Patent Law: The Key to Unlocking US Wind

In fact, as they compete in the US market, several companies have discovered the hard way that patents and patent applications can pose both opportunities and grave risks.

Apart from few exceptions, notably Clipper and GE, turbine suppliers for wind projects in the US tend to be from overseas — especially Europe and China, but increasingly also from Korea or Taiwan. Many of these companies have been active in the US for many years, such as Vestas, Suzlon, Gamesa or Siemens, while others have just entered the US market fairly recently, for example Sinovel, Goldwind, REpower or Nordex. Others yet plan to enter the US market in the near future to grab their piece of the success story of the American wind market.

For those that are already present in the US market and those that are entering the US market, the question which, at least until recently, not many people in the industry asked or thought to ask was whether or not there might be any patent or other intellectual property issues that might present barriers to entry to the US market. Or, perhaps even more interestingly, whether wind-related patents present any minefields for any of the current players, subjecting them to operation on uncertain ground in the US.

As far as intellectual property is concerned, wind turbine manufacturers account for the bulk of wind power issued US patents and published US patent applications from 1 January, 1988 to the present day. Moreover, during the past seven years, US patents issued in relation to wind technologies have increased by more than 140%.

Consequently, the US market is mired with potential patent infringement liability that companies seeking to enter the US market must evaluate and navigate to evade barriers to entry. Additionally, companies already operating in the US must also be aware and knowledgeable about the patent landscape to successfully navigate the market. Moreover, all players must be able to evaluate any risks of patent infringement to adequately inform potential investors, partners and counsellors as new projects are being designed. Without managing these risks, a project could be shut down and all companies involved subject to substantial financial liability.

The Might of US Patents

US patents are remarkably powerful because each US patent gives its owner the right to exclude others from making, using, offering to sell, or selling the invention in the US, or importing the invention into the US. This right to exclude others in effect gives the patent owner a monopoly over the patent invention in the US.

To enforce this exclusionary right, a patent owner can sue an infringer. In the US, the patent owner has two choices of venue in which to sue a patent owner: the US federal court system or the US International Trade Commission (ITC). Strategic considerations often dictate which is best. If the defendant is a foreign company, the ITC is a good choice because if successful, the patent owner can prevent the infringer from importing any infringing goods into the US. In either event, the resulting litigation is expensive, unpredictable, intrusive and exhausting. If taking the federal court route, a patent owner can file suit for infringement occurring in the US and certain acts occurring outside the US.

US patent litigation often takes years to resolve. It begins with a complaint in the US district court and, in the absence of a settlement agreement reached by the parties, typically ends at the end of a first appeal to the Court of Appeals for the Federal Circuit in Washington, D.C. The duration of actions in the trial courts vary widely — from one to two years in what are affectionately referred to as ‘rocket dockets’ to two to five years in most other jurisdictions. Appeals typically take a year to two years to resolve and attorneys’ fees can run into the millions of dollars to defend these sorts of actions.

If the patent owner chooses to sue the infringer in the ITC for importing goods into the United States that infringe a US patent, the case in the ITC is tried by an Administrative Law Judge. Whereas lawsuits in the federal courts can be tried by the judge and/or a jury and can take several years to reach a conclusion, lawsuits move much more quickly in the ITC and can be finalised in one to two years.

In either action, the patent is presumed valid, and to defeat this, a defendant must prove that the patent is either invalid or unenforceable, both of which require a high degree of proof by the defendant. Invalidity is usually shown by proving that the invention was ‘known’ before the patent was filed in the US Patent and Trademark Office, and the most useful evidence is usually articles or other references disclosing the invention that are dated before the patent was filed in the US Patent and Trademark Office. Unenforceability is often proven by showing the patent owner or the inventors participated in fraud in the prosecution of the patent. Both of these common defences are difficult to prove.

MHI machines have been the subject of a patent dispute in the US (Source: MHI)

An adverse judgment in a US federal court against an infringer can mean an award of money damages and/or an injunction preventing the activity. This injunction may take immediate effect when ordered (either at final judgment of the case or in a much earlier temporary injunction proceeding at the beginning of the case), and may be in force through the appeal.

An injunction is an equitable remedy in the form of a court order, whereby a party is required to do, or to refrain from doing, certain acts. For example, the injunction could prevent the infringer from manufacturing or selling (or importing) wind turbines that infringe the US patent. Or, as another example, an injunction could prevent the installation of wind turbines that infringe the patent. If the infringer fails to adhere to the injunction, they face criminal or civil penalties and may have to pay damages or accept sanctions for failing to follow the court’s order.

In some cases, breaches of injunctions are considered serious criminal offences that merit arrest and possible prison sentences. The financial damages that the patent owner can receive from the infringer can be substantial, and can include: the greater of lost profits or a reasonable royalty, up to three times damages for wilful infringement, and possible attorney’s fees.

In addition to monetary damages, an additional remedy available in an ITC proceeding is an ‘exclusion order’, which can be quite problematic for a foreign infringer looking to import wind turbines into the US as it requires goods at any US port to be refused entry into the US — a severe penalty. For foreign turbine manufacturers, for example, this could mean of course that their equipment would not even be allowed into the US, so it’s not just a question of being able to warehouse them in the US.

One important aspect of either a federal court proceeding or an ITC proceeding is the ‘discovery’ stage. Discovery is a uniquely American phenomenon, which most European observers would view as intrusive. It is expensive, resource-consuming and very complicated, especially given all of the electronic media businesses use to run their day-to-day operations.

Discovery is the compulsory pre-trial disclosure of documents relevant to a case, which enables one side in a litigation to elicit information from the other side concerning the facts in the case. Each party, through the laws of civil procedure, can request documents and other evidence from other parties and can compel the production of evidence by using a court-ordered subpoena or through other discovery devices, such as requests for production of documents, and depositions. Foreign companies are not immune from discovery in these proceedings.

Because of these dire consequences in the US, it is imperative for any wind company entering the US market to be aware of any potential infringement risks posed by sale, use, importation, or offer to sell of the proposed products/services in the US before entering the market.

The Mitsubishi/GE Turbine Patent Dispute

Recently the possibility of patent issues impacting wind projects came into the spotlight due to the much-publicised dispute between GE and Mitsubishi. The conflict is about Mitsubishi’s attempts to import 2.4 MW turbines into the US, prompting GE to argue the turbines violate three of its patents, notably on variable speed technology.

GE sued Mitsubishi in the ITC. Eventually, the ITC sided with GE in August 2008, but a full ITC panel later overturned that decision in January 2010. GE subsequently filed a patent infringement complaint against Mitsubishi before a Texas federal district court, alleging Mitsubishi infringed on five patents. (Note that a patent owner can use both avenues to enforce its patent rights.)

This lawsuit is still pending but the outcome of the dispute will impact turbine manufacturers wishing to enter the US market, and the case is being watched closely by industry participants to see if GE’s patents will stand up during the lawsuit. If so, others may be subject to the payment of licence fees to GE.

Although the press generated over the Mitsubishi/GE legal issues has been tremendous, patent disputes in the turbines market are nothing new. In the 1990s, Germany’s Enercon and California’s Kenetech accused one another of having stolen each other’s intellectual property in a patent dispute. Kenetech had registered its patent in the US before Enercon could do so, effectively barring Enercon from exporting turbines to the US until 2010.

The GE and Mitsubishi dispute has repercussions for the market as a whole, but this dispute represents just the tip of the iceberg of potential patent issues in the wind industry. Indeed, a global minefield of patent issues can affect wind turbine manufacturers, wind farm developers, owners/operators, and support companies (whether newcomers to the US market or established participants) in their ability to make, use, sell, offer for sale, or import components covered by any of wind-related patents.

Patent Minefield for US Wind

As previously stated, during the past seven years US wind technologies patents have increased by more than 140%, creating a very large patent minefield. The reality of the risk of potential patent infringement in this minefield is much greater than most industry participants suspect and GE and Mitsubishi are not the only potential players. Any wind turbine manufacturer, supplier, user, seller, or importer that touches the US may be a potential infringer of one of these US patents, which can subject it to a district court or ITC action.

The most common turbine components that are covered by patents include:

• Controllers,
• Rotors/blades,
• Generators,
• Turbine systems,
• Transformers,
• Power trains,
• Towers,
• Others such as electricity storage, damping, lightning detectors and cooling. 

Controllers are the most heavily patented technology of all of the wind technologies in the US, while tower-related technologies are the least. Turbine systems represent only about 15% of the total issued US wind patents but there are more than 340 issued US patents that apply to these turbine components.

Manufacturers should conduct a Freedom to Operate study of patent holders (Source: Clipper Wind)

The potential number of patent owners that could enforce these patents is surprising. Over 70 different companies own US patents and published patent applications relating to these technologies. Of these, GE, Vestas, Enercon owner Aloys Wobben, Clipper, and US Windpower Inc. hold the most patents (in descending order). Some of these companies only own a few wind patents, whereas others like GE, Vestas, Wobben, Clipper, and US Windpower have multiple wind patents. With so many patents in the hands of established companies, there is a danger that these patent owners can block the entry of new players, or at least discourage entry to a large extent by requiring large licence fees.

Each of these patents has its own ‘fence’ or monopoly rights that can be enforced by its owner against any potential infringer. Navigating a path through this patent field requires knowledge and strategic decision-making. The knowledge comes from a detailed study of the patents that are potentially applicable. The decision-making is both legal and business. Each wind turbine manufacturer, wind farm developer, owner/operator, or support company, must carefully perform this requisite analysis to develop a plan to avoid potential infringement complications.

Patents Provide Opportunities

Although the global patent minefield presents barriers and risks for many, savvy players in the wind industry should look to acquire patents for several reasons. First, having patents enables participation in the patent legal dance. Even if not of defensive value, patents can be sold as licences, building revenue and becoming tradable assets in any sort of dispute. When accused of infringement, a potential infringer can assert its patents in defence in the hopes of reaching a mutually beneficial deal. Second, patents attract investors and partners.

As an example of patents creating value, GE owns numerous turbine-related patents in the US and is licensing these patents to other manufacturers for significant fees, according to market sources. Industry observers have suggested that GE has recently hiked its licence pricing to a reported $25,000/MW. However, much higher fees have also been reported.

Wind companies that have not considered obtaining patents as a business strategy should reconsider: having nothing to swap in a cross-licence deal negotiation will likely result in the imposition of undesirable and higher royalty rates.

Paths Forward

Performing the proper due diligence on a patent owner’s portfolio can lead to the identification of licensable patents and potential licensees. The best way to obtain the requisite knowledge is to perform a freedom to operate (FTO) study. A freedom to operate study should provide risk assessments relating to infringement of granted patents and potential infringement of pending patent applications. FTO opinions that result from an FTO study are an important part of making good business decisions.

In the US, only patent attorneys are qualified to provide legal FTO opinions; patent agents can only offer opinions related directly to patent prosecution. An FTO study allows problems to be identified in advance, with solutions including licensing, design-around, non-infringement and/or invalidity opinions and the factoring of patent litigation costs into product budget or acquisition costs.

Another issue to keep in mind relates to wind related agreements. For example, to avoid potential liabilities, when project owners and developers order turbines, they should make sure that they have the necessary reports and warranties relating to IP rights in the purchase agreement. Qualified intellectual property legal representation is a must on these deals.

US patent law offers risks and opportunities and the most important, and starting, point is that companies engaged in the wind business need to be aware of them. This not only applies to newcomers but also to existing players in the US market. As one manager of a European manufacturer admitted: “Don’t ask me how [we] entered the US market with the variable speed WTG because I still don’t know.”

It not only affects turbine manufacturers but also, at least potentially, developers and buyers of wind turbines in America. US patent law, however, also offers great opportunities, namely for companies that have invented new technology. Once they have projected this technology they can generate additional income by licensing their technology to other companies.

Carey Jordan is a partner with McDermott Will & Emery in Houston, where she specialises in IP law and patent prosecution.

Stefan Schmitz is a partner with McDermott Will & Emery in London, where he specialises in renewable energy projects.

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