Hitachi Rare Earth Magnet Ends – China Steps in

Right Holders in Fight with Rivals

Some Chinese producers of rare-earth magnets are seeking to use this month’s expiry of a key patent held by Hitachi Metals Ltd. (5486) to expand exports of the micro magnets used in products from motors to smartphones.

The expired U.S. patent 5,654,651 covers magnets with neodymium, a rare earth element, and cobalt, according to Sun. The Chinese alliance plans to sue Hitachi in the U.S. over several other patents that cover production, he said.

The expiry of a 17-year-old patent that defines the structure of such magnets paves the way for previously blocked Chinese producers to sell to U.S. customers, said Sun Baoyu, chairman of Shenyang General Magnetic Co. It’s formed an alliance with six Chinese producers to promote their products and fight Hitachi over other patents, that the Japanese company says largely prevent rivals from making magnets.

“Hitachi’s whole patent package’s base is this ingredient patent,” said Li Weifeng, a Shanghai-based analyst with Everbright Securities Co. It is a “very basic” patent for the magnets, he said.

The end of the patent will pit the seven producers in the alliance and potentially others who try to tap into the market against Hitachi and eight Chinese companies that have paid for the right to make and ship the magnet. An increase in exporters of the magnets could cut prices of the product used in Apple Inc. (AAPL)’s iPhones and Toyota Motor Corp. (7203) hybrid-electric cars.

Hitachi holds more than 600 patents for rare-earth magnets globally, some of which it acquired after taking over Sumitomo Special Metals Co. in the 2000s, said spokesman Akio Minami.

Magnet makers in China are struggling with overcapacity after an earlier price boom spurred a flood of investments. The nation produces about 100,000 metric tons of sintered rare-earth magnets annually, compared with almost 300,000 tons of capacity, according to Everbright’s Li.

Japanese companies hold most of the world’s rare-earth magnet patents, while China produces about 90 percent of global supply. Chinese exports of the magnets were 18,800 tons last year.

“Japan and U.S. are the most important overseas markets for magnets,” Shenyang General’s Sun said, adding that clients are concerned about Hitachi’s patents.