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Toshiba Sues Western Digital for $1.1 Billion in Damages

June 28, 2017
The litigation seeks to stop Western Digital from making ownership claims over the memory chip unit that Toshiba is trying to sell.

Toshiba Corp. (IW 1000/68) sued Western Digital Corp. in a Japanese court, asking for 120 billion yen (US$1.1 billion) in damages and seeking to stop the U.S. company from interfering in the sale of its chip unit, escalating a legal tussle between the companies.

The litigation, filed Wednesday in Tokyo District Court, seeks to stop Western Digital (IW 500/77) from making ownership claims over the enterprise that Toshiba is trying to sell. The Japanese company said in a statement that Western Digital’s employees improperly obtained proprietary information.

The relationship between Toshiba and Western Digital has gotten more acrimonious, as Toshiba moves toward a sale of the flash-memory division. Last month, Western Digital invoked an arbitration clause in their business agreement, seeking to block Toshiba’s transfer of ownership of the unit to a separate legal entity in preparation for a sale. Toshiba, which has since reversed that transfer, then had its lawyers send a letter demanding that the U.S. company stop its “harassment” as Toshiba tries to sell the business.

Deteriorating Relationship

“Toshiba has made very clear that they want to move the process along without Western Digital’s obstruction, which, frankly, hasn’t been particularly constructive,” said Damian Thong, an analyst at Macquarie Group Ltd. “This clearly highlights the deterioration of the relationship between the two partners.”

A representative for Western Digital, which has said that Toshiba needs its consent to complete the sale, declined to comment. Toshiba shares declined 1.8% at the close in Tokyo Wednesday.

The escalating standoff between the companies over the chip sale could disrupt Toshiba’s plans to use cash from the divestment to plug a hole in its balance sheet from a massive loss in its nuclear power business.

Last week, Toshiba said a group led by the Innovation Network Corp. of Japan, Bain Capital and other investors were the preferred bidders for the semiconductor business, and that it’s aiming to reach final agreement and close the deal by March 2018. The consortium is offering 2.1 trillion yen (US$19 billion) for the unit, people with knowledge of the matter have said.

Toshiba has argued that Western Digital failed to formalize their relationship after the San Jose, Calif.-based company became Toshiba’s manufacturing partner in the flash-memory business when it acquired SanDisk Corp. for $15.8 billion last year.

Toshiba also said that it will, as of Wednesday, start blocking Western Digital’s access to information in the joint venture, in order to protect its trade secrets. Toshiba’s claims for damages include the loss of information, as well as for interfering in the sales process.

“Western Digital’s claims are false, designed only to interfere with the sale process, and have damaged Toshiba and TMC,” Toshiba said in the statement, referring to the chip unit, Toshiba Memory Corp.

Separately, Toshiba said its board approved a previously announced plan to invest 180 billion yen into a new chip fabrication plant at Yokkaichi in central Japan, where the SanDisk flash-memory joint venture is based. While the companies have split the expenditures until now, Toshiba said it’s willing to invest alone if its partner doesn’t agree to join the project.

By Pavel Alpeyev

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