The past 15 months have been busy times for the US International Trade Commission (ITC) with recent complaints seeking the application of import duties on wind turbine towers from Canada, Korea, Indonesia and Vietnam, as well as the recent section 337 complaint on intellectual property (IP) infringement filed by General Electric Company (GE) on wind turbine electrical and control systems of Siemens Gamesa Renewable Energy (SGRE).
GE has long used the enforcement of their IP rights to drive up the cost of doing business for competitors, or even exclude competition from their core market of the US. Back in 2003, after GE acquired the assets of Enron Wind, it almost immediately began an IP enforcement licensing campaign of the Enron Wind & Kenetech acquired patents on wind turbine control systems, along with some of their own ‘standards-essential’ patents on ways to comply with grid code in order to maintain an electrical grid connection for a turbine.
By late 2005, Nordex, Acciona, and Senvion all capitulated to a license agreement, fearing the impact that IP litigation would have on product sales. Mitsubishi Heavy Industries (MHI) famously refused to take a license in 2005, and was sued by GE in 2008, with an eventual settlement in 2013. That settlement saw MHI effectively excluded from the US market due to high cost of ongoing operations and resulted in a loss of some $2bn in revenue from turbine sales, services, and aftermarket parts.
In 2004, Gamesa Corp had actually sued GE in US Federal District court in an attempt to preempt a lawsuit against them from GE, but they mutually agreed to de-escalate the matter, and no license was put in place at the time.
In 2005, Vestas was not a significant competitive threat to GE, so a license deal was never executed, as the cost of litigation and a negotiated settlement may have outweighed the royalty income. GE also need more time to compile evidence of an IP infringement, which was eventually brought against Vestas in 2017 with a settlement, and presumably a license deal, in 2018.
With the Vestas matter now settled, and the US market consolidated to only four suppliers, GE, Vestas, SGRE and Nordex Acciona, the only one without a license to GE IP is SGRE. So now, almost three years to the day after the Vestas IP litigation was kicked off, GE has pursued a complaint with the US ITC over the importation of SGRE wind turbine electrical and control system components which would allow the German-Spanish OEM’s wind turbines to connect to the electrical grid and maintain their connection during grid disturbances.
It is important to note that a US ITC complaint is about future product sales / installations, so this will undoubtedly affect a portion of the 5.1GW of onshore order book which SGRE has in the US market, as well as their offshore deal pipeline which is in advanced negotiations. GE is certainly hoping to stifle SGRE as a key competitor in both the onshore and offshore wind markets to make their own products seem more economically viable.
While any company has the right to protect its intellectual property, the way in which companies go about it can have profound impacts on the market. As long as companies feel like their market share is being challenged, they will continue to use ITC complaints or IP litigation as a tool to improve their competitive position. One would certainly prefer to see those companies develop more competitive products, but they are choosing to try and level the competitive and commercial playing field for themselves through application of import duties and IP lawsuits.
Most companies will use whatever means they have at their disposal to level the playing field, particularly in their home market. With fixed capital costs and fluctuations in commodity prices, they may find it hard to make a profit on domestically produced components, so a trade lawsuit or an IP infringement lawsuit is seen as an equaliser on foreign companies which are perceived to be more flexible and so better able to compete.
Customers want to buy the products they consume from the lowest cost manufacturer, regardless of where it is made, as long as it’s not produced with illegal labour or business practices. This is why international trade is so important to global sustainability.
There is a significant amount of patent infringement liability exposure which companies face every day in the US, but it is not addressed through any risk mitigation practices during the project finance diligence. Nevertheless, similar to how a wind turbine or a wind farm will go through a technical certification, an IP certification on products and projects is certainly possible, but an unfortunately under-utilised tool. As long as IP rights are continually ignored by project developers, financiers, asset owners and others, lawsuits such as the latest GE-SGRE case will continue to happen.
· Philip Totaro is founder and CEO of renewables market intelligence consultancy IntelStor