Comments on Toshiba’s Decision to Move
Forward with SK Hynix-led Consortium
Western Digital Corp. (NASDAQ: WDC) today provided further
detail on the legal process related to the three NAND flash-memory
joint ventures (“the Flash JVs”) operated with Toshiba Corporation
(“Toshiba”).
John Hueston, counsel for Western Digital and partner of Hueston
Hennigan LLP, stated, “Western Digital’s SanDisk subsidiary has
been a good partner to Toshiba, has honored its commitments and
obligations to the joint ventures, and has been steadfast in its
efforts to reach a mutually agreeable resolution. Toshiba has
resorted to retaliatory actions against its JV partner to try to
coerce SanDisk to surrender its consent rights, including its
lockout of Western Digital employees in June and its attempt to
exclude SanDisk from certain capacity investments – neither of
which has any legal basis. Absent any willingness on Toshiba’s part
to resolve this matter with its JV partner in a constructive
manner, we intend to continue our successful legal efforts into the
binding arbitration process.”
Independent, Objective Proceedings in the ICC International
Court of Arbitration
Western Digital’s SanDisk subsidiaries (“SanDisk”) have
commenced three arbitrations in the ICC International Court of
Arbitration:
- May 14,
2017: SanDisk filed a request for arbitration in response to
Toshiba’s purported transfer of its Flash JV interests to Toshiba
Memory Corporation (“TMC”) for the purpose of transferring them to
a third party without obtaining SanDisk’s consent in breach of the
Flash JV agreements. The arbitration demand seeks, among other
things, an order requiring Toshiba to undo the transfer to TMC, and
injunctive relief preventing Toshiba from further breaching the
Flash JV agreements by transferring its JV interests without
SanDisk’s consent.
- July 5,
2017: SanDisk filed a request for arbitration in response to
Toshiba’s coercive and retaliatory action in blocking employees of
SanDisk’s affiliates – including employees of Western Digital –
from continuing to access Toshiba’s databases and networks that
both partners use in furtherance of their Flash JV activities. The
arbitration demand seeks, among other things, a permanent
injunction prohibiting Toshiba from preventing certain Western
Digital personnel from accessing shared databases or networks for
the Flash JVs that are reasonably required to fulfill their
respective duties.
- September 20,
2017: SanDisk filed a request for arbitration in response to
Toshiba’s improper attempt to invest unilaterally in manufacturing
equipment for the Flash JV operations in Yokkaichi, Japan,
including the new fab currently under construction, Fab 6. The
arbitration demand seeks, among other things, a permanent
injunction preventing Toshiba from making unilateral investments in
manufacturing equipment for the fabs without first giving SanDisk
the opportunity to make a comparable investment in expansions and
conversions of JV capacity for BiCS 3D NAND flash memory.
The arbitration proceedings will be held in San Francisco,
California, per the terms of the Flash JV agreements.
Each arbitration matter will be decided by an arbitral tribunal
of three impartial arbitrators.
In the first two arbitrations (commenced May 14 and July 5), the
ICC International Court of Arbitration has already confirmed the
appointment of SanDisk’s and Toshiba’s party-nominated arbitrators,
and the third arbitrator, who will serve as the chair of the
arbitral tribunal, is expected to be confirmed shortly. The parties
have agreed that the first two arbitrations will be decided by the
same arbitral tribunal.
In the third arbitration (commenced September 20), SanDisk has
nominated the same arbitrator as it did in the first two
arbitrations, and will ask Toshiba to agree that the same arbitral
tribunal will decide all three arbitrations.
Shortly after the arbitral tribunal is confirmed, it will set a
schedule for the arbitrations. SanDisk plans to seek interim
injunctive relief, and a decision on SanDisk’s request can be
expected as soon as early 2018. Following that, there will be a
period where the parties submit memorials to the arbitral tribunal,
and a final ruling may not come until 2019 given that complex
international arbitrations like these often take more than 24
months.
Importantly, an award by the arbitral tribunal, including an
award of interim injunctive relief, may be confirmed by a court and
once confirmed, any violation of that award could result in a
finding of contempt of court and additional enforcement
proceedings.
Mr. Hueston continued, “Joint ventures are inherently intimate
commercial relationships, and in order to protect against being
forced into such a relationship with parties not of their choosing,
SanDisk and Toshiba agreed to protect their interests in the joint
ventures by prohibiting transfers without the consent of the other
partner. We enter the arbitration process with strong momentum,
having already won multiple court rulings in our favor on these
very matters. Western Digital remains confident that SanDisk will
succeed on the merits of its claims.”
Toshiba’s Chosen Path Is a Clear Violation of the Flash JV
Agreements
On September 20, 2017, Toshiba announced its intention to
transfer its interests in the Flash JVs to a consortium led by
Korea-based SK Hynix Inc. and Bain Capital.
Western Digital commented:
We are disappointed that Toshiba would take
this action despite Western Digital’s tireless efforts to reach a
resolution that is in the best interests of all stakeholders.
Throughout the course of the negotiations, we made numerous
concessions to attempt to meet Toshiba’s needs. Most notably, we
offered to withdraw our participation in the Innovation Network
Corporation of Japan (“INCJ”) and KKR & Co. L.P. (“KKR”)
consortium, thus minimizing regulatory risk, and eliminate our
option to participate in TMC equity ownership going forward, thus
directly addressing a key concern of TMC’s management team.
Furthermore, in the event Toshiba selected
the INCJ/KKR consortium, SanDisk was prepared to provide its
consent and agree to the immediate, mutual withdrawal of all
litigation with Toshiba. These significant concessions – made in
the spirit of a 17-year partnership – would have not only provided
significant deal certainty and an expedient closing, but also would
have fully addressed Toshiba’s needs.
It is concerning, therefore, that Toshiba
would choose to partner with a consortium that includes both
competitors and customers, giving rise to the potential to not only
weaken the JVs going forward, but introducing regulatory risk that
did not exist in the proposal offered by INCJ/KKR.
Moreover, we believe SK Hynix’s participation
in the chosen consortium heightens the risk of technology leakage
from the JVs and Japan. In addition to being a competitor to both
Toshiba and Western Digital, SK Hynix was recently at the center of
a well-publicized theft of Toshiba and SanDisk’s trade secrets.
Just two years ago, SK Hynix made substantial monetary and business
concessions to Toshiba and SanDisk to settle claims brought by both
companies that SK Hynix misappropriated critical JV technology.
There has never been a more critical time for
Toshiba to pursue the right course of action – a course that
promises clarity and certainty. And yet, Toshiba has chosen to
pursue a path that jeopardizes our 17-year partnership and
cumulative joint investments in the Flash JVs, not to mention
substantially increases risk for Toshiba stakeholders and the
company itself.
Multiple Court Rulings Have Been Made in SanDisk’s
Favor
- July 11,
2017: The Superior Court of California for the County of San
Francisco (“Superior Court of California”) granted SanDisk’s
request for a temporary restraining order (“TRO”) prohibiting
Toshiba from preventing certain employees from accessing shared
databases and networks regarding the three NAND flash-memory JVs
operated with SanDisk and from refusing to ship certain engineering
wafers and samples. Toshiba appealed and asked the California Court
of Appeal First Appellate District (“Court of Appeal”) to stay the
TRO pending the appeal, which the Court of Appeal temporarily
granted while it considered Toshiba’s petition for a lengthier
stay. However, after having the opportunity to review SanDisk’s
legal brief, which the Court of Appeal did not have when it issued
the temporary stay, the Court of Appeal summarily dissolved its
temporary stay, thereby reinstating the TRO.
- July 28,
2017: The Superior Court of California entered a stipulated
order preventing Toshiba from closing any transfer of its Flash JV
interests without providing at least 14 days advance notice to
SanDisk. As part of the agreement, Toshiba accepted the Superior
Court of California's jurisdiction over Toshiba for purposes of
enforcing this order.
- August 14,
2017: The Superior Court of California granted SanDisk a
preliminary injunction enjoining Toshiba from preventing certain
employees from accessing shared databases and networks regarding
the three NAND flash-memory JVs operated with SanDisk and from
refusing to ship certain engineering wafers and samples.
- September 8,
2017: As the Superior Court of California concluded that it
can exercise jurisdiction over Toshiba and TMC, the Superior Court
of California entered a final order denying Toshiba’s “motion to
quash.”
About Western Digital
Western Digital is an industry-leading provider of storage
technologies and solutions that enable people to create, leverage,
experience and preserve data. The company addresses ever-changing
market needs by providing a full portfolio of compelling,
high-quality storage solutions with customer-focused innovation,
high efficiency, flexibility and speed. Our products are marketed
under the HGST, SanDisk and WD brands to OEMs, distributors,
resellers, cloud infrastructure providers and consumers. Financial
and investor information is available on the company's Investor
Relations website at investor.wdc.com.
Forward-Looking Statements
This news release contains certain forward-looking statements,
including statements concerning the Flash JVs, SanDisk’s rights
under the Flash JV agreements and its actions to protect such
rights, ongoing proceedings with respect to those rights and
potential outcomes with respect to those proceedings, Toshiba’s
recently announced transaction with a consortium led by SK Hynix
Inc. and Bain Capital, and Western Digital’s or SanDisk’s actions
in response to Toshiba’s announced transaction. There are a number
of risks and uncertainties that may cause these forward-looking
statements to be inaccurate including, among others: uncertainties
with respect to the company’s business ventures with Toshiba;
volatility in global economic conditions; business conditions and
growth in the storage ecosystem; impact of competitive products and
pricing; market acceptance and cost of commodity materials and
specialized product components; actions by competitors; unexpected
advances in competing technologies; our development and
introduction of products based on new technologies and expansion
into new data storage markets; risks associated with acquisitions,
mergers and joint ventures; difficulties or delays in
manufacturing; and other risks and uncertainties listed in the
company's filings with the Securities and Exchange Commission (the
“SEC”), including the company’s Form 10-K filed with the SEC on
Aug. 29, 2017, to which your attention is directed. You should not
place undue reliance on these forward-looking statements, which
speak only as of the date hereof, and the company undertakes no
obligation to update these forward-looking statements to reflect
subsequent events or circumstances.
Western Digital, WD and SanDisk are registered trademarks or
trademarks of Western Digital Corporation or its affiliates in the
U.S. and/or other countries. Other trademarks, registered
trademarks, and/or service marks, indicated or otherwise, are the
property of their respective owners. © 2017 Western Digital
Corporation or its affiliates. All rights reserved.
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version on businesswire.com: http://www.businesswire.com/news/home/20170926005822/en/
Western Digital Corp.United
StatesMedia Contact:Jim Pascoe,
408-717-6999jim.pascoe@wdc.comorInvestor Contact:Bob Blair,
949-672-7834robert.blair@wdc.comorJoele Frank, Wilkinson Brimmer
KatcherEric Brielmann / Jed Repko / Ed Trissel415-869-3950 /
212-355-4449wdcmedia@joelefrank.comorJapanMedia Contacts:Emi Hatano,
090-5765-9730emi.hatano@sandisk.comorAshton ConsultingJohn Sunley /
Brendan Jennings03 5425-7220 / 090ー7416-0180 / 050
7576-6190WDC_JapanPR@ashton.jp
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