Toshiba Sues Western Digital; Fails to Meet Self-Imposed Deadline to Sell Memory Business

Missing its own self-imposed deadline to sell its memory-chip business (Toshiba Memory Corporation) in order to shore up its finances, Toshiba Corporation of Japan today announced that it had filed a lawsuit with the Tokyo District Court against U.S.-based Western Digital Corporation, and its subsidiary Western Digital Technologies, seeking an injunction against acts of “unfair competition.”  Western Digital had sought to prevent Toshiba from selling Toshiba Memory Corporation to a consortium of investors.

Toshiba also brought suit for “permanent injunction, damages and payment of 120 billion yen ($1.07 billion), alleging violation of the Unfair Competition Prevention Act, among other things.”

Background

Earlier this month, Toshiba reported that its board of directors had voted to sell Toshiba Memory Corporation to a consortium of investors that consists of Innovation Corporation of Japan, Bain Capital Private Equity (South Korea), and the Development Bank of Japan. According to Reuters, the consortium’s bid cleared Toshiba’s 2 trillion yen ($18 billion) minimum.

Toshiba, split off Toshiba Memory Corporation in April 2017 as a wholly owned subsidiary, and the sale of the memory business is said to be essential in order for Toshiba to cover billions of dollars of losses from its now-bankrupt U.S. nuclear unit Westinghouse Electric.

Toshiba had said that the consortium of investors it selected “presented the best proposal, not only in terms of valuation, but also in respect to certainty of closing, retention of employees, and maintenance of sensitive technology within Japan (the consortium is based in either Japan or South Korea).”  Both Foxconn and Apple had reportedly been seeking to purchase the memory-chip business.

However, Western Digital had previously filed a lawsuit in a California court seeking to block Toshiba from selling the memory-chip business. Western Digital is Toshiba’s manufacturing partner in the memory business; it’s requested a San Francisco state court to keep the sale on hold while it pursues arbitration.

Toshiba Lawsuit

Toshiba’s lawsuit states, as detailed in its June 2, 2017 press release that Western Digital “has continually interfered with the bid process related to the sale of TMC (Toshiba Memory Corporation).

Citing joint-venture agreements between Toshiba and SanDisk, the lawsuit also says that Western Digital has “exaggerated its consent right – in both public statements and private communications to bidders and others involved in the sale process – in order to interfere with the sale of TMC, which does not hold the ownership interests in joint venture companies co-owned with SanDisk.”

The complaint goes on to state that proceeding with the sales process for TMC does not violate any consent rights held by Western Digital, that Western Digital’s claims are false, and “designed only to interfere with the sale process, and have damaged Toshiba and TMC.”

Toshiba also states that Western Digital has improperly obtained Toshiba and TMC’s trade secrets by transferring employees of SanDisk to Western Digital “who have access to confidential information of Toshiba and TMC through their participation in the collaboration between SanDisk and Toshiba/TMC. “

Toshiba considers that WD’s actions are damaging to both Toshiba and TMC,” violate the Unfair Competition Prevention Act (Article 2(1) (iv), (vii), (viii), (xv)), and are tortious acts under the Civil Code (Article 709). It states: “Toshiba and TMC have filed the petition for a provisional disposition order seeking an injunction to put an end to WD’s damaging actions, and a suit seeking permanent injunction and damages.”

In addition to intentionally interfering with the TMC sale process via its false claims, the suit says that Toshiba did not object to Western Digital’s access to information related to the joint venture and development under the assumption that Western Digital will be entering into a contract “in respect of information access.” However, Toshiba says that Western Digital had rejected such a contract. Accordingly, to prevent further damage to TMC, Toshiba believes it has no choice but to block WD’s ability to access such information, beginning today.

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