Made in China: SI Group wins and loses in trade-secret fight

Monday was at once a momentous and maddening day for SI Group Inc., in its quest to clamp down on a Chinese competitor that allegedly stole its trade secrets

On the upside, the U.S. International Trade Commission took crucial steps toward banning imports from that competitor, a company named Sino Legend.

The very same day, a trial court in China dismissed SI Group’s lawsuit against Sino Legend. SI Group now accuses that the Chinese judges rushed the case just to beat the U.S. ITC (the Chinese did, by 12 hours or so).

At stake is SI Group’s foothold in the business of making rubber resins for automotive tires—especially in the booming market that is China.

SI Group is 107 years old, founded at the time by the chief chemist at General Electric Co. The family-owned company, formerly called Schenectady International, is among the largest private employers in the Capital Region, with annual revenue of $1.7 billion. New president and CEO Frank Bozich oversees a wide-ranging business with about 2,000 employees in 10 countries.

SI Group spent $35 million to build a plant in Shanghai a decade ago—following customers such as Goodyear and Michelin to what is the largest automotive market in the world.

To expand capacity, SI Group will open a $30 million plant next month in Nanjing, 200 miles northwest of Shanghai.

In between, SI Group accuses Sino Legend of conspiring with its then-plant manager in Shanghai to walk out the door with proprietary information.

SI Group does not tell its Shanghai workers the identity of the materials they handle. The company required every employee sign confidentiality agreements.

Except for the plant manager.

“He was the one guy who had the keys to everything. That’s the person you trust,” said SI Group executive Bill Scheffer, in a 2011 interview. “What we didn’t anticipate was the whole formula zipping out to someone else.”

A year ago, the U.S. International Trade Commission agreed to take up the matter. SI Group expects the commission to finalize an import ban in October.

“This is the ultimate victory in a battle we’ve been fighting for years,” says Tom Masterson, general counsel at SI Group.

A ban would undercut Sino Legend’s efforts to compete with SI Group in America. But it cannot directly tackle a problem just as significant: Sino Legend sales to tire factories in China, and elsewhere in Asia.

Sino Legend says it holds 70 percent of the Chinese market for resins used in tires and rubber.

SI Group sued Sino Legend in China—but then boycotted the trial. SI Group says the Chinese trial court denied the admission of some evidence, issued flawed reports and refused to allow SI Group to add a defendant in the case.

The Chinese court held a trial, and on June 17, the court dismissed SI Group’s lawsuit.

In translated statements on its website, Sino Legend has repeatedly denied SI Group’s allegations.

In turn, Sino Legend accuses SI Group of slander and says the company “aims to fabricate facts so as to confuse the public and squeeze out its competitors.”

Sino Legend advertises itself as Asia’s largest maker of resins for the rubber and tire industries.

“The court refused to uphold SI’s claim that Sino Legend disclosed and used SI trade secrets, with that contention found to have no factual or legal basis,” Sino Legend says in a statement.

Sino Legend has not issued a comment on the U.S. ITC ruling.

SI Group, meanwhile, is appealing the actions of the trial court in China. Masterson, the company lawyer, says SI Group has already spent “in the millions of dollars” on legal bills.

“It was all about beating the ITC to the punch. They were making a determined effort to reach a result unfavorable to SI,” Masterson says. “We decided we would not play along with that scheme.”

Hours after Masterson spoke to The Business Review, he and a spokeswoman called to say SI Group is not accusing the Chinese judges, but instead speculating on their motives. They called the decision to hold a trial "premature."

The ITC ruling has no legal weight in China. But Masterson says it will have a practical effect.

“We would like to believe that reputable tire companies will not choose to buy from someone using pirated technology,” Masterson says.