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'Wind industry ignoring $2.3bn of potential patent-infringement liabilities'

Developers and contractors may share liability for turbine makers' breaches of intellectual property, writes Philip Totaro

What most wind turbine OEMs do not realise — or have not publicised — is that they are all infringing on each other’s intellectual property (IP) rights to a certain degree. The only reason more litigation has not sprung up is due to the recognition of the mutual costs of pursuing patent infringement litigation and the inevitable countersuits companies would face.

Nevertheless, our recently published research on more than 55,000 globally filed wind turbine industry patents has determined that if all those patents that are suspected to be infringed were actually valid and enforced, then the liability exposure to OEMs and major sub-component suppliers would be $2.31bn. While a few licence agreements are in place between some OEMs to mitigate a small portion of these risks, the wider systemic issue of patent infringement liability is not universally addressed.

Presently, independent intellectual property (IP) infringement risk certification is not mandated in the wind industry, or virtually any other industry where project finance is utilised. Most turbine OEMs provide their own internal data and validation to turbine purchasers and project financiers, but only if asked, and typically only in matters related to publicly acknowledged patent infringement litigation where a competitor is known to be in active litigation.

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This validation from the turbine manufacturer is indeed not an independent assessment.

And contrary to popular belief, there is actually a shared liability between a turbine supplier and a turbine purchaser. Developers and even EPC contractors may have some responsibility and liability for patent infringement.

This was brought to light in the patent infringement litigation in London between Enercon and Siemens in July 2015, which threatened more than $5bn worth of projects in the UK offshore sector. While the lawsuit was ultimately decided in favour of Siemens, it highlights the shared risks involved, as developer Dong Energy and installer A2Sea were both named as co-defendants in the litigation trial.

While Siemens was probably contractually obligated to defend Dong and A2Sea in the trial, there was a chance that Enercon could have been successful with an injunction, which could have delayed the start of construction on the 210MW Westermost Rough project. Equally, the 630MW London Array could have faced a shutdown order until the potentially infringing technology was removed from the turbine control systems.

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It’s also critical for project developers, asset owners and project financiers to understand that patent life outlives any warranty period. Just because an asset owner purchased a turbine does not give them the right to have spares made or to modify the turbines in a way that would infringe OEM patents.

So turbine upgrades — whether hardware or controls related, by third-party service providers or even the asset owner — could potentially infringe the IP rights of the OEM and be blocked from use. Wind turbine OEMs control more than 59% of all the patented technologies in the industry, and have been willing to enforce their IP rights against infringers in the past. There have been no fewer than eight court trials over the past 20 years with potential damages in the hundreds of millions of dollars and lost revenue in the billions.

As the industry moves towards ever increasing project values, this IP infringement risk continues to permeate the backdrop. The solution is not simply more contractual rigour (ie, with liability caps on mutual indemnification clauses and in-house IP infringement risk validation by OEMs during project due-diligence). A more comprehensive and independent evaluation is necessary.

The solution involves an independent assessment and certification of IP risks, just like an independent engineering assessment and type certification on a turbine, sub-component or project. Independent IP assessments could also lead to the development of a dedicated insurance product that would cap the liability of OEMs and developers, as well as provide resources for legal defence in case litigation did occur.

No-one should ever want to see the inside of a courtroom for an IP litigation, but the time to understand the risk profile is not when you have one foot past that threshold.

Philip Totaro is founder and chief executive of innovation strategy consultancy Totaro & Associates

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