steel sheets.

Nippon Steel believes the sale and use of the Baosteel sheets in Japan violates its Japanese patent claims on composition, thickness, crystal grain diameter and magnetic properties, a company spokesperson said.

Toyota said it had confirmed there was no infringement before concluding its contract with Baosteel.

Baosteel said it does not agree with Nippon Steel’s claims and it will “firmly” defend its rights and interests.

Why is the steel important? Non-orientated magnetic steel is specialised metal that improves the performance of motors in hybrid electric and electric vehicles, according to Nippon Steel.

The company has supplied electromagnetic steel to Toyota for the Prius hybrid for more than two decades.

Japan’s steelmakers are focused on advanced niche markets, such as specialised car components, where they have so far had an edge against bigger Chinese rivals.

But Toyota’s supply deal with Baosteel suggests Chinese producers may be catching up. Demand for specialised steel is expected to grow as electric

vehicles transform the car industry.

What about Nippon Steel’s past lawsuit?

Nippon Steel sued South Korea’s Posco for $1bn in 2012, alleging Posco stole its technology for making another type

of magnetic steel sheets, which are used in transformers.

Posco later paid about $250m to settle.

That suit came about after a former Posco employee was sentenced for selling Posco technology to a Chinese steelmaker and told a court the technology came from Nippon Steel.

The Chinese steelmaker in that incident was also Baosteel, according to a person familiar with the matter.

When contacted by Reuters, Baosteel declined to comment.

Impact on Toyota?

The monetary damages sought are unlikely to have a significant impact on Toyota. The bigger concern would be if a court stopped it from using the Baosteel steel when it is ramping up production of electric vehicles.

“The volume of electrified vehicles is increasing and there is a need to secure the volume of the parts,” a Toyota spokesperson said. He declined to say how many models could be affected by an injunction on Baosteel supplies.

Impact on Baosteel?

Baosteel said it is unable to assess the impact on its profits from the lawsuit at present. Impact on Nippon Steel? Nippon Steel may have more to lose by taking on key customer Toyota, which could try to buy more from rivals outside Japan to avoid future supply chain disruption.

Nippon Steel is more dependent on Toyota than the carmaker is on the steelmaker, according to ratings agency Moody’s. However, UBS analyst

Harunobu Goroh does not see any impact on the fundamental relationship between the two Japanese companies, adding that they will remain strategic partners.

What does Tokyo say?

The spat coincides with deepening concern in Japan about the vulnerability of industrial supply chains both to USChina trade frictions and the semiconductors shortage.

Japan is also worried about alleged technology theft by China.

Prime Minister Fumio Kishida has created a new post in his cabinet, minister for economic security, to tackle these issues. China has repeatedly said it respects intellectual property rights.

For now, however, trade ministry officials and government spokesperson Hirokazu Matsuno, who is the chief cabinet secretary, have declined to comment on the tussle between two of Japan’s industrial giants.

“This is a private sector litigation and I shouldn’t comment,” Matsuno told reporters.