The back story here is that Alex Severinsky founded Paice in the early 1990s. Over time, the company was granted 29 patent (US and foreign) covering hybrid technology. Things went so well that Severinsky was honored in 2008 for inventing the hybrid (that's the modern hybrid, since the first example of a gas-electric vehicle is over 100 years old). You can read more about him here.
So, with all of that, what's the VW situation? On its website, Paice says:
From 2001 to 2004, Paice engineers spent over 350 days in Germany sharing its patented hybrid technology with Volkswagen. Paice performed extensive modeling and provided VW all of Paice's computer modeling and control algorithms. After learning everything it needed from Paice, VW abruptly ended the collaboration and never licensed Paice's technology.
VW ultimately chose to focus on developing its "clean diesel" vehicles instead of investing adequately in hybrids. However, these diesel vehicles were unable to meet U.S. emissions regulations, and VW installed defeat devices to mask the illegal levels of harmful emissions. In the end, VW had to cheat in its efforts to achieve the same results that Paice's technology delivered.
Now that the VW Group has been forced to stop selling its current diesel vehicle models in the U.S., it has committed to focusing a large part of its future development on hybrid vehicles for the VW, Audi and Porsche brands. Given its refusal to license Paice's technology, Volkswagen should be excluded from importing its hybrid vehicles into the U.S.
To be clear, the USITC is making it incredibly clear that it, "has not yet made any decision on the merits of the case" and that there will be hearings coming up to look into the validity of Paice's claims. Given Paice's history, though (it settled with Toyota, Ford, and Hyundai/Kia and today has licensing deals with Toyota and Hyundai/Kia), we expect VW's lawyers are already calculating whether this one is worth the fight. VW has thus far refused public comment.