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Americans pursue patent in Europe

Zond Energy Systems Inc is pursuing a European patent for the disputed "variable speed" technology that was once owned by now bankrupt Kenetech Windpower. Representatives from the company in March are to appear at proceedings at the European Patent Office regarding the extent to which the technology will be protected in Europe. Zond's pursuit is expected to have a dramatic impact on the European wind industry, whatever the outcome.

Zond Energy Systems Inc, part of the American energy giant Enron Corp, is pursuing a European patent for the disputed "variable speed" technology that was once owned by its now bankrupt California rival Kenetech Windpower. On March 4, representatives for Zond, based in California, are to appear at oral proceedings at the European Patent Office (EPO) in Munich, Germany, in connection with an application which the company has had pending for the past year.

Fighting over the ownership of the technology has already changed the course of wind energy development: sales of a European turbine were banned in the United States in 1996 after Kenetech used its US Patent 5, 083, 039 to prevent the entry into the country of technology developed by German manufacturer Enercon GmbH (Windpower Monthly, October 1996). Zond, which now owns the Kenetech patent, is apparently paving the way to enable it to adopt the same competitive tactics in Europe. Notice of the EPO hearing on March 4, which is not open to the public, is a matter of public record.

The proceedings, before the Examining Division of the EPO, are regarding what of Zond's variable speed technology -- if any -- will be protected in Europe. Kenetech effectively patented the rights to the concept of variable speed wind turbine technology in the US, even though wind turbines with variable speed rotors have operated in Europe for decades. Zond's initial application to the EPO was rejected last year, on May 27, on the basis of prior art: Zond's requested patent was deemed to be based on technology that already existed. Since then Zond has amended its application and is now pushing forward with it.

Several rejections by the EPO are considered a normal part of a patent application process, but as the EPO is funded solely by patent fees, it has an inbuilt incentive to grant some sort of patent rather than nothing. Some of the issues cited by the EPO in its rejection of Zond's first application, however, seem to have substance, says a source familiar with the written proceedings of the application. The fact that an oral hearing is being held also implies that the EPO and representatives for Zond may have reached something of a "sticking point." This could be a disagreement over what are formally called "issues" in the substance of the patent application. Both Zond and Enron declined to comment on the matter.

In the firing line

Zond's pursuit of the controversial patent, even if not successful, is expected to have a dramatic impact on the wind industry in Europe. Several of Europe's heavyweight wind turbine manufacturers are marketing variable speed machines. If Zond's application goes ahead as planned, it could have a patent by late summer. If the application fails, uncertainty over who owns the technology is likely to chill the global market for variable speed turbines -- at least until the situation is clarified.

Aside from Zond and its sister company in Germany, Tacke Wind Energie, 13 of today's wind companies have developed variable speed turbines (table). Like Zond, Tacke is part of the Enron empire. It is developing a 1.5 MW variable speed (VS) turbine, while Zond installed the first commercial unit of its 750 kW VS turbine in Minnesota last month. Two prototypes of the 750 kW have been under test in Tehachapi, California. Of the 13 other companies with VS technology, all of which are European, at least eight are either marketing variable speed turbines, or will be doing so in the foreseeable future.

Heading the list of major companies in this category is Enercon of Germany, which has installed over 1000 VS turbines, followed by Lagerwey and WindMaster in the Netherlands, Wind World in Denmark, WindTec of Austria, and Dewind and Südwind in Germany. Aside from Enercon, Lagerwey is the only one of these to have installed substantially more than 100 VS turbines.

It is Enercon, however, which is under most threat from Zond, because in America it has already been judged to contravene the patent when it was owned by Kenetech. Enrcon's Martina Kuhlmann says the company is waiting to see if the EPO grants Zond's application. Only if it is granted -- when the patent details become public -- can Enercon take action, she says. "Only then can we examine the patent and if necessary register a protest. Very probably, though, the European Patent Office will not accept the variable speed patent in the form as it has appeared in the USA. The patent application would need to be changed and presented again. All this takes time, so we just have to wait."

Zond's patent purchase

The history of the variable speed patent in Europe stems from the early years of the last decade when a first application was made to the EPO, for eight variable speed patents, by a company calling itself United Technologies Corp. The name under which this patent application was registered later became US Windpower and was reduced to four patents; subsequently it was taken over by Kenetech, when US Windpower changed its name, with the new application reduced to two patents. The first EPO examination report of this application is dated May 7, 1995 -- just three months after Kenetech filed suit against Enercon for breaching its US patent.

At some point, though, Kenetech's EPO patent application lapsed because it did not keep up with the EPO fees. The application process was then revived during the period the technology was being bought by Zond, not from Kenetech but from Trace Technologies Inc (TTI). This purchase was clinched in February 1997. Trace, it turned out, was a new division of Trace Engineering in Washington state. The TTI name had emerged in the wind industry in early December as that of the

court approved buyer of Kenetech's technology for $2.55 million (Windpower Monthly, January 1997).

Zond's eagerness to acquire the patent is linked to its potential for keeping competitors at bay. Almost 18 months ago, Kenetech Windpower, despite its Chapter 11 bankruptcy filing, secured a controversial 15 year "limited seclusion order" from the United States International Trade Commission (ITC) in Washington DC, effectively banning imports of all variable speed turbines by Enercon. New World Power Corp, which was to have developed a large project in Texas using Enercon E40 turbines, was also named in Kenetech's so-called "section 337 petition." Because of the dispute, the Texas project, which is still not in the ground, is now to consist of 50 MW of Vestas turbines from Denmark in a plant developed by York Research of New York.

TTI's purchase of the patent in December 1996 was notable at the time for including an unusual indemnification of almost all of the legal costs of Kenetech, including the parent Kenetech Corp, of pursuing the ITC patent fight -- and even an associated lawsuit in US District Court in San Jose, California, against Enercon and New World Power. Since Zond was known even then to be financially backing TTI to the tune of about 40% it was assumed -- correctly as it turned out -- that Zond was the ultimate buyer of the technology and not some division of Trace.

Keen pursuit

Zond's aggressive stance made more sense when it then came out, about ten days later and just before Christmas 1996, that Zond was itself being bought by giant Enron Corp, one of the world's largest power developers and natural gas companies. On the eve of that deal, Zond was busy reviving the lapsed European patent application by paying the fees owed to the EPO in Munich, making a filing to the EPO on November 22, 1996 -- more than two months before it owned the patent. And within hours of TTI actually buying the technology from Kenetech, in February 1997, ownership was transferred to Zond.

The ITC's ruling in 1996 banning Enercon turbines astonished many observers in both the US and European wind industries and prompted a complaint from the Washington delegation of the European Commission that the ban was no more than "protectionism" of the US wind industry. There has long been a question about whether Kenetech's US patent should have been issued in 1993, because of the existence of so-called "prior art."

The ruling is still being appealed in various ways -- with Zond having formally entered the fray as owner of the patent in question. As far back as March 1997, Kenetech informed the ITC in a quarterly report -- required because of its bankruptcy -- that it had sold the "039 patent to Zond Energy Systems," although Kenetech also noted that it was able to continue to use it because it was licensed to do so by Zond. Zond's ownership of the patent was subsequently mentioned in a formal notice regarding the patent in the US government's Federal Register.

Lawsuits too

The move at the EPO comes as an $8 million anti-trust lawsuit filed by Enercon against Kenetech Corp and various Kenetech officers in US District Court in San Jose, California, is stalled. Enercon alleges "malicious" and "frivolous" intent in the suit (Windpower Monthly, March 1997). It has been stayed until an appeal against the ITC ruling, lodged by Enercon and New World, (Windpower Monthly, February 1997) is resolved at the US Court of Appeals in Washington DC.

Meanwhile a second and separate lawsuit, a patent infringement suit filed by Kenetech, also at the federal court in San Jose, has been dismissed by a judge on technical grounds. Oddly enough Enercon and New World are appealing the dismissal of Kenetech's case. But that is only because they had filed a counter claim in the suit, which was dismissed at the same time as was the Kenetech suit. Enercon and New World hope to get the suit reinstated -- and then put on hold until the appeal against the ITC ruling has been settled.

The appeal, by Enercon and New World, was made to the US Court of Appeals in Washington DC. But this court sent the appeal back to the ITC. Not surprisingly, the ITC stood its ground and upheld its own ruling. Three months ago, on December 15, Enercon and New World again filed against the ruling at the US Court of Appeals. Various briefs are now in the process of being submitted by the parties involved and oral arguments in the case are expected in late March or more likely April.

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