On Reflection: Protocol must safeguard intellectual property

WORLDWIDE: The past eight years has seen the pace of innovation slow in the wind industry. With a resurgence expected, including through Chinese investments, manufacturers must move to protect their intellectual property.

(pic:Fanatic Studio/Alamy)
(pic:Fanatic Studio/Alamy)

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The pace of innovation in wind has slowed. From 2007-2011 the industry saw a 47% average annual growth rate in patent filings, reflecting the level of investment in innovation that resulted in a dramatic improvement in turbine operational performance and reliability in that same time period.

The peak was achieved in 2012, sandwiched between a lacklustre 7% growth in 2011, and the expected 2013 fall in investment and closure of research and development centres around the globe in an era of budget stabilisation. While final numbers are still coming in for 2013 - there is an 18-month window to publish of patent filings — it is apparent that a slowdown is under way. This will be the first drop in industry-wide patent filings since 1996.

With companies investing anywhere from 2-8% of their annual revenue in R&D, the slowdown in innovation can largely be tied to industry demand and revenue recognition. Until 2011, average investment from major turbine manufacturers was up to 6% of revenue, falling to under 3% by 2013, according to our research.

As the wind industry has matured, qualitative assessment of the patent landscape reveals that the majority of patent filings with high relevance and broad impact on the industry were filed from 2007 onwards.

Many technologies that could profoundly affect the cost of energy (COE) have been patented but remain uncommercialised. Competitive pressures will lead to an investment in product competitiveness. Companies are already preparing new technologies, products and service offerings to be introduced from late 2015 - 2016 that will attempt to take COE another step change down the cost curve. Interestingly, the Chinese government intends to make investments in innovation that will result in a tripling of patent application filings on an annual basis by 2020, according to recent reports.

This trend is noteworthy. It could introduce a potential commercial risk to western companies operating or planning to operate in China. Courts there have largely favoured domestic entities in intellectual property (IP) disputes, and the increasing maturity and sophistication of the IP market as an investment asset globally will affect the energy sector. In an era of increased product and technology competition, companies will be forced to focus on IP risk mitigation as well as innovation.

Respecting IP

As much as companies believe IP risk mitigation is "not core" to their business, they gladly spend money on product innovation and securing patent rights. Some of those same companies complain when competitors, or worse non-practising entities (NPEs), seek to enforce their own IP rights, diverting money and personnel away from critical matters related to innovation or company operations. The result is many companies liken IP litigation to be a "tax on innovation".

But the real challenge lies in adopting a way for innovative products and technologies to be introduced while respecting the IP rights of others. Over 25 years ago, turbine OEMs and sub-component suppliers were self-certifying their technical performance. After years of under-performing availability guarantees, project financiers and insurance underwriters began to mandate independent assessment of technical performance.

If independent assessment of IP risks become an institutionalised protocol that is part of the project finance due-diligence process, then IP infringements are easily avoided. The potential infringement landmines could be detected and license or acquisition could be undertaken as a risk mitigation measure.

We are on the verge of another technological revolution in the industry, and innovation deserves to continue unencumbered.

Philip Totaro is founder and chief executive of market research and consultancy Totaro Associates

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