A decision by the High Court of Justice in the UK has handed Enercon a blow in the enforcement of their patent related to power ramp down after the cut out wind speed (EP0847496).

Enercon first filed their patent in 1995 in Germany and has been commercially offering their ‘Storm Control’ technology on their own turbines for many years since. An image representing the power output control strategy is taken from the Enercon patent.

In invalidating the Enercon patent, the UK court seems to have taken an interesting interpretation of a paper from E.A. Bossanyi published in 1982 which dealt with an evaluation of performance the Boeing built MOD-2 wind turbine which was contracted by NASA and erected in 1980. Essentially, the Bossanyi paper contemplates a method for power ramp-down specially adapted to the variable speed, constant frequency (VSCF) MOD-2 wind turbine.

Siemens relied upon expert testimony in arguing that this approach could be applied to variable speed, variable pitch (VSVP) machines being developed around the time of the Enercon patent filing. The UK court agreed.

Siemens also referenced a 1980 patent filing by Toshiba in their attempt to invalidate the Enercon patent. The Toshiba patent describes technology which ramps down after the ‘conventional’ cut-out wind speed, but does not ramp all the way down to null output power. Nevertheless, the UK court did not favor the Siemens interpretation of the Toshiba patent that it teaches what Enercon claimed in their own very similar patent.

Open Opposition

Interestingly, Vestas had previously filed an opposition against the European version of the Enercon patent in a timeframe that would have allowed them to present new prior art. However, their opposition was rejected in November 2002 without citing either the Toshiba patent or the Bossanyi paper.

Nevertheless, a new opposition period against the Enercon patent filing was made possible as of January 2015 based upon an amendment to the Enercon patent triggered by the UK court matter. The prior art references and precedent set in the UK will likely influence a decision by the European Patent Office (EPO) on the validity of the Enercon patent.

However, invalidity of the European patent is not for certain and Enercon still has the opportunity to appeal the UK ruling. The European Patent Office does not have to accept the same conclusion as the UK court, so it will be very noteworthy if the European Patent Office takes the same approach regarding the Bossanyi reference in their review of the amended Enercon patent.

Since Enercon is likely to appeal the UK ruling, the Siemens matter is far from over yet.

Gamesa Litigation

This European patent filing from Enercon serves as the parent to both the UK as well as the Spanish patent which is the subject of the ongoing litigation with Gamesa. The precedent set in the UK is likely to have repercussions on the litigation in Spain if the UK court position on invalidity holds.

An invalidation of the European patent would likely negate the damage award against Gamesa in Spain, but there is still potentially room for Enercon to argue their position here, so the outcome is not guaranteed for anyone involved either.

In the meantime, Gamesa should at least be able to leverage off the non-infringement arguments in their appeal in the Spanish court.

New Precedent

The UK court potentially establishes another interesting precedent here, because there are certainly other patents held by companies in the wind industry which attempt to deal with component loading and fatigue which could also potentially be argued as obvious in light of the UK court’s interpretation of the technology developed for VSCF being applicable to VSVP based turbines.

The UK court judge refers to adjustment of the torque and pitch control “knobs” as a means to control generator rotor rpm as an obvious method in light of the Bossanyi paper, but also acknowledges other methods of implementing such technology:

…it required no inventive activity at all for a skilled person given Bossanyi in 1995 to think seriously about how to implement the power ramp down proposal in VSVP turbines.  They would consider how to put that into practice and, in terms of controls, it was obvious to think about “turning” the electric torque “knob” and the pitch control “knob”.  Reducing rotor speed as the wind speed increased as a way of reducing power accordingly is not the only way of putting Bossanyi into practice but it is an obvious approach.  Reducing the speed this way has an obvious advantage in terms of loading and fatigue.

Final Thoughts

Over the past 10 years we have seen Enercon attempt to enforce patents on frequency and voltage regulation against Vestas unsuccessfully, with the result being an invalidation in Ireland and the UK. We have also seen MHI successfully challenge the validity of the GE zero voltage ride-through patent in the US leading to an overturning of the $169M judgement and a settlement of their other ongoing litigation matters.

The past history of the wind industry’s capitulation to licenses is likely at an end as companies arm themselves with information to defend against the onslaught of IP challenges they face. This new level of intelligence gained as well as a better understanding of the commercial implications of IP infringement risks are providing companies with the opportunity to invalidate competitor patents with greater rigor and frequency than ever before in the industry’s history.

The implications of all these proceedings introduces some potentially substantial commercial risks into the project development process. Now that companies are willing to target the turbine OEMs, project developers and even the EPC contractors for patent infringement liability, the proactive companies are already arming themselves with information to ensure they can proceed smoothly.

*Philip Totaro is the CEO of Totaro & Associates, a consulting firm focused on innovation strategy, competitive intelligence, product development and patent search.  To find out more, or get in touch please visit www.totaro-associates.com.  Totaro & Associates delivers Innovative Solutions Enabled by Intelligence™.

Totaro & Associates, a Houston, TX based research and consulting firm has released a new research report on the pace of wind turbine technology innovation and proliferation.

IP ownership rankings show General Electric still leading with over 1,400 patent families, and the ability to now leverage the Alstom wind portfolio, which puts the combined total above 1,550.  Siemens has overtaken Vestas for #2 as predicted in last year’s report, and Mitsubishi drops from #4 to #5.

Previously outside the top 10, Guodian United Power has rocketed up into the #4 spot due to more patent filings in 2012 than any other company, although most filings were exclusive to China.

The top 10 wind turbine manufacturers control more than 56% of all wind patent filings, as well as over 77% of the patents which are broadly applicable to the entire industry or potentially infringed.  This strongly suggests the concentration of innovation in wind lies with those who can afford it.

The pace of patent filings has finally dropped for the first time after an average CAGR of 47% during the 2007 – 2011 time-frame.  The report indicates only a 7% growth in the number of global patent filings in wind in 2012 vs. 2011 and a slight decline for 2013 is expected as the recent market downturn has put a damper on research and development (R&D) spending and expenditure on IP protection.

Market conditions indicate that the pace is set to increase again in the coming years due to an increased commitment of expenditure on R&D.  Some companies are spending up to 6% of their revenue on R&D, which is almost double the spend rate in 2010 after the financial crisis.  Filings are expected to return to the levels seen in 2011 by 2015/16, although the average CAGR is expected to be a more modest 5 – 10%.

The research also shows that the US has the greatest number of patent filings on wind turbine technology, and companies have collectively spent over $162M on IP protection with over 8,365 individual patent filings there.  Europe is second at $138M with over 6,100 filings and China third at $61M with over 5,000 filings.  China is poised to overtake Europe for #2 within the next 12 months.

Globally, the entire wind industry has spent $522M to date on patent protection.  Expenditure on IP protection by wind companies is expected to escalate, with $1B to be spent by 2019 and $2B by 2026.

The past year has seen the penetration of some non-practicing entities (NPEs), more commonly referred to as ‘patent trolls,’ into the wind market.  These companies acquire orphaned intellectual property assets or develop their own patent portfolios specifically for the purpose of monetizing against the entrenched players in the industry.

With so many patents available for acquisition in the past 18 months, it is no surprise that these NPEs are seeing an opportunity to take advantage of market timing and attempt to drive up costs for operating companies in wind.

The full report is available from Totaro & Associates www.totaro-associates.com.

*Philip Totaro is the Principal at Totaro & Associates, a consulting firm focused on innovation strategy, competitive intelligence, product development and patent search.  To find out more, or get in touch please visit www.totaro-associates.com.

Guest post by Philip Totaro, Founder & CEO of Totaro & Associates

In the early stage of an industry, the long term may seem like it’s too far away.  Penetration of electric vehicles (EVs) has not yet reached levels where it is displacing significant market share from conventional gas-powered automobiles, in spite of the popularity of EVs in some regional markets around the world.

A recent move intended to inspire further EV adoption, announced in a blog post by Tesla CEO, Elon Musk, to “not initiate patent lawsuits against anyone who, in good faith, wants to use our technology,” seems to be quite popular so far.

While this is a noble and well-intentioned move, unfortunately, this thought process represents a widely held misconception about intellectual property: that it is only a legal matter, rather than a commercial one.

Patents are not just about hitting the ‘litigation lottery’ as Mr. Musk put it.  Patents are the codification of innovation and they represent the investment of time and effort from the innovative and creative people who have their names on them.  Making the investment in intellectual property protection in the first place presumes that you are willing and able to enforce your rights.

In any market there will be those who are driven by greed, and we have seen the exploitation of intellectual property by so-called “patent trolls.”  Mr. Musk appears to be frustrated with this exploitation of intellectual property, stating that:

…too often these days [patents] serve merely to stifle progress, entrench the positions of giant corporations and enrich those in the legal profession, rather than the actual inventors.

I choose not to be so cynical about the process of protecting innovation and intellectual property rights (IPR).  While many things are inefficient about the patent and trademark protection process, we live in a time when IPR are more respected around the world than they have ever been, notwithstanding the specific cases of misuse which we have become aware of in recent years.

Simply put, IPR create jobs and shareholder value for the companies that invest in innovation.  The legal profession around protecting and litigating IPR has arisen because of the increase in innovation, not because of a desire or need to line their pockets at the expense of companies who misappropriate the IPR of a competitor.

“Open sourcing” one’s patent portfolio reduces the ability to obtain value in return for that investment in innovation.  There is also value in holding a portfolio of IP assets on a diverse set of technologies because IPR creates a mechanism by which you can cross-license your technology and that IPR in case litigation comes your way, even if you don’t intend to initiate it.

Perhaps the big carmakers aren’t fully embracing EVs yet, but they certainly have the resources at their disposal to overwhelm Tesla if they wanted to.  Interestingly, Tesla doesn’t seem to understand another important aspect of IPR, which is that IP litigation between practicing entities only typically arises when their market share is encroached upon.  I suppose that if Tesla were making more of a dent in the car market, they wouldn’t be forced into this type of public relations stunt.

The timing of this also affords us the opportunity to discuss another widely held misconception about intellectual property, which is that there is more to IPR than just patents.  Typically, being first to market with a product in a new niche market matters more than having the most patents on that technology.

The inevitable action of competition that has the resources to invest in competing with an early market leader will be to duplicate their technology with improvements of their own in an effort to replicate the market leader’s commercial success.

A comment on the Tesla blog which first announced the intention not to litigate on their patents highlights some of the main concerns with this plan:

TeslaFan2014

4:42AM | JUN 14, 2014

Mr. Musk:

Great News for those interested in your company’s technology!  Can you please back up this press release with actual details/procedures?

Can you please direct those that are interested in practicing your company’s patented technology a contact where they can receive a royalty-free, perpetual license to practice your company’s technology, as the release suggests? No company will start [to] willfully practice another company’s technology without assurances they will not be sued (a press release does not cut it).

Can you have your IT folks upload a perpetual, royalty free license like the one above, signed by you, so that it can be easily downloaded and signed by companies that want to practice your patented technology?

Can you specify which patents you are actually talking about? Does this mean all of Tesla’s patents? In any country?

The spirit behind this press release is great. Now, we need details.  

Thank you again for such a generous thing that you are doing.

 I, and others, look forward to seeing how you are actually going to get this done.

In Tesla’s case, this move will hurt them in two ways longer-term:

Undercutting the future commercial value of the company

IPR precludes duplication of one’s technology by competitors.  Even if I don’t have Tesla’s drawings, if I have engineering and financial resources, I can still reverse engineer what they’ve done and improve upon it at a potentially faster rate than Tesla can innovate.

If Tesla is informing their competitors they will not enforce their IPR, how do they expect to effectively deter competition from penetrating the market with potentially better technology than theirs in the future?

Savvy companies tend to study the IPR of their competitors and spend time and resources designing around or improving upon the current state of the art.  Tesla’s move does address one of Mr. Musk’s pain points in that it will lower the commercial barriers to competition in the EV market, rather than using proprietary rights to “stifle progress” in the industry.

However, giving away key aspects of your technology without a license fee inherently diminishes your investment and makes it easier for your competition to leapfrog you.  So, when the EV market does take off, Tesla’s competitors will be in a better position to gain commercial advantage and more market share than Tesla.

Tesla will still be a takeover target, given their entrenched position commercially and technologically, but with a significantly lowered valuation resulting from this move.

Spares Sourcing

Tesla has been involved in several lawsuits and state legislative efforts to enable the company to have direct sales of their cars to consumers.  The car dealers in many states are of course unhappy because it undercuts their ability to generate sales revenue since they are bypassed by Tesla.

Providing a royalty-free license in their patents will exclude Tesla from preventing their sub-component suppliers to directly sell spare parts to consumers or independent repair shops.  This will bypass Tesla and curtail its ability to generate aftermarket and services revenue.

Since the EV market is immature and Tesla’s fleet of cars is relatively new, one can presume that this consequence was simply a strategic oversight on behalf of the company.

The move may garner some good PR value and potentially achieve greater market penetration of EVs and Tesla EVs, but it lacks foresight.  Tesla is a company beyond Elon Musk, and the passion and dedication of hundreds of employees and investors who made the commitment to work with the company in the early days deserves recognition and reward resulting from the commercial success of the company.

This noble attempt at changing the paradigm of technology development in a key industry of the future is ultimately short-sighted for Tesla, unless it has commitment from its competitors that they will follow suit and open their portfolio of IPR to the industry as well.

The open source software industry has been successful over the past 25 years because there was a community of companies who all agreed to play by the same rules.  So far, only Tesla is playing by these open source rules, and it appears unlikely that other major automakers would be willing to follow their lead.

Unfortunately, we don’t all live in the world of Gene Roddenberry’s Star Trek where money has been abolished and people want for nothing because nobody wants more than what they really need.  But until we achieve that utopian paradise, if I were a Tesla employee, I’d be furious right now that my company will be less valuable in the future than it could have been.

If Mr. Musk would be willing to redistribute his wealth to the employees and investors who made the commitment to create value for the company in the first place, then this move to open source their patents during the formative stages of the EV industry might make more sense.

*Philip Totaro is the Founder & CEO of Totaro & Associates, a consulting firm focused on innovation strategy, competitive intelligence, product development and patent search.  To find out more, or get in touch please visit www.totaro-associates.com.

A recently issued patent could make the use of master limited partnerships (MLPs) more difficult in wind projects without a license or reliance on the patent owner to provide software / services to enable transactions.

Entitled “Apparatus and method for combining easements under a master limited partnership,” U.S. Patent No. 8,700,517 (‘517 Patent) describes a master limited partnership as follows:

A master limited partnership (MLP) is a business organization governed by a contract between management (e.g., general partners) and investors (e.g., limited partners). A master limited partnership combines the tax benefits of a limited partnership with the liquidity of publicly traded securities. The master limited partnership was originally conceived as an organizational structure to capitalize on mature, low growth, cash generating businesses. Accordingly, master limited partnerships have been used in such industries as oil, gas, real estate, and natural resources.

Presently, this type of investment vehicle is being deliberated by the U.S. Congress as a mechanism to help facilitate the deployment of renewables.  The implication would be that a broader base of potential investors that do not require accreditation could become partners / investors in wind farms or solar parks.

We have seen recent trends towards crowd-funding of wind parks in Europe, and some developers here in the U.S. believe MLPs could be a useful tool.

The ‘517 Patent describes a business method for using a computer system to store data and information related to property easements secured under the MLP structure:

A computer includes a processor and a memory connected to the processor. The memory stores capital data characterizing capital raised for the purchase of real property easements, operating data characterizing fees collected in connection with the real property easements, and a master limited partnership module with executable instructions executed by the processor to designate master limited partnership income based upon the capital data, the operating data and terms of an easement ma[s]ter limited partnership.

An easement is a property right under common law, and is often sought by a renewable project developer from a landowner so that valuable consideration is provided to the landowner for the use of the property for renewable project construction.

An examination of the breadth of claim 1 of the ‘517 Patent shows that the inventors propose a computer system and a means for cataloging and storing information related to easements of specific projects with an MLP structure:

1.  A computer, comprising: a processor; and a memory connected to the processor, the memory storing capital data characterizing capital raised for the purchase of real property easements, operating data characterizing fees collected in connection with the real property easements, wherein the fees are from aggregated real property easement rights and associated rental fees from rent generating fixtures, and a master limited partnership module with executable instructions executed by the processor to designate master limited partnership income based upon the capital data, the operating data and terms of an easement ma[s]ter limited partnership.

The implications of this claim breadth would be to make the assignee of the ‘517 Patent, American Infrastructure Funds, LLC, the owner of a de-facto standard for many MLP deal structures, even outside of renewables.

The ‘517 Patent might be treated similarly to a “standards essential” patent, and compulsory licensing may be required since it would appear that many investment management companies and project developers would utilize computer systems and software which comprise this method.

Interestingly, while many companies may propose to argue against the obviousness of something so broad, the method described would have likely been treated by investment companies and project developers in the past as a company trade secret.  Thus, there may be little public domain disclosure of relevant prior art to this method, and their original priority claim from the patent family dates back over 12 years.

It will be interesting to see how enforcement of the ‘517 Patent unfolds as renewable projects attempt to get on the MLP bandwagon.

*Philip Totaro is the Principal at Totaro & Associates, a consulting firm focused on innovation strategy, competitive intelligence, product development and patent search.  To find out more, or get in touch please visit www.totaro-associates.com.

Utility scale wind turbines have become so technologically advanced that they have improved the cost of energy (COE) of wind enough to compete with today’s conventional energy sources.  The ensuing reduction in COE has been the result of two governing forces: public policy and technological innovation.  

The technological trends which have emerged thus far and what might be in store for the future direction of wind turbine technology are explored here.  Policy and governmental R&D support will continue to be essential, and barriers to wind technology commercialization must be further broken down.

The patent landscape can shed significant insight into what technological trends have emerged thus far and what we might be able to infer for the future direction of wind turbine technology.  The patent landscape analytics, as well as extensive analysis of forward looking competitive intelligence, helps shape our view of future technology trends for the industry.

Figure 1 – Analysis Methodology

 

The patent search results comprise over 8,665 patent families and over 32,834 global filings from 67 different countries, dating back to the year 1916 when some of the first grid connected technology took root.  In addition to a component and technology keyword classification, an assessment of the relevance of each patent filing to the industry was performed and results were classified as Low, Medium, Medium/High, and High. 

The assessment of industry relevance indicates the degree to which the patent owner has asserted its patent rights in the past or would be able to seek licenses or otherwise enforce the patent due to usage of that patent protected technology by their competition.

Figure 2 – Industry Relevance Assessment

 

With the results grouped by assignee (or patent owner), it should come as no shock to industry watchers who are the top assignees for wind patent filings.  The list largely coincides with the top market share holders in the sector, and the chart below shows the number of patent families held by each company.

Figure 3 – Assignees (by Patent Family)

 

The industry relevance results indicate that only 0.8% of issued patents would have a high impact on the entire industry as a whole if those patents were universally asserted, with another 6.9% which may become relevant in the future depending on technology evolution and use.  The remaining 92.3% of filings are merely providing owners with basic defensive IP protection on technologies they use in their own product lines, but are not widely used in the industry.

Table 1 – Portfolio Evaluation and Industry Benchmarking (Top 10 Companies)

 

 All combined, the top 10 turbine OEM patent holders control 54.5% of patent filings.  Only 67 patent families out of 8,665 catalogued thus far comprise technology which is broadly applicable to products and services offered commercially within the industry worldwide.

General Electric Company (GE) controls not only the largest number of patent families, but the largest percentage of all wind-related IP with over 15% of patent filings.  While most companies are in-line with industry averages in terms of overall portfolio distribution of Low, Medium and High risk filings, GE’s High risk patents as a percentage of their overall portfolio is double the industry average at 1.8% vs. 0.8%.  Their portfolio also comprises over 35% of all High risk patents held by all companies throughout the industry.

Figure 4 – Global Wind IP Ownership Share

 

Also notable is that top-tier companies have a combined High and Medium/High set of filings which is above the industry average of 7.7%.  The top 10 control over 77% of Medium/High and 80% of High risk patent filings.  This confirms the strong correlation between investment in both R&D and IP protection and the commercial success of top-tier companies.  There is a strong link between the reduced CapEx and optimized energy production resulting from the development and introduction of those patent protected technologies.

The heat map of the filing dates for the patent filings confirms that the majority of filings have occurred in the past decade or so.  Comparison of this trend to turbine capacity additions worldwide is reflective of the shared influence of public policy on technology adoption and the subsequent cost efficiencies enabled by widespread deployment of wind turbines.

Please note that the 2012 – 2013 filings have not all yet published because of an 18 month window in which the patents are not made public.  Filing count up to 2011 is comprehensive.

Figure 5 – Wind Industry Patent Filing Trends (Patent Families)

 

Countries favored for filing include the US, Europe and China, with PCT applications being used heavily in the past few decades.  Collectively, the wind industry has spent nearly US$430M (in 2013 dollars) to date on patent protection across all jurisdictions since 1916.  Our projections indicate that the total will exceed US$1B by 2020 and $2B by 2030, with escalation of filing pace assumed to be consistent to that of the past 5 years.  Annual expenditure will top US$100M per year by 2022.

Figure 6 – Global Wind Industry Patent Filing Costs

 

Figure 7 – Global Wind Industry Patent Filings (Top 30 Countries)

 

Clearly IP capture will continue to be an important consideration for top tier wind companies who are developing and commercializing new products.

*Philip Totaro is the Principal at Totaro & Associates, a consulting firm focused on innovation strategy, competitive intelligence, product development and patent search.  To find out more, or get in touch please visit www.totaro-associates.com.

Totaro & Associates has completed the second phase of a study which began in December 2010 on the patent landscape of the horizontal-axis, utility-scale wind industry.  We have now read and classified over 23,100 global patents and applications, with over 3,200 issued patents in the US alone.

As we have highlighted in previous posts (here and here) on our wind turbine patent landscape, the analysis looks at the breadth of patent claim coverage and the use of that patent-protected technology within the industry.  Close to 11% of patents in any given country can be classified as high risk patents, or those which have broad claim breadth that covers technology which is being used by at least one other turbine vendor besides the patent holder.

This analysis, and the creation of risk profiles for each turbine OEM product offering, has provided clarity on the scope of potential patent infringement risks of any turbine topology or drivetrain architecture, regardless of turbine OEM. 

The OEMs are far and away the largest holders of all these patents and the overwhelming majority, more than 95% of high risk patents are held by the turbine OEMs and key sub-component suppliers.  These patent holders are keen to protect their intellectual property rights in the current market climate.

Presently there are some turbine OEMs who are not willing to provide full indemnity to turbine purchasers in the supply agreements, even though the OEMs receive full indemnity from sub-component suppliers when they buy a generator or a blade or even a tower.  Vertically integrated OEMs have even more work to do themselves when it comes to ensuring they have freedom to practice, since they retain more liability due to an increased scope of supply.

Proactive companies as well as most of the larger OEMs are willing to allocate resources to evaluate patent infringement risk and undertake mitigation strategies such as licensing or even a freedom to practice analysis prior to product launch.  The cost of licensing can be prohibitive to competitive cost of energy, so most of the smaller OEMs and those who do not have a large presence in a given market will not opt to undertake a freedom to practice project.

Patent infringement risk is shared by all (see Table 1), especially in cases where the OEM is not engaging in appropriate risk mitigation activities on its own.  Even those who do may only pay attention to the hot button issues at the urging of financiers or outside counsel, especially those patents in active litigation.  Hundreds of relevant patents are often missed leaving a veil of ignorance covering a gaping whole.

Table 1

The cause of the gap lies in the search protocol typically used by most IP professionals.  Taking an example of a patent database search in the US for issued patents related to the keywords (“wind turbine” and “power factor control”) nets 118 results.  The same search conducted in the Totaro & Associates patent landscape not only yields more comprehensive results with 156, but provides an analysis of patent infringement risk:

The generic keyword based search also turns up numerous false-positive results including: 

• US7580777    Modular aircraft control system and method
• US6936947     Turbo generator plant with a high voltage electric generator
• US6894416     Hydro-generator plant

While ignorance of the patent rights of a competitor may avoid treble damages in patent infringement litigation, such ignorance is not the best way to quantify and mitigate risk.  It can still create a PR and sales issue if assertion and/or lawsuits arise.  Even though it can seem like there are an infinite number of patents out there, the numbers are actually finite, albeit substantial.

During market conditions where revenue from turbine sales is diminishing, everyone needs to be cognizant of the OEMs willingness to make up for those shortfalls by enforcement of intellectual property rights.  Developers and financiers need to ask for more in the way of indemnity in a turbine supply agreement, and seek independent verification of patent infringement risks. 

If insurance is used as a risk mitigation strategy, the providers need to be cognizant of the scope of work performed by the turbine suppliers and the potential shortcomings of those efforts.

It may be a mountain to climb, but the summit can be reached and in this case having a guide can make all the difference.

*Philip Totaro is the Principal at Totaro & Associates, a consulting firm focused on innovation strategy, competitive intelligence, product development and patent search.  To find out more, or get in touch please visit www.totaro-associates.com.

Quantifying Risk for Patent Infringement Liability Insurance

Major international corporations have long been the targets of IP infringement suits, and this is increasingly the case in the wind industry.  This has driven the need for indemnification of patent infringement liability in component/product supply agreements, particularly in business-to-business (B2B) market sectors. 

In addition, patent infringement liability insurance is becoming more commonplace for makers of industrial equipment who are hoping to sell their wares into several international markets.

In order to obtain an accurate picture of the potential risk of infringement, insurers have relied on the equipment suppliers and other domain subject matter experts to provide them a sense of the liability exposure. 

However, in some industries that are still maturing, there is a need for a more robust solution, since some of the companies competing in the industry may not have an established protocol for this type of risk mitigation activity.

As such, we have tracked and evaluated the market conditions in a specific vertical industry of the wind turbine supply chain, and we have identified the need for better visibility around the infringement risk potential as well as mitigation strategies for the turbine suppliers and acquirers.

I.          Current Wind Industry Market Conditions

Within the wind turbine industry, we see that falling demand has caused greater pricing pressure and that increased price competition is forcing consolidation as well as manufacturing capacity reduction. 

We can expect that as the Tier 1 wind turbine OEMs struggle to maintain profitability and fend off the Tier 2/3 competitors from taking away their market share, we will see those Tier 1 companies assert their IP rights to protect their revenue streams, or even to create new ones.

Also, Asian turbine manufacturers who have suffered the slowdown of turbine sales in their domestic markets have looked to overseas markets for new sales opportunities, and the US is one of the favored sectors. 

Some of these Asian manufacturers may have patent licensing agreements with European or US companies for their wind turbine designs, but that does not completely alleviate the risk of infringement for their product platforms. 

At present, freedom-to-operate (FTO) clearance efforts are not being undertaken as consistently as one might expect of an international company entering a new market.  There may be a belief that due to the licenses already held on the technology platform, the infringement risk is minimal.  It may also be a lack of cognizance that a FTO assessment is a prudent protection against willful infringement and treble damages.

Lastly, as mentioned before, the current trend in wind is for turbine suppliers to indemnify turbine purchasers from third party infringement.  While a sensible and necessary precaution, that may not preclude a wind farm project from being delayed, curtailed or otherwise taken offline if a patent owner seeks an injunction on the turbines because of a component, or even a means of turbine / wind farm control which is potentially infringing on the rights of that third party.

In the case of licensed technology, an adjustment in the project economics is likely made if technology/patent licenses are in place, since one would expect the turbine purchase price will typically include the cost of licenses being passed on by the turbine supplier to the purchaser. 

However, while licensing mitigates the IP infringement risk and might therefore reduce the insurance risk premium, this is really just cost shifting. 

Depending on the licensing fees and to what extent they are passed on in the price, the overall competitiveness of the project cost of energy may still be adversely affected, since a turbine with less risk exposure may introduce better project economics at a given wind site assuming turbine product commoditization and an otherwise relative equivalence of CapEx cost.

As the industry faces the expansion of regional Tier 1/2 companies and the increased competition and potential consolidation, we could see aggressive assertion of IP rights in the hopes of securing a market-leading position.  Precedent is already being set for the kinds of conditions which will exist in certain markets regarding the protection of intellectual property rights.

II.         Recent Assertion of IP Rights in Wind

Lately, we have seen the very public results of the assertion of IP rights within the wind industry.

Most recently, a dispute having implications on international trade arose when AMSC discovered that certain employees of their former customer, Sinovel, had orchestrated the theft of trade secret source code for controlling the converters.  Sinovel has had large orders put on hold with a well-known European project developer pending the outcome of the arbitration with AMSC. 

It is also well-known that General Electric Company (GE) asserted its rights and sought licensing deals with its peer group over variable speed wind turbine controls patents.

We have also seen GE go to court over the same patents with Mitsubishi Power Systems, and have witnessed the resultant drop-off in sales for Mitsubishi largely due to the IP infringement risk.  According to the 2010 Wind Technologies Market Report released by Lawrence Berkeley National Laboratory in June 2011, Mitsubishi was #3 in US market share going back to 2005 behind GE and Vestas, but dropped down due to increased competition from Siemens, Gamesa and Suzlon, as well as the rise of Clipper. 

While we may not be able to directly attribute Mitsubishi’s loss of US share solely to the IP matter with GE, it was certainly a major factor.

One of the key patents in this GE licensing / litigation matter was US5083039 (‘039 Patent), which deals with field oriented control of an induction generator as well as dynamic volt-ampere reactive (VAR) control of the turbine.  Since doubly-fed induction generators (DFIGs) utilizing field oriented control were largely utilized by many turbine manufacturers in the ‘90s and ‘00s, GE felt justified in the wide-spread assertion of the ‘039 patent, among others. 

Over the past 10 years or so, the wind industry has generally moved away from DFIG based turbines to permanent magnet generators (PMGs).  This technology offers numerous advantages for electrical as well as system efficiency, and the full power conversion architecture enables better turbine control and more opportunity for grid stability.

But since this move away from the ‘039 patented technology, there has been a buildup of IP around the turbine architecture of PMG and full power conversion by numerous Tier 1 turbine OEMs as well as the Tier 2/3s, sub-component suppliers, universities and others.

Thus, FTO initiatives are already underway by the proactive companies in the industry.  They are hunting for the next potential ‘039 Patent in the hopes of guarding against the widespread assertion, which we feel is highly likely given the market conditions.

III.       Patent Landscape Analysis

Last year we decided to conduct an investigation of the patent landscape of the utility scale, horizontal-axis wind turbine industry to gain insight into what technology trends have emerged thus far, and what might be in store for the future.  The results have also proven to be useful in examining the infringement risk exposure of turbine manufacturers and their product platforms.

Aggregation of these results has now led to a total set of 2340+ US patents and 2250+ published US applications dealing with utility scale, horizontal-axis wind turbine technology.  While the scope of these search results was limited to US issued patents and applications, most of these have equivalent foreign filings.  The Global patent landscape is still under investigation, so at present the US jurisdiction is the only set of comprehensive results we can present.

For the set of results obtained, an assessment of the relevance of each patent to the industry was performed and the results were classified as low, medium, medium/high, and high.  Definitions of this classification method are below. 

The assessment of industry relevance serves the purpose of indicating the degree to which the patent owner has already, or is likely to assert their rights and seek licenses or otherwise enforce a particular patent.  This should be an indication of the proverbial landmines to watch out for when navigating a technology and product roadmap through the landscape.

IV.       Wind Turbine Risk Profiles

Now, even with newly published patents and applications on a weekly basis, we are able to sustain a comprehensive assessment of the industry relevance of a particular technology.  In addition to this industry relevance, if we look at the turbine architecture of manufacturers’ product offerings we can establish a risk profile for those products being offered.

The risk profile is established in one of two ways, but always requires a detailed understanding of the turbine manufacturer’s product architecture. 

Unless a technical specification or operational profile along with a component sourcing list is provided to facilitate evaluation during a project finance due diligence effort, we are able to take advantage of our market research and competitive intelligence gathering efforts to construct a reasonably good picture of the competitive landscape and the turbine technology platforms offered by the OEMs.

Next, the methodology outlined above for the industry relevance assessment can be utilized in assessing the infringement risk of each patent.  The specific technology architecture can be evaluated against the claim breadth of the patent, the presumption of validity of the patent as well as the likelihood of assertion in order to come up with an overall risk profile for each turbine.

These results are consolidated to provide an overall relative ranking and provide an understanding of the scope of mitigation work required, or alternatively the risk premium which can be assessed. 

The example below shows a representative turbine comparison against the industry average and the quantified risk exposure in terms of the number of patents.  Note that only issued patents are assessed for infringement risk.  Pending applications can also be reviewed for potential risk exposure, should the published claim set subsequently issue “as is.”

As wind turbine technology becomes more mainstream, IP infringement risk mitigation will become essential to the industry.  Continued technological innovation and the commercialization of it will drive down energy production costs to a point where wind is the energy source of choice.

Philip Totaro is the Principal at Totaro & Associates, a consulting firm focused on innovation strategy, competitive intelligence, product development and patent search.  To find out more, or get in touch please visit www.totaro-associates.com.

 

What developers and financiers of wind farm projects need to know.

I attended the AWEA Fall Symposium in Carlsbad in November 2011.  While it was a good industry gathering, I was intrigued by a panel discussion in which a representative from a major US developer and O&M (operations & maintenance) service provider to wind farms indicated that his organization will sometimes sidestep the turbine OEM (original equipment manufacturer) when it comes to sourcing spare parts.

Generally speaking, the turbine supply agreements which wind turbine OEMs sign with their own customers cover the breadth of their patent protection, but typically only a use license is provided.  The ability to modify turbines or use substitutes may not be implicitly provided to the owner/operator of the turbine, calling into question some of the proposed methods developers and O&M service providers may use to help control cost.

Aspects of this topic were previously covered in in this space in a post entitled Infringement Issues in an Emerging Wind Power Cottage Industry.  

Interestingly, in other industries, like automotive, we have seen the OEMs create features of certain key components which mean the components or the service can only be provided by an OEM representative or certified technician.  This locks in an aftermarket revenue stream for the OEM, and is something they will not want to lose out on as more ‘modern’ turbine fleets begin to come off warranty and age.

As the O&M cost structure and optimization of wind farm operations becomes more of a hot button issue, we will see what steps if any OEMs will take to ensure revenue streams in this increasingly competitive market.  Assertion of patent rights is certainly a tool in the toolbox.

Nevertheless, this topic got me to thinking about other areas in which there may be vulnerability of developers, and thus the financiers of wind farm projects, to assertion of patent rights from turbine OEMs.

As we have seen in other industries, as competition emerges and the industry matures, IP owners begin to assert their rights if they feel there is diminishment of their commercial enterprise. 

We have seen GE assert its patent rights against many other turbine OEMs on variable speed technology, and even go to court with Mitsubishi in a suit which could have profound implications on future assertion within the industry.  AMSC also recently made public the theft of trade secrets by one of its customers.

This begs an important question: Will the turbine OEMs, who have accumulated over 4300 US patents and applications on all aspects of wind turbine technology, begin to seek targets other than their OEM competition for licensing revenue in a US market which is increasingly cost competitive?

For instance, there are many OEMs and key component suppliers with patents on methods of power factor control and curtailment for wind farms.  These two particular aspects of wind farm operation and optimization are  not only noteworthy for freedom to operate by the competitor OEMs, but operators of wind farms may need to start paying attention too. 

U.S. Patent No. 6,479,907 owned by ABB, U.S. Patent No. 6,891,281 owned by Enercon, and U.S. Patent No. 7,663,260 owned by Nordex are good examples of hardware and control methodologies already being employed. 

What recourse does a wind farm operator or turbine OEM have to refuse a curtailment order from an ISO if they know that it would infringe on a third party or competitor’s patent?

Also, U.S. Patent No. 7,318,154 owned by GE, which enables remote monitoring and control of wind farms via the SCADA system, could potentially be important to anyone operating a wind farm.  FIG. 1 of this patent is shown here:

Nowadays, even connection of energy storage technology or use of high voltage direct current HVDC is becoming more pervasively talked about and deployed in wind, with plenty of pioneering patents and applications on both aspects of technology already in process.

The question is whether or not an OEM would jeopardize a customer or potential customer relationship and turbine sales to assert its patent rights on developers, O&M providers or owners/operators of wind farms for which they did not supply turbines (and the aforementioned use licenses).

Is there a need to add IP due diligence to wind farm development efforts?  Perhaps, but there is a long way to go from patents which “may be highly relevant” to getting lawyered up in an effort to fend off opposition.  That being said, being proactive could reduce the odds of excessive damage awards.

As FERC continues to evolve their regulations regarding operation of wind farms, we will see if the OEMs can remain one step ahead with patent protection on technologies which could become the new standard for optimized performance of a wind farm or cost mitigation of O&M.

Philip Totaro is the Principal at Totaro & Associates, a consulting firm focused on innovation strategy, competitive intelligence, product development and patent search. 

To get a deeper look into the patent landscape of the horizontal axis, utility-scale wind industry please visit www.totaro-associates.com and ask about Wind Patent Watch™, a subscription service providing a weekly digest and analysis of the published patents and applications from the wind industry.

 Part II:  Cost Estimation

Analysis and cost estimation of GE’s patent portfolio suggests a bubble… but will it break?

Part I of this article analyzed GE’s industry-leading wind patent portfolio. 

Part II asks whether the pace of growth of GE’s patent portfolio is sustainable, since each application has a certain cost associated with it and the revenue generated from licensing must exist in order to justify the continued scope of the portfolio. 

 

The spike in GE’s patent filings starting in 2003 after the Enron Wind acquisition and again in 2008 with a focus on future licensing is reminiscent of the huge increase in the pace of filings from Aloys Wobben, Chairman of Enercon GmbH, in 2002 – 2003 after the settlement of the International Trade Commission (ITC) matter in which Kenetech/Zond/Enron Wind/GE effectively denied Enercon entry into the US market.

The portfolio of Enercon patent filings proved to be unsustainable as is evidenced by the sharp drop-off in their number of filings per annum in the past few years, in spite of new innovation being developed on their liquid cooled generator.

Based on a patent budget calculator which we developed to assess the year-over-year costs for cultivation and maintenance of a patent portfolio, we have been able to determine the approximate costs for maintaining their portfolio.  Certain assumptions had to be made in this analysis, so there is likely some variability in the cost, however we believe it to be accurate within an order of magnitude.

Even though the patent landscape we have analyzed covered only the US, we know GE uses the US as their primary priority filing locale and their foreign filing strategy can be inferred from a look at the family members of their US patents. 

Assumptions are as follows:

• The majority of their filings are US, CN, and EP.
  • Filings which were categorized as L or M will follow this protocol for cost calculation.
  • Important inventions get filed in a broader scope of countries, specifically US, CN, EP (note: sometimes DK and DE are used explicitly instead of an EP filing, especially if the invention originated from their German R&D/Engineering center), IN, MX, JP, KR, CA, BR and AU.
    • Filings which were categorized as M/H or H will follow this protocol for cost calculation.
    • Filings per annum used in the calculation from 2001 – 2010 were actual numbers.
      • Filings prior to 2001 were not very significant and were excluded from the calculation for simplicity.
      • Filings from 2010+ were assumed at the same average rate per annum from 2008 – 2010 for filings out until 2020.

The results of this calculation based on the scope of GE’s portfolio and following the protocol outlined above shows that the cost is quite substantial particularly in the out years.  In 2020 alone they will spend US$31M on prosecuting and maintaining their portfolio.

Continued turbine sales as well as licensing will clearly be necessary to support that size of portfolio. 

With the expiration of a core patent in February of this year, US5083039 (‘039), which covered field oriented control of an induction generator as well as dynamic VAR control at the turbine, a new suite of technologies has emerged technologically, but not necessarily on the assertive license front.

GE’s recent acquisition of Converteam also adds to their portfolio of full power conversion and permanent magnet generator technology.  This architecture is quickly becoming the most pervasively deployed platform amongst the wind turbine supply base. 

It remains to be seen if this technology architecture will be part of the next wave of assertion and licensing.  If history has anything to say, then you can bet on future licensing.

However, the scope of those efforts may be affected by the outcome of the ongoing Mitsubishi litigation.  If GE is successful in upholding the validity of their patents against Mitsubishi then one will presume they will be emboldened to pursue licenses on the new technology platform. 

If Mitsubishi prevails, then we could see another round of lawsuits from the licensees of ‘039 and the other DFIG related technologies demanding their royalty payments back.  This could leave GE gun-shy to broadly license the way they did with ‘039 and other related patents.

Whatever the future holds, GE now holds a substantial lead while the rest of the industry struggles to catch up.

Philip Totaro is the Principal at Totaro & Associates, a consulting firm focused on innovation strategy, competitive intelligence, product development and patent search. 

To get a deeper look into the patent landscape of the horizontal axis, utility-scale wind industry please visit www.totaro-associates.com and ask about Wind Patent Watchâ„¢, a subscription service providing a weekly digest and analysis of the published patents and applications from General Electric and the rest of the industry.

Part I:  Patent Portfolio Analysis of an Industry Leader

 

Wind Industry Leader

General Electric Company (GE) has vastly outpaced all of their competitors in intellectual property (IP) protection in many industries, but particularly wind turbines.  The chart below reflects data from our efforts in analyzing the landscape of issued patents and pending applications from the horizontal axis, utility-scale wind sector and indicates just how far ahead they are. 

 

 

The scope of their portfolio can certainly be intimidating to those who have not taken the time to analyze it in depth.

It is interesting to note that while they are better than the industry averages, GE’s portfolio is not vastly superior to most of their competition on a percentage basis as it relates to the number of high risk patents and apps (2% for GE vs. 1% for the Industry) and medium/high risk patents and apps (15% for GE vs. 10% for the Industry) represented on the chart above in red and orange respectively. 

However, the scale that their portfolio has achieved affords them the luxury of having greater numbers of patents in key areas of technology.  While they have over 20% of the patents and applications in the sector, the important trend is how much of the high and medium/high relevance patents and applications they hold.

GE has also been one of the top utilizers of the “Green Patent Fast Track” in the USPTO, and the 500^th patent granted under the program was a GE patent relating to blade winglet technology to enhance performance.

GE’s Component Focus Mirrors Industry Trends

Deeper analysis of their portfolio indicates the areas of focus for the components and technologies in their portfolio. 

Their component focus has been in those same areas which the industry has rallied around.  Blade aero performance and structure, controls for performance optimization and load mitigation as well as electrical system reliability enhancement are all trends which are seen throughout every wind turbine OEM.

 

A look at their technology focus indicates they are mostly in line with industry trends on this as well.

 

Issued Patents v. Pending Applications Reveals Most Recent Innovations

A comparison of the issued patents in their portfolio vs. the pending applications reveals some interesting trends as well. 

Here we offer a comparison of the issued patents and the pending applications broken down by component keyword.  The differences between the two charts indicate areas where innovation has occurred in the past vs. more recently. 

From this it is clear that while blades are the highest component on the cumulative chart, that is largely due to influx of innovation on manufacturing process, the swept blades, circulation control, as well as the serrated trailing edge being utilized on the new 1.6-100m platform.  Additionally, blade manufacturing processes, tools, as well as transportation fixtures and techniques. 

Power factor control / VAR support and more recently sensor system accuracy have become important areas.  Tower reliability improvements, braced designs and self erection capabilities are also trending.

GE Issued Patents – Breakdown by Component

 

GE Pending Applications – Breakdown by Component

 

We also offer a comparison of the issued patents and the pending applications broken down by technology keyword.  Performance optimization has dominated their product strategy in the past few years, and their patent portfolio reflects that trend as well.  Other areas include:

• Component reliability enhancements continue as well as condition monitoring systems and integration of feedback to control turbine output
• Blade aero performance enhancements as well as controls-based energy output optimization
• Component transportation fixtures as well as segmented components which can be transported and assembled on-site
• Blade manufacturing and structure
• On-site component repair techniques
• Component “cost-out” activities to try and improve marginal cost of each turbine in this present era of depressed market prices

 

GE Issued Patents – Breakdown by Technology

 

GE Pending Applications – Breakdown by Technology 

 

Patent Strategies Bracket the Competition

GE is also famous for identifying key technologies which are required within the industry at a future point in time, such as power factor control, VAR support or more recently curtailment, and then develop a multi-patent “fence” around those technologies. 

They also look to bracket around their competition with patents.  This is accomplished by identifying the High or Medium/High risk patents or applications of their competitors and analyzing the weaknesses of those claims to determine areas of potential IP capture, coupled with assessment of competitive intelligence to determine where their competition is going technologically. 

In developing the breadth of this portfolio they have followed some basic tenets of IP strategy in seeking blanket protection in most areas of technology and components in the industry space. 

This is the result of their focused brainstorming sessions and engagement of a broad swath of engineering as well as internal and external Legal/IP team members to identify patentable inventions and complete invention disclosures and applications. 

These protocols, established in the mid-2000s have served them well in the last few years where the number of filings has doubled compared to previous years. 

Part II of this article will look at the costs associated with pursuing and sustaining this portfolio.

 

Philip Totaro is the Principal at Totaro & Associates, a consulting firm focused on innovation strategy, competitive intelligence, product development and patent search. 

To get a deeper look into the patent landscape of the horizontal axis, utility-scale wind industry please visit www.totaro-associates.com and ask about Wind Patent Watchâ„¢, a subscription service providing a weekly digest and analysis of the published patents and applications from General Electric and the rest of the industry.