Cleantech readies for tide of patent disputes

The clean energy intellectual property landscape is now relatively open and collaborative, with little patent litigation compared to more mature industries like the software or semiconductor industries.

But as the market for clean energy technology grows and the financial stakes increase, companies are likely to move away from this open and collaborative mind-set, looking for new ways to grow market share or revenues in an increasingly competitive environment (see Oerlikon files suit against Sunfilm and Maxwell gets preliminary injunction against NessCap).

This is where strategies for protecting and leveraging intellectual property become critical to success.

A strong U.S. system for protecting intellectual property rights will spur clean energy innovation. Strong patent protection helped drive wave after wave of American innovation during the 19th and 20th centuries—from phonographs to airplanes to iPods. The strategic use of this protection will be key to any company seeking to lead in the 21st century clean energy economy.

To thrive, cleantech companies must develop and encourage a culture of innovation. Employees should be motivated to think creatively, and be educated about the importance of innovating and obtaining patents. Companies of all sizes should establish programs that recognize and reward creativity—particularly where it results in inventions and patents.

Studies have shown that companies with incentive programs for employee inventions are far more innovative than companies without such programs. Regular innovation brainstorming sessions also should be encouraged among employees with various technical backgrounds.

Thinking small

U.S. Secretary of Energy Steven Chu has said that revolutionary, “Nobel-level breakthroughs” in science and technology will be required to solve the world’s energy problems. Every cleantech company needs to be thinking big when innovating.

When formulating a patent strategy in the clean energy sector, however, it is important to remember that not only groundbreaking or revolutionary inventions are patentable; incremental innovations based on existing technology may also be patentable and commercially valuable. Thomas Edison understood this principle, and many of his most valuable patents were for incremental inventions. His patented light bulb, for example, was an incremental improvement upon an incandescent electric lamp developed 20 years earlier by another inventor, Joseph Swan.

Collections of incremental inventions are particularly significant and may represent important and strategic value chains. Even if an individual, incremental invention only slightly improves performance, the combined effect of a collection of improvements could breach thresholds, allowing a particular technology to reach grid parity.

A wealth of information can be obtained by studying clean energy patents owned by others. Such patents can be springboards for patentable improvements or design alternatives. For years, many companies refused to look at patents owned by others, fearful of possibly triggering liability for willful patent infringement in a U.S. lawsuit. These fears have abated to some extent, since the Federal Circuit Court of Appeals recently (in the Seagate case) made it harder to establish willful infringement.

Being aware of the patent landscape will help an innovative company avoid investing time and money developing technology only to later learn that the technology has already been patented by a competitor. One must keep in mind, however, that many pending patent applications are unavailable to the public until they are published, or in some cases until they issue as patents, so one can never assume having total knowledge of the landscape.

When, what and where to file

In some situations, keeping innovations as trade secrets may be preferable to patenting or publishing them. When a company has taken reasonable steps to protect its innovations, trade secret protection can prevent exploitation by others of illegally obtained information regarding the innovations.

Trade secret protection can be lost easily by inadvertent disclosure or reverse-engineering. If another person independently discovers the innovation, any trade secret protection is lost. This risk should not be overlooked, especially in an environment where many companies are likely to be simultaneously attempting to solve the same energy problem.

If a cleantech company cannot afford to patent every one of its inventions, it should at least consider publishing the inventions to establish them as prior art. Publication prevents competitors from patenting the inventions themselves and then using the patents down the road to interfere with the business of the cleantech company that decided not to seek patent protection.

Patent holders always run the risk of competitors designing around their patents. Any patent applicant should try keeping related applications pending long after an original application issues as a patent. Related applications are those filed after an original application is filed, but before the original application issues as a patent, and that involve similar or related technologies. The benefit is that if a competitor somehow successfully designs around the issued patent, the claims of the related application may be modified during its evaluation in a way that covers the competitor’s design-around.

Decisions regarding where to file a patent application should take into account which countries will have significant markets for products embodying the invention, and which countries will produce the products.

In cleantech, a likely answer on both counts is the U.S., which gives applicants opportunities for excluding potential prior art by taking advantage of the “first to invent” system, which can significantly narrow the scope of potentially invalidating prior art. Most other countries use the “first to file” system, in which prior art includes all art existing prior to the filing date of a patent application. In an environment where competitors around the globe are simultaneously working on closely related innovations, narrowing the scope of potential prior art could be invaluable.

Filing for patent protection in China also is critical because of its fast-growing demand for clean energy technologies (see Latest Chinese cleantech subsidy goes to lighting). China’s cleantech sector continues to grow and enjoy steady capital inflow despite the current global economic crisis (see China embraces cleantech, dodges downturn). The Center for American Progress recently estimated that China’s leaders are investing $12.6 million every hour in clean energy, and the country is on track to obtain at least 15 percent of its energy from renewable sources by 2020.

Licensing

A broad and deep portfolio of clean energy patents can lead to significant revenue from licensing. Worldwide revenue from patent licensing is expected to reach $500 billion by 2015, up dramatically from $110 billion in 2000.

Manufacturing cleantech products can be particularly capital intensive. Clean energy start-ups focusing on innovating should consider licensing arrangements with larger companies for manufacturing purposes. Licensing with a larger firm also gives the larger company a financial interest in protecting the invention.

Cleantech companies should also proactively use their patent portfolios as leverage to share in the technical innovations of others via cross-licensing deals. Companies using their portfolios in this collaborative manner will be rewarded with a greater freedom to operate and innovate, while remaining competitors are left in the position of trying to design around a wall of cross-licensed patent portfolios.

Rodger A. Sadler and Chi Cheung are members of Orrick, Herrington & Sutcliffe's Intellectual Property Practice Group. This piece is an excerpt from “Protecting and Profiting from Intellectual Property in President Obama’s Clean Energy Economy,” available here.

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