Paying dividends: IP and green energy

The United States consumes a lot of energy. While China has overtaken it as the world’s largest consumer overall, US citizens use the equivalent of 6.95 tonnes of oil per capita each year (2009 estimate). This number is lower than it was a decade ago, but it is still high enough to cause concern, especially if, as some analysts suggest, the world has already hit peak oil.

Couple high consumption in the developed world (Canada and Australia in particular boast similar levels of per capita use) with rapid increases in developing countries, as well as with the threat of climate change, and the case for green, renewable energy technologies is clear.

But unfortunately, it’s not as simple as just designing the technology, marketing it and selling it. It has to be profitable and competitive too. There is no point in developing an efficient solar cell if the energy it produces costs five times the energy produced by coal.

Big business

As with many emerging technologies, there are two major potential sources of new discoveries. Small inventors, start-up companies and academia can provide some of the vital work required to answer the energy questions, but without significant financial backing, many of them may struggle to monetise their discoveries.

Private equity investment is one answer, while existing energy companies may have the resources to buy out, or otherwise back, some of these players. But large energy companies can do more than just wait for opportunities to present themselves.

Carl Horton is chief IP counsel for General Electric, whose ‘Ecomagination’ project represents the company’s attempt to fund, develop and exploit green technologies, from robust biogas engines in Austria to developing more efficient turbines and aircraft engines As he explains, IP has an important, but by no means exclusive, role to play in the success of such programmes.

“Most certainly we do own patents,” he says. “But I think we’re careful to try and distinguish the business model from some [industries] where IP has become a more contentious issue on the table, especially with developing countries.

"For example, with pharmaceuticals, you’re able to cover a whole product, and therefore much of a given market, with one or a very small number of patents. Most green technology products are decades old...so most of what the new technology provides are new features and additional efficiencies to these products.”

He continues: “Those are the kinds of elements that are patented. As a result, the patents come in tens if not hundreds for each given product, and those tend to be focused on improvements over the existing technology. That’s a significant differentiator.

"With the exception of these patented improvements over existing technology, we have not encountered any basic green technology products that have been completely blocked from getting to market due to patent protection. I’m not saying it won’t happen in the future or it can't happen, but the fact is that we don’t see it. So all this hype about IP being a block to commercialising green technology is just that—it’s hype.”

Not everyone agrees. During discussions on the United Nations Framework Convention on Climate Change (UNFCCC) in Copenhagen last year, one of the sticking points was the difference between the views of developing and developed countries on the worth of IP in the green technology market.

Eric Lane, IP attorney at Luce Forward in San Diego and founder of Green Patent Blog, says: “The UNFCCC had a list of different options for weakening or eliminating IP rights. Many developing countries put forward proposals to eliminate rights on carbon-reduction technology or suggested compulsory licensing, and so forth.”

He adds: “Whether patents are blocking deployment of clean technologies in developing countries I can’t say for sure, but what I can say is, look at the major deals happening between clean tech companies in developed countries and their partners in developing countries. In my view, IP rights help the diffusion of clean tech.”

"All this hype about IP being a block to commercialising green technology is just that—it’s hype.”

Horton agrees: “The argument is that IP will block the effective adoption of a technology in developing countries. Firstly, no one has identified a specific example to support this argument. Our response has been that the purpose of intellectual property is to encourage investment, to give people the confidence to invest large sums of money in unproven technologies in the hopes that the one who discovers the solution will be able to monetise the R&D investment needed to develop any such solution.

"In the grand scheme of things, new discoveries, increasing efficiencies and more cost-effective solutions are the best and most affordable ways to solve climate change.”

And even if there was some kind of compulsory licensing in certain countries, that may not achieve its objective. Horton asks: “Could you come up with a scenario where you were forced to transfer technology to a developing country? Yes.

"However, that would disrupt the delicate balance on which the IP paradigm is based. In addition to that, you’ve got all kinds of infrastructure questions that you have to address in those developing countries. And, even assuming you’ve got the infrastructure in place, you may still have quite significant gaps in the know-how associated with some of the most sophisticated green technology products.”

Where’s the money?

It’s all very well for large companies like GE to invest in green technology. It can afford some risk of failure—though that is not to say that these projects are unprofitable. For smaller players, securing investment can be a challenge. Patents play their part, but as Lane says:

“One of the problems you run into with patenting some of these technologies is that much of it has been done before, either in green technologies or in semiconductors, or in other fields. So what you have is a question of whether this is truly new, and if it is new, whether it’s not an obvious variation of what went before.”

"What you have is a question of whether this is truly new, and if it is new, whether it’s not an obvious variation of what went before.”

Meeting those patentability standards is a challenge given what has been done before and what this technology borrows from the past. The other challenge, Lane says, is that “the US patent office is notorious for being overworked and slow. If you’re looking for venture capital money, it makes it that much harder to make your case if you have to wait so long to have approval from the patent office.

"People are hesitant because they want to know there’s a patent available, but it’s going to take years to know whether there’ll be a patent. So it’s a chicken and egg situation with the money and the patents.”

The US government and individual states have roles to play here. The Advanced Research Projects Agency—Energy (ARPA-E) was set up in the US Department of Energy to provide funding for R&D projects in green technology. Researchers and developers can submit proposals for funding to ARPA-E; its second round of funding awards will see up to $100 million distributed.

While this won’t answer all the need, it’s indicative of the kinds of things governments can be doing to encourage innovation. Alongside friendly feed-in tariffs for renewable technologies, and a good capand- trade system, ARPA-E and programmes like it might just be the way to solve the problems. Even larger companies like GE can benefit.

While more than 90 percent of its projects are funded internally, Horton acknowledges that there are situations where government backing is useful. “The more unproven the technology, the more helpful the government involvement,” he says.

Of course, government funding may come with strings attached, just like it would from any other source. “Anybody who taps into those funds ought to be ready, willing and able to abide by the various obligations and requirements that accompany such funding,” Horton says. “Where the government’s putting up the funding, they have the right to set the terms.”

Forward thinking

Despite the positive noises coming from government, energy companies and even small-scale inventors about the future of green technology, there is a sense that no one has quite pinpointed the best way to go about creating a truly thriving market.

Some countries (Germany is a notable example) have already enjoyed substantial success in incentivising investment in green tech, and such efforts are paying financial and ecological dividends. But for the global energy crisis not to develop into a full-blown disaster, it will be the largest energy consumers that lead the way.

Governments, businesses, developers, investors and regulators will need to start pulling in the same direction. Unfortunately, if the discussions at Copenhagen provide a guide, we may be some way off that happening. In the meantime, IP and its rewards are as good incentives as any.