MHIvGE - strategy and tactics in this war of attrition

UNITED STATES: There are shades of a James Bond film. So concerned is Japan's Mitsubishi Heavy Industries (MHI) about its seemingly endless patent battle with General Electric of the US, that at the Windpower 2010 conference in Dallas in May, officials at the stand for MHI subsidiary Mitsubishi Power Systems Americas (MPSA) are rumoured to have said they were sweeping their exhibit daily for bugs.

Mitsubishi's Sonia Williams says she would never comment on any security precautions such as sweeping for bugs, whether they were taken or not. A GE spokesman would also not comment on the matter.

The use of cloak-and-dagger tactics varies, but fighting between corporate rivals, especially in an immature but fast-growing market, is common. But many-pronged wars over basic intellectual property are often not what they seem - especially when the players are anything but novices. The $1-billion-plus epic clash between GE and MHI certainly appears to fall into the drawer marked "hidden depths". The case has led to questions as to why GE would choose to pursue MHI, which is rarely considered to be its most threatening rival.

As Gene Quinn, a patent lawyer, electrical engineer and founder of patent-law blog, says: "When I see two giants suing each other, my first thought is that neither really wants to win. It does make you wonder if something else is going on."

Some experts say that a clandestine goal of creating cross-licensing agreements is often behind these endless wars of attrition between large and experienced players. That means the GE-Mitsubishi fight could be a drag-down war of slow destruction in a market quickly becoming fiercely competitive. The battle lines have been drawn and the aggressively worded legal documents filed, with accusations scattered throughout like cluster bombs to throw the other side off course.

The timing is right, say the experts, for GE and MHI to wield intellectual property as weapons. Weighty Chinese and South Korean manufacturers are starting incursions into the US market, keen to build a track record for their turbines - especially while generous US stimulus incentives are available (Windpower Monthly, August 2010).

Others experts see a grandmaster-class game of chess being played out - a fight that masks exquisitely ruthless and concise manoeuvring to achieve the upper hand when negotiating licenses with each other. Both MHI and GE formally deny the fight is for anything but wind power technology. Asked about the possibility of trying to create leverage for cross-licensing, Dan Nelson, a spokesman for GE, says, "That's not GE's strategy." MHI's Williams says he is unwilling to answer that question.

GE and Mitsubishi are relatively evenly matched and the cut-throat legal battle is multi-faceted. It, so far, includes three patent infringement suits centering on wind turbine technology and an appeal of the final decision favouring MHI at the US International Trade Commission (ITC). That is in addition to MHI's aggressive anti-trust suit, filed in Arkansas, accusing GE of building a "patent empire based on a fabric of fraud" to dominate the US variable-speed wind turbine market with "sufficient market power for monopolisation".

"The claims in MHI's anti-trust complaint alleging improper conduct by GE in obtaining and enforcing our patents are meritless and outrageous," says Nelson. "GE's conduct has been appropriate in all circumstances." In August, a judge granted GE's request to put the case on hold until the patent suits are resolved.

Variable-speed technology, which is standard for modern wind turbines, allows turbines to maximise energy capture from the wind. Variable speed is used by both MHI's flagship 2.4MW turbine and GE's rival 2.5MW model, to be introduced in the US in 2011 and with which GE hopes to retain its US market leadership.

Protecting patents

The ante will soon be upped. Several companies are poised to enter the US market, possibly with technology that GE may see as infringing its growing and broad arsenal of intellectual property. One of the patents GE is protecting in a suit against MHI in the federal court in Dallas, for example, covers the design of the bed frame for supporting the weight of a turbine's rotor, gearbox and drive shaft.

South Korea's Daewoo, Samsung, Hyundai and Unison, and China's Sinovel, are all keen to gain a major foothold in the US market. And any of them, if they have not signed licensing agreements with GE, could well be worried they might infringe one of the US company's numerous wind patents. "Any company importing into the US without (GE) licensing needs to have done their homework (and should be) ready for the ITC," says one engineer. A GE official who preferred to remain anonymous will not comment on which companies have licensed GE technology.

The US Federal Energy Regulatory Commission requires some form of low-voltage ride-through (LVRT) technology, whether at the turbine or substation. GE's disputed LVRT patent covers the former, and the latter is generally seen as a less-optimal solution, according to senior engineering sources. So if any of GE's patents were to be narrowed or invalidated, the competitors' assessment of the US market would change.

GE has much to lose. The world's second-largest turbine supplier, it is especially strong in the US market. In 2009, an estimated 84% of GE turbines were sold there, noted a July 2010 report on US turbine manufacturers by the ITC's Andrew David. Last year, however, GE was also among the turbine manufacturers that lost global market share because of the rapid growth of wind power in China and the dominance of home-grown Chinese manufacturers in their home market, according to the report. The report noted the pressure on GE in another way. In 2005, GE was the only turbine manufacturer with US production; but by 2009 there were nine manufacturers producing nacelles, blades or towers in the US, with six more planning to open their first US plant.

The US company is also seeking to strengthen its arsenal of wind-technology intellectual property. A year ago Rick Stanley, a vice-president at GE Energy, told an investor conference that GE Energy would have filed 800 patents by the end of 2009, double the total filed in 2005. "And we now hold many, many more wind patents than our competitors do ... We are getting even more aggressive at defending our patents now," he added.

Questions remain

Still, GE's strategy vis-a-vis Mitsubishi is far from transparent. Experts in the wind industry have been puzzled that GE is not known to have gone after rival wind turbine manufacturer Siemens AG for alleged infringement of GE's US wind patents. On the issue of whether Siemens infringes any of GE's patented US wind technology, a spokeswoman for Siemens says: "The intellectual property issue is between GE and Mitsubishi, so we can't comment on this."

Siemens' flagship 2.3MW turbine uses a full induction - or asynchronous - generator and a full converter, a topology that the ITC found to be covered by GE's '039 variable-speed patent. Siemens did not answer questions about whether it licenses GE's US wind technology or has fought GE over intellectual property. A spokesman for GE also did not comment on whether the company has licensed wind power technology to Siemens.

MHI accuses GE of strongarm tactics. "GE directly threatened Mitsubishi's customers with patent infringement litigation to discourage the purchase of Mitsubishi's wind turbines and foreclose competition," claims MHI in its anti-trust complaint. According to the same document, GE Wind's intellectual property counsel wrote in January 2007 to PPM Energy - which would later be taken over by Iberdrola Renewables - saying GE understood that PPM might buy turbines from an "unlicensed manufacturer" and including a list of GE technology that could be licensed.

According to MHI's anti-trust suit, GE also sent PPM materials about a 1990s exclusion order banning US imports of Enercon's turbines for allegedly violating the '039 variable-speed patent. The patent has since been purchased by GE. "PPM Energy was so disturbed by GE's representations that PPM Energy demanded indemnification from Mitsubishi in the event GE initiated litigation," continues MHI in its anti-trust suit.

It adds that GE also approached Edison Mission Energy (EME), another Mitsubishi client. "GE threatened to sue EME for patent infringement if EME did not obtain a license agreement from GE for the variable-speed wind turbines that it purchased from MPSA," says the legal document. In fact, MHI and MPSA are now being sued in California state court for alleged breach of contract by EME, which had been one of the few remaining US customers for MHI's 2.4MW turbine, the model at the core of the dispute.

At issue in EME's suit, says MHI, is a $510 million turbine supply agreement struck in 2007 with MPSA for 166 of MHI's 2.4MW turbines. According to Williams, the MHI spokeswoman, EME claims that MPSA's wind turbines are incapable of deployment at various EME wind power projects as a direct result of the multiple patent infringement lawsuits and threats initiated by GE, and for which EME holds MHI responsible. EME is seeking $1 billion in damages because it was allegedly unable to secure financing for the 1,661-turbine project due to Mitsubishi's intellectual property problems. A spokeswoman for EME would not comment on the ongoing litigation.

In addition, the tone of a statement distributed by GE to the media in February 2010 was threatening: "GE has 148 issued US patents related to wind energy. MHI has substantially less. We believe that there are multiple areas where MHI's 2.4MW wind turbines infringe on GE's existing patents ...

(GE) will continue to protect its technology in the US and around the world." Asked for comment, an MHI spokeswoman referred to MHI's response in its anti-trust complaint to the accusation: "This (allegation of multiple infringements) was intended to lead actual and potential customers to believe that GE would keep the cloud over Mitsubishi's products through a campaign of patent infringement suits on, as yet, unspecified claims of infringement."

Experts watching the case speculate that the main players' legal fees are running to tens of millions of dollars already. MHI, meanwhile, says it has sold no units of its 2.4MW turbine in the US in the two years since GE initiated what MHI calls a "blockade" against the turbine by filing suit at the ITC in 2008 over the alleged infringement of three patents. The ITC's findings were initially more favourable to GE. Prior to the suit, MHI sold $2 billion worth of those units in the US in a single year. To be sure, the recession was also a factor in MHI's sagging sales. But MHI adds that its planned nacelle factory in Arkansas, to be built in early 2011, could stay idle if GE continues its assault.

In more fallout for MHI, the Japanese company has now been forced to delay delivery of 112 of the 2.4MW wind turbines ordered by Iberdrola before GE filed its ITC suit. "MPSA is holding back on these final deliveries at Iberdrola's request," says Williams. She stresses that Iberdrola has not cancelled the order or filed suit against Mitsubishi because of the patent issues. It helps that Iberdrola is indemnified against patent disputes related to Mitsubishi's 2.4MW turbine.

Indeed, Iberdrola is the only US customer of the 2.4MW turbine publicly standing by MHI. MHI's intellectual property troubles were cited in a falling out with defunct former customer Babcock & Brown (B&B) that also involved allegations of missed payment for 2.4MW turbines by B&B. B&B denied the claim and the case has now been settled. The terms are confidential.

A complaint was filed in California by GE against Thomas Wilkins, an alleged co-inventor of GE's '985 patent for basic LVRT technology, seeking to force Wilkins to assign his rights to GE. LVRT allows turbines to maintain operation without disturbance during sudden dips in voltage on the grid. Wilkins is now licensing the '985 technology to MHI, which GE is trying to halt with an injunction. Wilkins is disputing GE's suit. GE's LVRT patent does not expire until 2023 and is thus relatively valuable, whereas the variable-speed patent expires in January 2011. MHI has also successfully convinced the US Patent Office to re-examine one of the five GE patents in dispute, the '221 patent for a different version of LVRT technology. Re-examinations can easily take more than three years, not counting an appeal.

Previous disputes

Engineering technology while attempting to circumnavigate a broad patent can cost a company tens of millions of dollars, say experts. In addition some have argued that wind technology development has been set back about a decade because of disputes over GE's '039 patent - dating back to the mid-1990s - and the need for other companies to avoid GE's array of patented technology. Danish wind turbine manufacturer Vestas and India's Suzlon have each employed their own work-arounds for the US market. For its part, GE argues that protecting its extensive wind intellectual property is fundamental to innovation and to the development and deployment of clean-energy technology. "Quite frankly, it creates jobs," said one GE representative who requests anonymity.

Whatever its rights or wrongs, the dispute has revived bitter memories in the wind industry among those who have believed for years that the disputed '039 and '985 patents cover technology already widely in use when the patents were secured - a charge that GE denies.

After '039 was brutally fought over by California-based Kenetech and Enercon, the German company's turbines were banned from the US for many years for infringing GE's patent. Enercon had unsuccessfully appealed against that ITC decision. The '039 patent was ultimately bought by GE, after being owned by Zond and then Enron.

GE is clearly in the business of buying and selling wind power intellectual property. The company is acutely aware that it has a "very strong patent position", says Tim Stephure, a wind analyst with consultant Emerging Energy Research. Stephure believes that GE is trying to make an example of MHI as a warning to others not yet in the US market. He speculates that GE has decided to be more aggressive over intellectual property now that the recession has created a buyers' market for turbines.

On about 30 occasions, from June 2005 to February 2008, GE approached MHI and demanded that it buy up to 11 "families" of wind-power patents, according to MHI's anti-trust complaint. At one point the terms included, says MHI in its anti-trust suit, an "exorbitant" $500 million upfront fee for 2GW worth of 2.4MW machines plus a comparable royalty fee if it sold more turbines. MHI claims that such a fee would have forced it to nearly double the selling price of its 2.4MW turbine in the US. GE's apparent offer does not make sense, say experts. The fee is so high that it would have inevitably been turned down. MHI did, in fact, refuse to buy a license because, it says, it did not believe that its technology infringed any GE patents. Not long after, on February 27, 2008, GE sued MHI at the ITC.

A representative for GE would not comment on the accuracy of MHI's figures in the anti-trust suit, although GE did not dispute them in its court-filed response. The representative said the offer made to MHI was "in line" with the offers accepted by others.

Under scrutiny

Companies that have paid for GE's technology in the US will undoubtedly be scrutinising MHI's anti-trust accusations against GE of fraud in obtaining or enforcing the five patents cited in GE's three suits against MHI. According to MHI legal documents, the licensees include Canadian suppliers AAER and Americas Wind Energy; Gamesa and Acciona Windpower, both of Spain; Composite Technology's EU Energy subsidiary for its DeWind models; and Germany's Fuhrlander, Repower and Enercon. One of China's largest turbine manufactures, Goldwind, has used the Repower technology.

Although GE has formally announced some of the licensing agreements, such as EU Energy's, the company would not comment on whether MHI's list is accurate except to say that it has more than ten licensees in the US. In addition, GE's licensing relationships with Gamesa and Fuhrlander were confirmed when they formally backed the US company in its case at the ITC. Fuhrlander has paid royalties for GE's '039 technology in the US since 2006. Gamesa, meanwhile, has paid royalties since 2005 for GE intellectual property, including technology cited in the disputed '039 and '985 patents. This is despite Gamesa's unsuccessful effort in 2004 to secure a judgment in a US District Court in Wisconsin that its variable-speed turbines did not infringe any GE patent.

In the $1 billion anti-trust suit, GE is also accused of using the threat of lawsuits as a marketing tool, of filing sham lawsuits, and of interfering with MHI's customer relationships to stifle competition. Specifically, MHI accuses GE of purposefully ignoring "prior art" in its '039 patent application, which GE denies. Prior art refers to the sum total of information available to the public, before a given date, with possible relevance to a patent's claim of originality. MHI insists that the variable-speed technology had already been described, for example, in GE's own publicly funded research on inverters for the MOD-5A turbine funded by the US Department of Energy and administered by the National Aeronautics Space Administration (Nasa) and also in a 1981 report by a former GE engineer, Thomas A Lipo, which describes a doubly fed induction generator (DFIG) with an inverter-based power converter for wind turbines. Such prior art would mean that GE should never have been awarded the '039 patent, says the Japanese company.


In response to the anti-trust suit, GE cites its numerous licensees as proof that it is not acting anti-competitively. "It's not that we're attempting to keep people out of the market," says the anonymous GE official. Regarding MHI's claims of prior art, GE lawyers say MHI should have raised such issues at the ITC. They also note that the GE unit that oversaw the MOD-5A research was sold 18 years ago.

In fact, prior art often does surface well after patents have been awarded, say experts. And it is not unusual for patents to be re-examined and overturned. That is according to professor Shubha Ghosh, a legal expert on patents and anti-trust at the University of Wisconsin, Madison. Prior art is grounds for invalidating all or part of a patent. But if the patent holder has withheld information - whether regarding prior art or inventorship - from the US Patent Office, then an entire patent would be considered unenforceable.

Anti-trust claims can be hard to establish. Ghosh says the strength of an anti-trust case partly depends upon an assessment of how a market should operate, a complicated matter given that, by definition, patents give a certain amount of monopoly power. Larry Kass, a patent lawyer and engineer who is following the suit in depth, noted that if the case goes to trial, Mitsubishi would also have the difficult task of proving to a jury that GE's actions constituted fraud - or intentional deception. He concurred with the view that proving anti-trust can be tricky.

Of MHI's dramatically worded anti-trust complaint, Kass added: "Mitsubishi probably felt the best defence is a good offence." That is, the anti-trust suit may be just another weapon in the grand turbine wars between Mitsubishi and GE, which started as patent battles but are now far broader.

If the suits do go to a jury trial, one issue that could colour the dispute is that MHI is not just non-American - but Asian. A fear of "the other" has already been invoked with regard to the wind industry by Senator Chuck Schumer, who represents New York state, where GE Wind is based. The most outspoken politician on the issue of a home-grown wind industry, it was Schumer who famously moved in 2009 to block federal stimulus funds from going to a $1.5 billion dollar wind project in Texas because the turbines would have been made in China, by Shenyang Power Group's A Power. "It's counterproductive to invest US stimulus funds in Chinese companies, rather than our own," he said. Shenyang has since announced a turbine manufacturing plant in Nevada.

That was a strong echo of the wording in a letter Schumer co-authored to the ITC, supporting GE over MHI. The letter described patent infringement as a threat to the competitiveness of US renewables companies that would undermine the development of "an American-based centre of alternative-energy development". MHI's announcement before the letter, of a nacelle factory in Arkansas for its 2.4MW machine, had apparently done nothing to allay concerns that US citizens were losing out. The Arkansas plant will receive manufacturing tax credits approved under the federal stimulus package.

The mysterious motives behind this clash of the titans are expected to become more comprehensible only with time. As Quinn, the patent lawyer, puts it: "You'll know what's going on after it's over." He also says that sometimes legal battles are only a preface to the real business at hand, which may or may not be part of the legal argument. He cites an old legal adage: "There can be no deal until the other side has been forced to spend money." In this battle, whatever the real stakes, that is an understatement.

Who might win? There are so many moves in the chess game, and there have already been victories that suggest each party has a relatively strong case. Says patent lawyer Larry Kass of the likely outcome of the whole battle: "It's been back and forth so much, who can really say?" He also points out, though, that if the final ITC decision - on alleged infringement of three GE patents - is even partially overturned in favour of GE, then that could lead to Mitsubishi's 2.4MW turbine being excluded from the US. "If GE wins on any one patent (in the ITC appeal), as long as the patent's unexpired, it's a win."


The ongoing battle between GE and Mitsubishi Heavy Industries (MHI) started in 1995 over the ownership of technology used in the MHI 2.4MW turbine:

September 1995

The precursor to the current patent wars: Kenetech Windpower, then owner of GE's '039 variable-speed patent, sues German company Enercon for alleged patent infringement. The trailblazing fight leads to Enercon turbines being banned from the US.

June 2005

GE approaches MHI and demands that it buy up to 11 "families" of US wind-power patents allegedly for as much as $500 million for 2GW of turbines, according to the Japanese company.

MHI refuses, saying that it is not infringing GE patents.

February 2008

GE sues MHI at the US International Trade Commission (ITC), accusing MHI of violating three patents, including '039. GE later files two patent infringement suits against MHI in Texas, bringing GE's disputed patents to five.

August 2009

ITC judge Carl Charneski primarily sides with GE in his preliminary decision, saying MHI is violating two of GE's three patents at issue and recommending MHI's turbine be banned from the US.

October 2009

MHI announces a $100 million assembly plant for its 2.4MW turbine in Fort Smith, Arkansas. MHI warns that the plant, to be built in early 2011, could stay idle if GE wins the dispute.

January 2010

In a final decision, the ITC clears MHI, saying it is not violating two of the three GE patents at issue and that GE does not use the patents anyway. GE is appealing the decision.

May 2010

MHI sues GE in the US District Court in Arkansas for alleged anti-trust behaviour through intimidation, fraud and sham lawsuits. MHI seeks $1 billion in damages. MHI also files a patent suit against GE in Florida.

August 2010

Judge Leon Holmes of the US District Court in Arkansas shelves MHI's anti-trust suit pending resolution of the ITC appeal and the three patent suits. He denies GE's request to dismiss the suit.

For more, see 'Patent War Round-up'