Foxconn International Holdings, the world's biggest contract mobile-telephone maker, said two subsidiaries had sued BYD in Hong Kong, alleging its mainland competitor had been given confidential information by former Foxconn employees.
BYD, the mainland's largest maker of rechargeable batteries, plans to spin off its handset business this year, posing a serious threat to Foxconn's market leadership.
Shenzhen Futaihon Precision Industry and Hong Fu Jin Precision Industry (Shenzhen), both Foxconn units, jointly filed the lawsuit against BYD and its subsidiaries in the High Court, claiming they knowingly and intentionally procured confidential data from former employees.
'We have a strong conviction to protect our intellectual property and trade secrets as well as customers' confidential information,' Foxconn chairman Samuel Chin Wai-leung said.
He denied he was concerned about the expansion of BYD's handset division once it achieved a separate listing in Hong Kong.
'Competition will make us stronger,' said Mr Chin. 'We still have fabulous relationships with all of our customers and we are not losing ground to BYD.'
A BYD spokesperson said the company 'intended to vigorously defend the allegations'.
BYD said it had not been served with the writ by Foxconn and would take legal advice after receiving it.
BYD in March disclosed plans to spin off its handset component business, BYD Electronic. It might receive a net gain of HK$1.93 billion to HK$6.24 billion from the deal, which will be arranged by UBS. BYD Electronic, which is expected to be one of Foxconn's major competitors, posted sales of 3.04 billion yuan last year.
'Foxconn, whose net profit is about eight times BYD's, is feeling the pressure and starting to treat BYD as a serious rival,' an analyst at a European bank said.
Foxconn, which posted a 63 per cent gain in sales to US$10.4 billion last year, yesterday said it would invest US$1 billion to double its capacity in the next two years.
Its new factories in India will start operating in August while those in Langfong and Taiyuan, Shanxi province, will start at the year-end.
Foxconn will also add plants in developing countries such as Brazil and Romania. Mr Chin said it would continue to broaden its customer base.
Shares of BYD fell 6 per cent yesterday to close at HK$44.45. Foxconn shares slid 1.4 per cent to HK$20.95.