2010

Water Technology U.S. Patent Landscape

Annual Report

©2011 Foley & Lardner LLP • Attorney Advertisement • Prior results do not guarantee a similar outcome • 321 North Clark Street, Chicago, IL 60654 • 312.832.4500

“The best way to predict the future is to invent it. Really smart people with reasonable funding can do just about anything that doesn’t violate too many of Newton's Laws!” – Alan Kay1

Why can’t we invent more water?2 Clearly the need exists. But for some reason, the level of invention and innovation in water technologies lags what we find in other technologies, such as computers, telecommunications, and software. Why?

This Report focuses on patent data concerning water technology. But it is important to put this patent data in context. Consider the following:

» Every day — seven days a week, 365 days a year — more than 4,000 children under the age of five die, approximately one child every 15 seconds, because of unsafe drinking water, according to United Nations’ data.

» By 2025, an estimated 1.8 billion people will live in areas plagued by water scarcity.

» The U.S. EPA has identified 36 states as likely facing water shortages in the foreseeable future.

» Companies in many locations are starting to appreciate the very real risk of running out of a reliable supply of water, critical to nearly every manufacturing process. They are starting to realize that “If you don’t have water, you don’t have a business.”3

So, why can’t we just invent our way out of this problem? If “necessity is the mother of invention,” we have no greater necessity than for more clean, fresh water. We can invent and innovate a lot of technologies, but so far, no one has been able to invent a way to create water, or to increase the world’s water supply. At least not yet. But we can invent better

pumps, pipes, valves, filters, and meters to improve how we process water; we can invent more energy-efficient desalination plants; and we can invent more effective purification technologies. Yes, we can invent improved technology for providing clean water for all the world’s needs, even if we can’t invent water itself.

Innovation and invention have been the economic drivers of our nation for more than 200 years. Thus, if solutions to the water problem exist — and they surely do — patent data should provide a leading indicator of those solutions. In general, there was a noticeable increase in patent activity. The total number of patents issued in the categories studied increased by 52 percent over the 2009 study. The increase was consistent for all categories studied. Yet the data suggests that there is not enough invention and innovation in the water industry. In water technology, like other areas of technology, we need to invent our future.

Foley’s Water Technology U.S. Patent Landscape Annual Report looks at patent data to identify technology trends in water technology. For our initial Report in 2009, we looked at all U.S. utility patents that issued in 2008 that were directed to one of seven different water technology categories. For 2010, we have reviewed six of those same leading categories, and one new area: groundwater. Thus, all but one area in this report will include two-year data trends. These categories were selected by us as those of technological and business interest. In future reports, we likely will refine the technology categories and look more closely at what is happening in water technology. We also will look at data for published patent applications. We welcome suggestions for future areas of study.

Building an innovation economy is a complex equation with many variables, including academic and industry research, innovators, patents, entrepreneurs, financiers, government incentives, skilled workers, and

Preface

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more. While no one factor is sufficient, patents are key indicators of a successful innovation economy.

With increasing demand and decreasing supply, every business and investment analyst predicts that water will be one of the largest economic growth sectors in the world over the next several decades. So, why isn't there more invention and innovation in water technologies?

One reason may be that most water technology is purchased by municipalities, which are slow to embrace or pay for significant change.

For example, a few years ago, Boenning and Scattergood, an investment banking firm with a water industry sector-focused investment banking practice, issued a Water Industry Review. One of the technologies it highlighted was metering. The report noted that the fastest-growing segment of this sector was “smart meters,” meters that remotely read customer meters and measure, collect, and analyze customer usage; provide information to the customer that may allow for the more efficient use of water; and then transfer the data into a billing system. These systems also could monitor for contaminants in the water supply. Even though there was a 100-percent increase in the number of metering patents issued from our 2009 report (16 to 32), the patent data still indicates a very low absolute level of invention in water meter technology. There are many variables and many explanations for this. However, if the analysts are correct and “smart meters” are the way of the future, the patent data suggests that the opportunity for transformative, disruptive technological growth in this area is wide-open.

Another likely reason for low investment levels in water technology is the artificially low price of water. In April 2011, the national average price of a gallon of gas was $3.83. A year ago, it was $2.86.4 The national average cost of water is approximately $3.00 per 1,000 gallons, considerably less than one penny per gallon. And, there does not appear to be any correlation between the availability of water and its price. Our water pricing policy simply does not reflect the full economic cost of water, including the cost of transmission, treatment, distribution, and capital investment.

Whatever the reason for the relatively low level of invention and innovation in the past, this likely will change in the future, which is a good reason to be looking at patent data. As noted by The Artemis Project, “Unlike other industries, the water industry is not accustomed to the steady injection of innovation and disruptive technologies offered by start-up companies.” They predicted that the water industry was in for some change.5

An excellent and comprehensive report on our water future was prepared by the 2030 Water Resources Group. They too concluded that “Business-as-usual in the water sector is no longer an option for most countries.”6

A recent estimate from a Global Water Intelligence Report in December 2010 is that "Water is a $500 billion a year industry but it is only attracting around $120 million a year in venture capital funding." Like others who have looked at this issue, the GWI Report concluded that with the water challenges facing the world, "this cannot go on."7 To alter the attitudes of the past will take collaboration among all stakeholders, particularly industry, government, investors, inventors, and water users. They all need to start thinking how to invent a future in which water supply is no longer a limiting factor on economic growth — or human survival.

In looking at the patent data, we identified technologies that are obtaining many patents, thus suggesting a lot of investment in research and development. We also identified technologies that were not obtaining many patents, those areas where there was white space on the patent/technology map. Many of these technologies may represent opportunities for investment and opportunities to obtain patents in the future.

Water, not oil, is the critical commodity of the future. Water will determine where, how, and whether people live. The availability of a reliable supply of fresh water will determine where businesses locate and the economic growth of regions. We will solve our water problems. There is no other option. Patent data provides a glimpse into exactly how we will do it, who will do it, and the exciting opportunities in the future of water technology.

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For More Information For more information on or to obtain a copy of Foley’s Water Technology U.S. Patent Landscape Annual Report, please contact your Foley attorney or the author of this Report:

Barry Grossman Foley & Lardner LLP Milwaukee, Wisconsin 414.297.5724 bgrossman@foley.com

Mr. Grossman wishes to thank Foley attorneys John Lazarus, Matt Swietlik, Julia Kornilova, Matt Rabe, and Mike Kramer for their research contributions to this Report.

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1 Alan Kay, acknowledged as one of the inventors of the laptop computer and the architect of the graphical user interface.

2 We all know from high school chemistry that water is H20. However, “making water” is more complex than adding two hydrogen atoms to an oxygen atom. The actual reaction to make water is: 2H2 + O2 = 2H2O + Energy. This chemical formula is well-known. Still, for now, there are no known effective ways to solve our water problems by “making water.”

3 Sharon Nunes, Vice President of Big Green Innovations at IBM. 4 AAA Daily Fuel Gauge Report, April 18, 2011. 5 Water Matters, Venture Opportunities in Innovative Water

Technology, pg. 2, The Artemis Project, 2008. 6 Charting our Water Future, pg. 20, The 2030 Water Resources

Group, 2009. 7 Is water technology investing strictly for insiders? Published 2nd

December 2010, Global Water Intelligence, Insights, at http://www.globalwaterintel.com/insight/water-technology-investing-strictly-insiders.html

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Foley’s 2010 Water Technology U.S. Patent Landscape Report focuses on all U.S. utility patents that issued in 2009 that are directed to any one of the following general water technology categories:

» Purification

» Desalination and/or distillation

» Metering

» Irrigation

» Reclamation and treatment

» Groundwater

» Conservation

These categories were selected as those where there was industry relevance and also significant patent activity. In general, there was a noticeable increase in patent activity. The total number of patents issued in the categories studied increased by 52 percent, from 385 to 584. The increase over last year was consistent for all categories studied.

Water Purification and Conservation Patents Lead the Way » Among 584 patents issued in 2009 across the seven

categories of the water technology landscape studied, the categories that produced the most patents and the most patent claims were purification (302 patents and 4,777 claims; compared to 124 patents and 1,958 claims in 2008) and reclamation and treatment (107 patents and 1,915 claims; compared to 96 patents and 1,534 claims in 2008). These two also led last year’s report, but both categories showed significant increases in patent activity in 2009. All other categories significantly trailed these two leaders.

» The water technology categories that produced the fewest patents and the fewest claims were

groundwater (26 patents and 538 claims; not studied last year), desalination and/or distillation (32 patents and 473 claims; compared to 20 patents and 436 claims in 2008), and metering (31 patents and 515 claims; compared to 16 patents and 274 claims in 2008). The metering category showed a 100-percent increase in patents issued in 2009 over those issued in 2008, whereas the desalination and/or distillation category showed more than a 50-percent increase in the number of patents issued over last year.

Executive Summary

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» Representing areas of strong interest and investment, the subject matter categories in which the most patent claims were granted were:

» Purification of industrial processing or wastewater (492 claims)

» Purification/remediation of groundwater (403 claims)

» Water treatment with biological agents (363 claims)

» Treatment of industrial processing or wastewater (311 claims)

» Purification devices using ionization or electrodes (305 claims)

» Water treatment system components (289 claims)

» Ground, storm, or runoff water filtration devices (266 claims)

» Irrigation control systems (254 claims)

» Reverse osmosis purification systems and devices (214 claims)

» Water metering monitoring systems (239 claims)

» Water metering housings and structures (175 claims)

» Desalination/distillation with applied external energy (141 claims)

Potential Patent White Space Appears to Exist in Purification, Reclamation and Treatment, Groundwater, Metering, and Desalination and/or Distillation » First action allowances of subject matter claimed in

recently granted patents could be used as one indicator of potential patentable water technology white space. Generally, the more first action allowances that issued for a given type of claimed subject matter, the more reliable indicator of potential white space.

» Approximately 14 percent of the patents studied were granted by the USPTO in 2009 under a first action allowance, indicating the possibility that a certain scope of patentable water technology white space still exists, despite the advances in patents granted over the years. This is a slight decrease from the 14.6 percent found in last year’s Report. The areas having the most first action allowances, and thus the greatest white space according to this indicator, are:

» Purification of industrial processing or wastewater (which also had among the most patent claims)

» Remote or portable water purification devices

» Treatment of industrial processing or waste water

» Water treatment system components and devices

» Another possible indicator of patentable white space may be simply the level of patent activity in a particular category (i.e., less “crowding” or the least “dense” area within the water technology landscape for new technology developments). Based upon this indicator, the groundwater, metering, and desalination and/or distillation categories reflect the least crowding of the water technology landscape and, perhaps, an area of opportunity for taking advantage of potential patent white space.

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Robust New Licensing Pipelines Possible for Corporate Entities » In 2009, 16.6 percent (on average) of the patents

were unassigned when issued, indicating that they were owned by individuals and not corporations. This is significantly less than the more than 30 percent of patents granted to individual inventors in 2008. Perhaps this decrease reflects the economy, since individuals may not have had the resources to pursue patent protection, or perhaps it reflects other factors. The patents owned by individuals could represent an area where new technologies may be available for licensing by corporate entities or others looking for an entry point in the water technology field, or companies looking to expand an existing water technology presence.

» Corporate entities continued to hold higher shares of patents in the categories of desalination and/or distillation, metering, and reclamation and treatment, where the specialization and sophistication of the technology and the market barriers to entry are relatively high.

» The lowest percentage of individually owned patents was in the area of groundwater.

Methodology » The Report focused on all U.S. utility patents that

issued in 2009 and that were directed to one of seven different water technology categories. Keyword searching for each of the water technology categories that were studied was conducted in the USPTO’s database of patents granted during 2009. The searches were not limited to any particular patent classification(s) assigned by the USPTO; rather, the Report searched for applicable keywords in the abstract of each patent.

» The patents identified by the search were then individually screened for applicability to the relevant water technology category, and cross-referenced among the other categories to eliminate any duplicate results and more accurately categorize any patents that appeared under two or more categories.

» In addition, patents that were directed to relatively small-scale items (e.g., aquarium filtration, decorative fountains) or that were primarily directed

to other technologies where the water application was a secondary or ancillary aspect (e.g., fuel cells, semiconductors, certain kitchen appliances, and dental and medical devices) were not considered in this Report. These technologies are understood to be relevant in the broader water technologies landscape and may be included in future reports.

» Each of the remaining U.S. patents was studied to determine its ownership and origin, number, type and subject matter of claims, and whether the patent granted under a first action allowance.

For More Information For more information on or to obtain a copy of Foley’s Water Technology U.S. Patent Landscape Annual Report, please contact your Foley attorney or the author of this Report:

Barry Grossman Foley & Lardner LLP Milwaukee, Wisconsin 414.297.5724 bgrossman@foley.com

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©2011 Foley & Lardner LLP • Attorney Advertisement • Prior results do not guarantee a similar outcome • 321 N. Clark Street, Suite 2800, Chicago, IL 60654 • 312.832.4500 • 11.7716

This document should not be considered as legal advice and should only be implemented after talking to your own professional advisor.