Toshiba sues Western Digital for ¥120 billion, as standoff imperils plans for chip unit sale

Toshiba Corp. sued Western Digital Corp. in a Japanese court, asking for ¥120 billion ($1 billion) in damages and seeking to end the U.S. company’s interference in the sale of its chip unit.

The litigation, filed Wednesday in Tokyo District Court, consists of two parts. Toshiba is seeking to stop Western Digital from making claims with regard to the ownership of the business that Toshiba is trying to sell. The Japanese technology giant also says that Western Digital’s employees improperly obtained proprietary information.

The move came as Toshiba held its shareholders’ meeting in the city of Chiba, where shareholders lambasted the top management for failing to get key things done within expected time frames.

Just last week the firm said it was unable to submit its annual financial report by the legal deadline of June 30 and postponed it to August. To date, the firm has been unable to finalize the business results of the April-December period for fiscal 2016.

Legal dispute between Toshiba and Western Digital has been escalating. Last month, Western Digital invoked an arbitration clause in their business agreement, seeking to block Toshiba’s transfer of ownership of the unit to a separate legal entity in preparation for a sale. Toshiba, which has since reversed that transfer, then had its lawyers at Morrison & Foerster send a letter to the U.S. company to stop its “harassment” as Toshiba tries to sell the memory chip business.

The impasse between the companies over the chip sale could imperil Toshiba’s plans to use cash from the divestment to plug a hole in its balance sheet from a massive loss in its nuclear power business. Last week, Toshiba said that a consortium led by the Innovation Network Corp. of Japan, Bain Capital and other investors were the preferred bidder for the chip unit sale, and that it’s aiming to reach final agreement and close the deal by March 2018.

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