As the clean energy industry deals with ups and downs in its infancy, companies have largely avoided the costly patent infringement battles seen in other technology spaces. But now those days are coming to an end.
Data shows that the number of clean-energy patents being issued by the patent and trademark office has been on a significant upswing. A recent study found that energy-related patenting increased at an average annual rate of approximately 12 percent between 2004 and 2009. Patents in clean energy technologies have increased at even higher rates.
Simultaneously, renewable energy markets have taken off, bringing increased revenues. The Solar Energy Industries Association (SEIA) described 2013 as a record year for PV installations in the United States. The dramatic expansion of these new markets, combined with the explosion in patenting activity, is causing an increase in patent litigation within the industry.
In late 2011, Westinghouse Solar initiated an infringement investigation (known as a “Section 337 investigation”) with the U.S. International Trade Commission (ITC) against solar-panel mounting technologies imported by Zep Solar and Canadian Solar. ITC Section 337 cases are in many ways the “nuclear option” of patent litigation. They are conducted on an expedited basis, compressing an entire patent infringement case into approximately a year and a half -- a very grueling and resource-intensive process.
Professional surveys reflect that litigating these Section 337 investigations can cost more than $5 million on average. ITC remedies can be draconian: the U.S. Customs Service will typically be instructed to prohibit any products found to infringe from being imported into the United States. The mere fact that a clean energy company initiated a Section 337 action at the ITC suggests that the industry is coming of age from an intellectual property standpoint.
Big players have also been filing ordinary patent infringement cases in U.S. courts. These proceedings have a longer fuse -- depending on venue, patent infringement cases in court typically last from two to four years, but ultimately they present a similar set of risks and costs.
In August 2014, DuPont launched a patent infringement action against SunEdison in Delaware district court. DuPont’s complaint alleges that because they incorporate a certain type of photovoltaic paste supplied by Samsung SDI, SunEdison’s solar modules infringe upon DuPont’s patented technology related to tellurium thick film paste. DuPont seeks to enjoin Sun Edison from making, using or selling the accused solar modules, and also seeks damages for SunEdison’s past sales.
Patent infringement actions are also being filed outside of the United States. Kyocera filed a complaint in Japan against Hanwha Q CELLS Japan in July 2014. The complaint asserted that a Japanese patent allegedly covers a three-busbar electrode structure in solar modules. This case demonstrates that in an industry that operates on a global basis with multinational supply chains, patent infringement concerns must inevitably be global as well.
Recent articles have even detailed how a teenage student who won first prize at the Intel Science Fair was promptly threatened with a patent lawsuit by Solaroad Technologies, LLC, a solar technology company, if she attempted to commercialize the prize-winning technology.
What does this heightened patent activity portend for alternative energy? The semiconductor industry’s experience can offer some insight.
Throughout the 1970s and into the early 1980s, the pace of issuance of semiconductor patents and the amount of semiconductor patent litigation activity were both fairly constant and relatively low. Between rivals, quiet cross-licenses were typically the order of the day. Beginning in the mid-1980s and ramping up more significantly in the 1990s, however, semiconductor patenting became much more intense, showing more growth than other industries over the same period, and creating patent “thickets” that became difficult for semiconductor firms to navigate.
As semiconductor patenting grew, firms became incentivized to amass larger and larger patent portfolios as a defensive measure -- the more patents owned, the greater the chance of negotiating a favorable cross-license agreement. If nothing else, more patents meant more arrows in the quiver.
Some semiconductor firms became notorious for the aggressive assertion of their patent portfolios in licensing negotiations and in court, and a wave of semiconductor patent litigation hit the U.S. court system. It is well known today that the Eastern District of Texas is an unlikely hotbed of patent litigation in the United States, but fewer know that the district became a popular venue largely as a result of Texas Instruments’ assertive litigation strategy in the early 1990s. When TI’s licensing efforts faced resistance, it brought numerous lawsuits in the Eastern District and often in foreign countries as well. The speedy court dockets in Texas forced settlements on TI’s terms.
Renewable energy is likely to see similar tactics as markets continue to grow and revenues increase, making litigation more palatable, if not exactly attractive, to some. The challenge will be in determining how to prepare and respond.
Undoubtedly, firms in the renewable energy space will begin to pay more attention to their patent portfolios; no longer will patents be placed on the shelf to collect dust in back rooms. Strong and diverse patent portfolios will be developed.
Many firms will move out of a defensive posture and begin to take offensive steps to protect technologies that are perceived as providing a competitive edge. In time, non-practicing entities (also referred to as “patent trolls”) may become attracted to the growing pool of revenues and attempt to extract licensing revenues.
It is an exciting time for renewable energy, and there are many uncertainties. But just as the semiconductor industry emerged from its early stages of innovation to face a surge in patenting, patent licensing and patent litigation as the industry matured, it's very likely that alternative energy will experience the same phenomena. Indeed, the process has already begun.
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Teague I. Donahey is a partner in Sidley Austin LLP’s San Francisco, California office, where he focuses on the representation of technology companies in litigation and trials in U.S. courts and in Section 337 proceedings before the U.S. International Trade Commission (ITC). The author represented Canadian Solar in the Section 337 investigation discussed in this article.