According to the news report posted by China Daily, a dozen Chinese companies who are the original manufacturer for rare earth magnets have formed an industrial alliance to sue Japan's Hitachi Metals for holding invalid patents and infringing patent rights of Chinese companies.

The legal process could start in early September both in the United States and in China. At the center of the dispute is the rare earth neodymium iron boron magnet, a major product that accounts for half of rare earth consumption and the rare earth neodymium iron boron magnet is universally acknowledged as the strongest permanent magnets available in the world at present.

The rare earth Neodymium magnets are mainly composed of neodymium, iron, boron and other microelements, and are widely used in manufacturing motors, audio speakers, headphones, cordless tools and computer hard drives.

One of Hitachi Metals' patents was expired in 2003, and another patent will expire in 2014. But the company has extended its expiration date to 2029.

Sun Baoyu, the president of Shenyang General Magnetic Co and head of the coalition, said that Hitachi Metals no longer has any right to claim the patents, Hitachi Metals' this action has severely affected China's rare earth industry and has hindered the market expansion of Chinese rare earth manufacturers.

According to Sun, eight Chinese rare earth companies have gained patent licenses from Hitachi Metals. However, there are about 200 companies who are producing the rare earth magnets in China. Of those, five have annual production capacities of 3,000 metric tons of rare earth magnets, and about 20 have capacities of 1,000 tons to 3,000 tons of rare earth magnets.

Hitachi Metals is dominant in the rare earth sector, with more than 100 patents in the United States, about 300 in China and 600 in Japan. Under this, a large portion of Chinese products containing the rare earth magnets cannot be exported because they don't have patent licenses for the rare earth magnets.

At present, China produces about 80,000 tons of the rare earth magnets each year, and about a quarter of the rare earth magnets have patent licenses enabling them to be sold abroad. But about 30,000 to 40,000 tons of the rare earth magnets can only be used domestically.

Gao Yunhu, the chief of the Rare Earth Office under the Ministry of Industry and Information Technology, said that the government will provide assistance to the Chinese companies if asked.

So far, each member company of the alliance has paid $1.5 million to cover possible costs of the lawsuits. Chinese and US legal teams will act on behalf of the Chinese companies in the courts of the two countries.