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O ne of the greatest challenges we face this century is reducing our dependenceon fossil fuels and slowing the atmospheric buildup of greenhouse gases caus-ing climate change. The devastating oil spill in the Gulf of Mexico dramati-

cally underscores the necessity of meeting this challenge. The US and China, theworld’s biggest energy consumers, energy producers, and greenhouse gas emitters,must seize the opportunity to lead in transforming how we generate, transmit, anduse energy. US and Chinese leaders recognise the need to address climate change andembrace low carbon energy technologies through public policy and investment.

In China, the country’s leaders are investing an estimated $12.6 million everyhour to green the economy, according to the Center for American Progress. In 2009,Pew Charitable Trusts reports that China took the top spot for overall clean energyfinance and investment, pushing the US into second place.

Eager to identify additional opportunities for cooperation and collaboration, USCommerce Secretary Gary Locke toured China this summer with representativesfrom 24 US clean energy companies. Beijing also recently hosted the first ever US-China Renewable Energy Forum.

Opportunities aboundChina has been working to strengthen its IP laws since entering the WTO in 2000.Prime Minister Wen Jiabao has vowed to make China a “country of innovation” andurged Chinese companies to “raise their independent innovation capabilities and haveindependent intellectual property”. Companies like China’s Thermal Power ResearchInstitute are taking heed. The New York Times has reported that the company recent-ly licensed its clean coal technology to Future Fuels in the US for about $100 million.

China’s increasingly sophisticated high-tech economy is even enticing top Americanclean energy innovators to build R&D facilities there. Applied Materials, one ofSilicon Valley’s most prominent tech companies, recently built its newest and largestsolar research lab in Xi’an, China, and relocated its chief technology officer to Beijing.

The next frontierClean energy innovations continued to thrive in 2009 despite the global economiccrisis, and the number of US clean energy patents granted has nearly doubled overthe past decade. Clean energy patents were directed to technologies in four majorareas: wind, solar, hybrid or electric vehicles and fuel cells.

The clean energy industry has so far seen relatively little patent litigation com-pared to more mature industries such as the semiconductor and mobile phone indus-tries. However, as the market for clean energy technology expands, and the financialstakes increase, companies will become more aggressive in using their patents togrow market share or revenues in an increasingly competitive environment.

Patent litigation may already be heating up in the area of smart grid technology.Last year Sipco sued Florida Power & Light and Silver Springs Networks in Florida,alleging infringement of three of its smart grid patents. Earlier this year, EMSTechnologies sued over a dozen companies (including General Electric and SilverSprings Networks) in Texas for allegedly infringing its smart grid patent. The num-ber of patent infringement cases being filed in US federal courts is certain to increaseas the smart grid sector grows into a multi-billion dollar market.

The US International Trade Commission (ITC) is becoming an increasinglypopular forum for owners of US patents. ITC actions proceed much faster thantraditional US federal court lawsuits, and are particularly powerful against foreignimporters because the ITC can block infringing technology from entering the US.

Plan your clean energy IP strategyClean energy innovation has taken centre stage for the US and China. Rodger Sadler, Chi Cheung,Xiang Wang and Yali Hu provide tips for companies seeking to enter the market in this increasinglyessential sector

Both US President BarackObama and Premier WenJiabao of China have com-mented on the importanceof leading the world in thedevelopment of low carbon

and green technologies. Innovation will becritical to tackling the climate change chal-lenge and developing and implementing thesources of clean, renewable energy needed forcontinued economic growth. Strong systemsfor protecting IP will help spur the necessaryinnovation and attract the investment capitalneeded for development, manufacturing, andcommercialisation. As the market for cleanenergy technology grows, and the financialstakes increase, it will be important for clean-tech innovators to adopt and follow throughon intelligent strategies for developing andprotecting their IP.

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American companies are beginning to leverage their USpatents at the ITC in the fight with foreign importers formarket share in the country’s growing clean energy sector.For example, General Electric, facing stiff competition fromMitsubishi Heavy Industries, filed an ITC patent action seek-ing to block allegedly infringing Mitsubishi wind turbinesfrom being imported into the US. Although General Electricwas ultimately unsuccessful, ITC litigation will continue toincrease as US patent owners seek to better position them-selves in the competition with foreign imports.

In China, to encourage independent clean energy innova-tions, both the legislative and judicial branches have beenactive in promoting patent protection. For example, the Lawof the People’s Republic of China on Regenerable Energies hashelped protect and promote cleaner and renewable energies.Judicial guidelines have also been circulated to emphasise theimportance of ensuring robust patent protection for renewableenergy and environmental protection technologies.

Intense competition between domestic and foreign players inthe Chinese clean energy market is already well underway. InChina Environmental Project Tech, Inc v Fujikasui EngineeringCo Ltd (Fujian High Court, 2008), the owner of a Chinesepatent claiming technology for reducing sulphur dioxide emis-sions in electrical power generation was recently awarded morethan Rmb50 million ($7.4 million) against a Japanese watertreatment company and a Chinese power plant.

Investment-worthy inventionsThere are a number of technology areas that have attractedparticular attention from potential investors.

Smart gridThe electric power grids in the US and China are outdated andincapable of handling the amount of clean, renewable energythe countries need for continued economic growth. As thecountries take steps to modernise their power grids, there willbe plenty of opportunities for innovations in smart grid tech-nology. Morgan Stanley predicts that the smart grid marketworldwide will grow from $20 billion in revenue this year to$100 billion a year by 2030. General Electric estimates Chinaalone will spend $60 billion over the next decade to reinvent itspower transmission and distribution system into a modernised,

smart grid. Given the still relatively open patent landscape inthe smart grid sector, inventors who patent their smart gridinnovations will likely be rewarded with key patents – there areless than 200 issued US patents, and less than 50 pending USpatent applications, directed to smart grid technology.

Enabling and interface technologiesThe commitment to modernising the US and Chinese electricpower grids creates opportunities to develop valuable innova-tions at the interface between sources for generating clean ener-gy and the grids for transmitting and distributing it to end users.Consider an invention developed for use in connecting the out-put of a wind farm in North Dakota, or in western China’sGansu province, to a power grid without causing fluctuations infrequency and voltage. Valuable patent claims to this inventioncould be written to cover the interface between the grid and anyfluctuating source of renewable energy (whether that source iswind, solar, geothermal or wave power). In this way, a single,carefully-drafted patent application may cover applications orsectors beyond those initially contemplated by the inventors.

Energy storage technologiesEnergy storage will be a fundamental enabling technology inthe low carbon economy. Powering electric vehicles, smoothingout fluctuations in supply of electricity from renewable sourceslike wind or solar farms, and extending home appliance func-tionality all require energy storage technology. Innovationsaddressing energy storage issues will become particularly valu-able as leaders in the US and China invest in modernising thecountries’ power transmission and distribution grids.

Carbon capture and storageMany countries, including the US and China, will likely contin-ue to rely on burning coal to generate base-load electrical powerfor many years. Developing increasingly efficient and effectivecarbon capture and storage technologies therefore will be criti-cal to meeting greenhouse gas reduction goals. Clean energyinnovators should seek out opportunities to develop and patentthese technologies in the largest markets. Silicon Valley start-upCalera, for example, has developed and patented innovativetechnology for taking carbon dioxide and other pollutants fromcoal-fired power plants and running it through seawater to form

0

200

400

600

800

1000

1200Other, 41, 4%

Biomass/biofuels,49, 4%

Fuel cell, 634, 55%

Hybrid or electric vehicle, 105, 9%

Solar, 155, 14%

Wind, 156, 14%

Number of US clean energy patents issued 2002-2009

Source: Clean Energy Patent Growth Index

Clean energy patents issued in 2009 by type

Source: Clean Energy Patent Growth Index

a type of synthetic limestone that can be processed into cement.China’s largest power producer, China Huaneng Group, haspartnered with American companies to incorporate its cleancoal technology into new US and Chinese power plants.

Emissions measuring and tradingInnovations in trading emissions credits or measuring green-house gas emissions also are areas of opportunity. Both the USand China have committed to reducing greenhouse gas emis-sions in the years to come. Some studies predict that if a cap-and-trade programme ever is implemented in the US, the valueof the American carbon trading market alone quickly couldreach $1 trillion per year. Beating the US to the punch, Chineseleaders are considering implementing a domestic market fortrading carbon emissions credits as early as 2011.

A recent Bloomberg.com article reports a significant upwardtrend in inventions relating to tracking carbon emissions andtrading credits, with patents issuing to, among others, US mort-gage finance company Fannie Mae, which patented a systemfor trading greenhouse gas reduction credits earned by home-owners. Clean energy companies should focus on developinginventions for measuring emissions and trading credits. The USSupreme Court’s Bilski decision, which issued in late June,ensures that the door remains open to patent innovative meth-ods of doing business. However, keep in mind that more spe-cialised claim drafting techniques may be required, since it is

not yet known precisely how the Patent Office and the FederalCircuit will assess the patentability of business method inven-tions in view of the Supreme Court’s ruling.

Deep water wind farmsThe US government recently approved construction of thecountry’s first offshore wind farm, which will be built miles offthe shore of Cape Cod in Massachusetts. As the market foroffshore wind farm technology grows in the US and aroundthe world, innovators should focus on developing technologiesfor the next generations of wind turbines. For example,StatoilHydro is a Norwegian oil and gas company that is lever-aging its deep water oil drilling expertise to develop floatingwind turbines capable of operation in deep ocean waters, milesfrom shore.

Electric and plug-in hybrid vehiclesThe electric vehicle (EV) market is poised to boom. EV ven-tures made up nearly 40% of $1.9 billion invested in 180green technology companies worldwide in the first quarter of2010, according to a study by the Cleantech Group andDeloitte. In America, Nissan’s all-electric Leaf has not evenarrived yet, but it is already sold out for this year. In China,the focus is just as palpable, with this year’s Beijing AutoShow featuring nearly 100 vehicles powered by electricity orsome other alternative fuel. To date, Japanese applicants

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Clean energy companies should consider theseimportant patent prosecution strategies:

Know where to file Patent applications should be filed in countrieswith significant markets for the invention, aswell as in countries that will produce largenumbers of products incorporating the inven-tion. The US, China, Japan, and South Koreaeventually all will be hotbeds for productionand use of clean energy technology, so cleanenergy innovators should be making everyeffort to obtain patent protection in each ofthese countries, at a minimum.

Until recently, anyone who invented some-thing in a Chinese facility was required to filefor patent protection in China before filing inthe US or other countries. Under recent revi-sions to Chinese patent laws, inventors in Chinamay file for patents in other countries first, aslong as they submit their inventions to a secu-rity review beforehand.

Filing for patent protection first in the USgives applicants opportunities for excludingpotential prior art by taking advantage of thefirst-to-invent system, which is different fromthe first-to-file system used in most othercountries. Because an applicant’s inventiondate may occur well in advance of the filing ofa patent application, the scope of potentiallyinvalidating prior art may be narrowed signifi-cantly. In an environment where many cleanenergy companies around the globe are likelyworking on closely related innovations, thisnarrowing of the scope of potential prior art

could be invaluable. When considering where to file patents,

inventors should also consider countries thatprovide fast and cost-effective redress forpatent infringement. Germany, for instance, isknown for its experienced and specialisedcourts. Roughly 1000 new patent cases are filedin Germany every year. Furthermore, unlike theUS, Germany provides for injunctions as a rem-edy of right, which can provide inventors withimmense leverage against infringers operatingin or even outside Germany.

More and more Chinese factories and work-shops possess the talents and skills to copymost of the world’s advanced technologies. Forthose entities that desire to protect their newenergy inventions in China, filing a Chinesepatent application is among the most effectivemeasures.

Accelerating examinationThere may be situations where the market fora cleantech invention already is so robust thatthe owner will want a patent to issue as quick-ly as possible. The term of a US patent is 20years from the date the application is filed.Therefore, shortening the time between filingthe application and issuance of the patent caneffectively extend the useful life of the issuedpatent. On average, it takes nearly 40 monthsto obtain a US patent. Reducing this time couldlessen the cost of prosecuting the patent andenable a clean energy patent owner to startearning money sooner from market exclusivityor from licensing the issued patent.

One option for reducing the prosecutiontime is taking advantage of a recently expand-ed USPTO green technology pilot programmefor accelerating examination of certain pend-ing clean energy technology patent applica-tions.

Keep related applications pendingCompanies seeking patent protection for theirinnovations always run the risk of competi-tors trying to design around the patent. Anypatent applicant, cleantech or not, should tryto keep related applications pending longafter an original application issues as apatent. Related applications are those filedafter an original application is filed, butbefore the original application issues as apatent, and that involve similar or relatedtechnologies. The benefit is that if a competi-tor somehow successfully designs around theissued patent, the claims of the related appli-cation may still be modified during prosecu-tion in a way that covers the competitor’sdesign-around.

Defensive publicationIf a cleantech company cannot afford to patentevery one of its inventions, it should insteadconsider publishing the inventions to establishthem as prior art. Publication should preventcompetitors from patenting the inventionsthemselves and then using the patents downthe road to interfere with the business of theclean energy company that decided not to seekpatent protection.

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have accounted for 70% of EV patents worldwide. In China,data from the State Intellectual Property Office shows thataround 1000 EV-related patent applications already havebeen filed. As EV development accelerates worldwide, inven-tors in other countries should remember the importance ofseeking patent protection for the many innovations yet tocome. Silicon Valley venture capital firm Kleiner Perkinsbelieves the transportation industry is undergoing its largesttransformation since Henry Ford built the Model T morethan 100 years ago.

NuclearIn both the US and China, nuclear power is an increasing focusas part of the solution to satisfying our rising demand for ener-gy while reducing greenhouse gas emissions.

The Obama administration has asked Congress for $54.5billion dollars in nuclear loan authority as part of its 2011 fed-eral budget. Energy Secretary Steven Chu estimates that thiscould support the construction of six to nine new reactors overthe next few years. In China, leaders have approved construc-tion of 28 new reactors by 2020, and the first 20 of these reac-tors are already being built. This creates a wealth of opportu-nities for clean energy innovators, from developing technologyfor using non-enriched uranium in reactors, to designing moreefficient reactors, to creating novel ways for reprocessing orstoring reactor waste. Intellectual Ventures recognises this andwith Microsoft founder Bill Gates has formed a startup com-pany called TerraPower to focus on developing innovativenuclear reactor technology.

Clean energy patent strategiesThere are a number of ways in which IP owners can protectand exploit their rights in green technologies.

Maintain a strong patent portfolioA strong patent portfolio often will be a clean energy company’smain asset because the company is focusing on developing inno-vations and ideas, rather than tangible products. Even whereactual products are being developed, cleantech companies regu-larly focus on R&D, partnering with larger companies to getproducts manufactured under licence.

A well-developed portfolio of patents or pending patentapplications also can be key to securing financing for a cleantechstartup. Venture capitalists must be certain the essence of theirinvestment – the IP of the company – is protected properly.

Foster innovationTo thrive in the low carbon economy, companies must devel-op and encourage a culture of innovation. Employees shouldbe motivated to think creatively, and be educated about theimportance of innovating and obtaining patents. Companiesof all sizes should establish incentive programmes that recog-nise and reward employee creativity – particularly where itresults in inventions and patents. A recent ipPerformanceGroup survey finds that companies with such programmes arefar more innovative.

Regular employee innovation brainstorming sessions shouldbe encouraged. Since cleantech innovations often meld princi-ples from traditionally separate areas of science and engineer-ing, companies should bring employees with diverse technicalbackgrounds together for brainstorming sessions. Someonewith a background in physics or chemistry, for instance, mayoffer fresh insights to a team of electrical engineers and com-puter scientists struggling to come up with an innovative solu-tion for a smart grid start-up. If possible, patent attorneysshould be invited to attend or review the results of every brain-storming session. Intellectual Ventures does this and, according

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to Businessweek, generated 500 patent applications over thecourse of just 70 brainstorming sessions.

Value incremental inventionsWhen formulating a patent strategy in the clean energy sector,it is important to remember that incremental innovationsbased on existing technology may also be patentable and com-mercially valuable. Thomas Edison understood this principle,and many of his most valuable patents were for incrementalinventions. His patented light bulb, for example, was an incre-mental improvement upon an incandescent electric lampdeveloped 20 years earlier by another inventor, Joseph Swan.Innovations directed at incremental improvements in efficien-cy and profitability of existing energy technologies are excel-lent candidates for patent protection.

Review other patentsA wealth of information can be obtained by studying cleanenergy patents owned by others. Such patents can be spring-boards for patentable improvements or alternative designs.For years, many companies refused to look at US patentsowned by others, fearful of possibly triggering liability for wil-ful patent infringement in an American lawsuit. These fearsshould be diminished now, since the Federal Circuit in Seagatemade it more difficult to prove wilful infringement.

Being aware of the patent landscape also will help a clean-tech innovator avoid investing time and money developingtechnology only to later learn that the technology has alreadybeen patented by someone else. However, keep in mind thatmany pending patent applications are unavailable to the pub-lic until they are published, or in some cases until they issue aspatents, so one can never assume having complete knowledgeof the landscape.

Joint venturing and cross-licensing US and Chinese cleantech companies should consider proac-tively using their patent portfolios as leverage to share in thetechnical innovations of others. Collaborative patent portfo-lios will be rewarded with a greater freedom to operate andinnovate, while remaining competitors will be left trying todesign around a wall of cross-licensed patent portfolios. Suchlicensing arrangements in addition give the larger company afinancial incentive to protect the invention. Would-beinfringers may be deterred, and enforceability of the patents iseffectively strengthened, because the expense of a patentinfringement suit filed by the cleantech patent owner could besubsidised by the larger company.

Small clean energy start-ups should also consider joint ven-turing or licensing arrangements with largercompanies, especially if the enterprise is in aforeign market the start-up wants to enter,such as the US or China. Larger companieshave greater financial, marketing, distribu-tion, and manufacturing resources, andoften more extensive regulatory knowledge.This may be one reason nuclear start-upTerraPower is considering joining forceswith Toshiba Corporation, one of theworld’s biggest players in nuclear power,and electric vehicle start-up Tesla Motors ispartnering with automotive giant Toyota,according to recent reports in the NikkeiBusiness Daily and The New York Times.

Partnering with an established Chinesecompany can also help ensure that US

clean energy innovators are given a fair shake in competing forgovernment-financed energy projects in China (and vice versafor Chinese innovators looking to compete for government-financed energy projects in the US).

Strategic acquisitionClean energy companies should also consider reinforcing theirIP portfolios by strategically acquiring patents or IP rightsfrom others. Universities and research institutes can be sourcesof valuable inventions. MIT’s website lists at least 30 differentclean energy patents available for licensing. Attending patentauctions organised by IP brokerage companies such as ICAPOcean Tomo may also be time well spent, as patent ownersunable or unwilling themselves to commercialise their ownclean energy inventions take advantage of the thriving mar-ketplace for patents.

Trade secretsIn some situations, keeping innovations as trade secrets maybe preferable to patenting or publishing them. When a com-pany has taken reasonable steps to protect its innovations,trade secret protection can prevent exploitation by others ofillegally obtained information regarding the innovations. Thisprotection can potentially extend indefinitely (the recipe forCoca-Cola, for example, has successfully been kept a tradesecret for more than 120 years), offering an advantage overpatent protection, which normally lasts only 20 years from thedate of filing a patent application.

A decision not to patent a clean energy innovation comeswith risks and should be considered carefully because tradesecret protection can be lost easily. If another person independ-ently discovers the innovation, any trade secret protection islost. This risk should not be overlooked, especially in an envi-ronment where many companies are likely to be simultaneous-ly attempting to solve the same energy problem, and in doingso may be discovering and using similar internal processes.Opting for trade secret protection over patent protection alsolimits licensing opportunities because trade secrets can only belicensed under carefully drafted nondisclosure agreements.

Toward a clean cultureThe US and China must seize the opportunity to lead theworld in tackling the climate change challenge and transform-ing how we generate, transmit, and use energy. Innovation willbe key to seizing and maintaining this lead. Companies in theclean energy sector in both countries will thrive by fostering aculture of constant innovation and adopting and followingthrough on intelligent strategies for protecting their IP.

Xiang Wang

© Rodger Sadler, Chi Cheung, Xiang Wang and YaliHu 2010. Sadler and Cheung are lawyers in theNew York office and Wang and Hu are lawyers inthe Beijing office of Orrick Herrington & Sutcliffe.

Yali Hu

RodgerSadler Chi CheungOn managingip.com

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