Alleged chemical copycat unrepentant as US firm seeks redress

Despite supposed crackdowns by Chinese authorities, the theft of patents, intellectual property and trade secrets remains a big business in China. And while the tyre industry has not been immune – Michelin among others have pursued legal action against Chinese tyre makers and tyre importers – vastly improved technology and knowledge among Chinese engineers and producers has made it much harder to prove some types of alleged theft.

To illustrate the point, North American trade publication Tire Review reports on a case winding its way through China’s court system. In 2004, US chemical company SI Group Inc. opened its first plant in China to produce a specialty rubber-bonding resin. SI Group hoped to catch a Chinese tyre industry poised for an explosion of growth. Seven years later, SI Group is engulfed in a battle with a Chinese competitor that hired away a key manager and magically created a similar resin that has severely damaged SI Group’s sales, results and future.

The story of SI Group’s court struggle was recounted in a recent Wall Street Journal article: “SI Group filed suit in China alleging that its trade secrets were stolen (by Sino Legend (Zhangjiagang) Chemical Co.) and that its former (Shanghai plant) manager conspired with his new employer,” the WSJ stated. “Many foreign companies have had their products copied in China. But SI Group’s public allegations are unusually detailed, in letters to customers, discussions with authorities and in legal filings.”

For its part, Sino Legend “agrees that its product is nearly identical to SI Group’s resin,” but the company claims it came up with its resin independently and without outside assistance. The plant manager claims he did nothing wrong, just that the timing was “a coincidence.”

This is, as Tire Review notes, no small potatoes fight; customers for this resin product include Michelin, Goodyear, Bridgestone, Continental and others. The phenolic tackifier in question is a key component in tyre manufacture, and the SI Group’s particular tackifier is used in 90 per cent of the tyres on US roads today.

As told by the WSJ, the SI Group believes its advantage in China began to erode in 2004 when it broke with its Chinese distributor Red Avenue Chemical Co. According to SI Group, Red Avenue then went to Sino Legend – SI Group’s main Chinese competition – and urged the company to bring out its own tackifier and challenge SI Group. Red Avenue is now a distributor for Sino Legend, who opened its own resin plant in March 2007. Three months later it hired away SI Group’s plant manager, and in late 2007 it filed a patent application in China for its own tackifier.

While Sino Legend said its claims on the tackifier dates back decades, Los Angeles-based Occidental Petroleum Corp. “recently said in an email that it believes Sino Legend, working with Red Avenue, hired an ex-employee of Occidental’s Indspec Chemical Corp. subsidiary, produced a ‘copycat’ of its patented B-20-WS resin, also used in tyre making, and filed a ‘markedly similar’ patent on it,” the WSJ report added.