U.S. Steel Withdraws Intellectual-Property Theft Claim Against Chinese Rival -- Update

By William Mauldin 

U.S. Steel Corp. is withdrawing a legal claim that hackers in China stole a key recipe for high-tech steel, a move that shows the challenges American firms face in fighting the growing threat of cyberespionage.

Pittsburgh-based U.S. Steel on Wednesday said that it will continue pressing claims on alleged antitrust violations in China and third-country shipment to avoid tariffs for various steel products, and that it reserves the right to refile charges of cybertheft.

But the move Wednesday to drop the intellectual property claim, at least for now, is a setback in a case that trade lawyers hoped would have set a precedent.

"When we filed the case, we highlighted the significant cyber threat every company faces, and we began a dialogue about the need to reform our antiquated laws," U.S. Steel said in a statement. "We have made strides in that arena, but we believe more cooperation and collaboration is needed between the federal government and the private sector to address the continued threat of malicious cyber crimes."

U.S. Steel said it faced an "unbearable burden" pursuing the complicated international case without sufficient help from the government.

The company's case was filed with the U.S. International Trade Commission in April, after the U.S. unveiled criminal indictments in 2014 against Chinese nationals for commercial hacking against U.S. Steel, Alcoa Inc., the United Steelworkers union and other entities.

China's Foreign Ministry has said the criminal indictment was based on "fabricated facts." The country's Commerce Ministry has said U.S. Steel's allegations of intellectual-property infringement "are completely without factual basis."

U.S. Steel alleged that one of its secret steel formulas was stolen in 2011 by hackers from China and that Chinese state-owned steel company Baosteel Group Corp. subsequently introduced a new line of products that included that type of high-strength steel, known as Dual-Phase 980, and shipped it to the U.S.

Baosteel has said it "consistently acted in accordance with regulations; respected intellectual property rights."

U.S. firms and labor groups complain that the low-cost imports they compete with were made using American research and development.

"If someone steals your trade secrets, makes it into a product, and ships it back to your country, you might think this is important for a lot of people," said Tom Conway, international vice president at United Steelworkers, on Wednesday. "We ought to have laws that are updated and deal with this potential now."

The trade case is overseen by a U.S. International Trade Commission administrative law judge. The ITC also handles more traditional cases involving international patent infringement, dumping of imported products and improper government subsidies provided to the overseas rivals of U.S. firms.

Congress has recently updated some of the laws for such trade cases, showing lawmakers are receptive to complaints by the steel industry and others that allege unfair pressure from overseas rivals. Several of President Donald Trump's trade advisers have ties to the steel industry, and many analysts expect the new administration to defend the metals sector to the hilt.

American consumers of steel and other imported products, including the U.S. auto industry, are frequently on the other side of the trade debate. Punitive tariffs levied on foreign products can raise the price for their inputs, squeeze margins and boost retail prices.

Auto makers are seeking thinner and lighter metals after the U.S. and other governments began implementing tougher fuel efficiency standards. By 2025, 18% of all vehicles in North America are expected to have all-aluminum bodies, compared with less than 1% in 2014.

After filing its intellectual-property case, U.S. Steel faced an unusual burden of repeated travel to China, the translation of a "tsunami" of Chinese-language documents and procedural barriers in the U.S., according to people familiar with the matter.

"At the end of the day our hands are tied, and we don't have the resources to spend millions of dollars more," said one of the people, adding that Congress and the new administration should work with companies to improve the procedures.

Write to William Mauldin at [e-mail]

(END) Dow Jones Newswires

February 15, 2017 14:09 ET (19:09 GMT)

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