Innovation, IP and the energy transition – Creative tensions

Reconciling the need for breakthroughs to back the energy transition with the commercial drivers required to achieve them will demand thoughtful use of IP

The scale of the change needed to tackle climate change is enormous and it is clear the global transformation to a low carbon economy will be underpinned by technological innovation. Incredibly, according to the International Energy Agency's Net Zero by 2050 report, almost half of emission reductions required by 2050 will come from technologies currently at the demonstration or prototype stage. So, attracting investment and increasing the speed with which this technology can come to market is critical.

The Glasgow Climate Pact from COP26 focused on co-operative action on technology development and transfer. However, in the absence of fundamental changes to governmental funding structures, it seems likely that much of the required innovation will come from the private sector. Used well, intellectual property (IP) has the potential to incentivise innovation and enhance the commercial viability and dissemination of new technologies by providing greater certainty over returns on investment. As noted by Kathi Vidal, Director of the US Patent and Trade Mark Office, the patent system can be used to "power the new technologies aimed at the reduction of greenhouse gas emissions". Her speech can be read here and our report here.

However, such views are arguably at odds with the stance that has been expressed by, among others, the UN Secretary General, who has called for the removal of obstacles to technological transfer, including specifically IP rights. Further, there is always scope for disputes arising in relation to IP rights.

So where does that leave us?

Is IP really a barrier to technology transfer?

To answer this question, much can be learnt from the pharmaceutical industry in terms of how to use IP rights to incentivise innovation while also facilitating the sharing of technology in the middle of a global emergency. At the onset of Covid-19, all the major manufacturers of Covid-19 vaccines voluntarily agreed to make their vaccines available to developing countries through a variety of mechanisms. These mechanisms involved, for example, licensing of patent rights to generic drug manufacturers, which also facilitated the transfer of the essential know-how required to make the vaccines.

The success of these mechanisms is perhaps reflected in the fact that, although the WTO introduced a Covid-19 Vaccine Patent Waiver, no country has to date declared an intent to make use of it.

This experience suggests that if IP rights exist that might prevent the transfer of technology to developing countries, those obstacles can be overcome through the conscientious decision of rights owners in relation to their IP rights. This experience also suggests that in the middle of a global emergency, the private sector does recognise the need and desirability of ensuring IP rights do not prevent the transfer of essential technology to all quarters of the globe and has shown itself willing to take steps to facilitate that knowledge sharing. It is also worth asking whether the innovation seen in response to Covid-19 which brought new vaccines to market in record time would have occurred had IP over such technology been abolished before the pandemic struck.

It is also possible that some countries may attempt to use compulsory licencing powers in the context of energy transition technologies. Depending on the circumstances this might amount to a de facto expropriation or a control on use of property within the meaning of human rights legislation and also as generally protected against in bilateral investment treaties depending on the jurisdictions involved.  This could, therefore, give rise to potential disputes.

Climate change carve-outs

Even if companies do enforce their IP rights, there are also policy questions around the extent to which the courts will allow IP holders to force infringers off the market when doing so would adversely affect the development of renewable energy projects in the middle of the climate crisis.

In 2022, in the US case of Siemens Gamesa v General Electric, Siemens successfully sued General Electric (GE) for infringement of a patent relating to the design of wind turbine rotor hubs. The Court had accepted GE should not be allowed to stay on the market given the impact it would have on Siemens, and therefore issued an injunction but, significantly, it was not a blanket one. Instead, GE was permitted to continue its work on the US's first two commercial-scale offshore wind turbine projects in light of the fact that that "the world is currently facing a rapidly developing climate crisis". The judge stated that, given the investment in and complexity of the offshore projects to date, GE should be permitted to continue work on them as "delaying largescale wind energy projects can impact efforts to combat [the climate crisis]". The judge also considered the potential job losses if GE’s participation in these projects were to be halted.

Although Siemens was not able to obtain a blanket injunction, it was not left without a remedy and could seek financial redress from GE by way of a royalty of $60,000 per MW that applied to the GE projects carved-out from the injunction.

In the pharmaceutical sector we have seen claims brought by rights owners against competitors in which the rights owner has not sought injunctive relief, presumably because they recognised the desirability from a patient or public health perspective of the competitor product remaining on the market. In those cases, like Siemens, the rights owner has pursued a claim for financial compensation as a remedy for infringement of their rights.

Standards, standard essential patents and FRAND licensing

As new technologies are developed, we might also see the use of patent pools and standards to achieve interoperability and facilitate the development of commercially viable markets. Here, the telecoms industry provides a model for how IP might in fact be used constructively.

In the telecoms industry, standards ensure that devices from different manufacturers can work together seamlessly. To enable this in an industry home to some of the largest patent portfolios in the world, all patentees whose patents are essential to using the technology in a standard (ie, they are Standard Essential Patents or SEPs) must licence it on Fair Reasonable And Non-Discriminatory (FRAND) terms.

The use of standards has allowed significant advancement of technology with multiple competing commercial entities paying for access to the key patented technologies and integrating elements but it has also given rise to disputes. For example, what exactly FRAND terms are has proved controversial. Some potential infringers have tried to evade being sued by declaring themselves "willing licensees" when they have refused to take a licence from the patentees on the basis the terms being offered are not FRAND. This has frustrated SEPs patentees who have brought their disputes to the courts in different countries, which have dealt with multiple cases in the last few years concerning disputes over licensing terms (including the royalty rates to be paid) in relation to telecoms patents.

We anticipate that standards are likely to emerge in the implementation of some new clean energy technologies (perhaps autonomous vehicles) and that disputes are likely to follow.

Disputes arising from collaborations

IP has the ability to provide the foundation for successful collaborations and, given the complexity of the problems to be solved in the climate crisis, and the pace, breadth and scale of innovation required, collaboration will be essential. However, a side-effect of collaborations is the risk of disputes among various stakeholders and IP rights owners.

Again, we can look to the pharmaceutical sector. Here disputes have emerged over who owns the IP generated, the type and scope of IP licensed into a collaboration, whether a party has fulfilled its obligations to collaborate and innovate under the licence, and whether royalties are payable under a licence (and how much). We have seen, for example, a dispute over the ownership to a US patent covering a Covid-19 vaccine which was filed by Moderna, over which the National Institutes of Health is arguing its scientists should be named as co-inventors. This apparently arose because the collaboration agreements that governed the joint development of vaccines did not specify the ownership of IP which was generated from the collaboration. In another example, before the Covid-19 pandemic, Moderna was looking to licence mRNA delivery technology owned by Arbutus and Genevant but did not do so directly from the pair, instead sub-licencing it from a third party. Disputes subsequently arose regarding whether sub-licensing was allowed under the head licence, and whether the scope of Moderna's activities fell within the sub-licence.

Disputes of this nature are not unique to the pharmaceutical sector and similar issues could readily arise out of collaborations in the clean energy space. However, there is also scope to reduce the risks of disputes by learning from the experiences of others. Identifying the background IP each party is contributing; anticipating the outcome of the collaboration and who will be entitled to do what with the resulting IP; having a coherent IP protection strategy; and setting up clear employment contracts for those participating in the project are all measures that can be taken to reduce risk.

Conclusion

IP underpins the energy transition and the new technologies needed to bring it about. The industry needs to give thought to potential challenges to IP in the sector and consider how it can best ensure that technology is widely disseminated. Innovators need to take care to consider IP and possible disputes relating to it as they develop and implement business strategies relating to the energy transition.

To follow the rest of this series on climate change disputes, please subscribe to our ESG blog here or click here to view on our website.

[show_profile name="Natasha" surname="Daniell" jobtitle="Senior Associate, London" phone="+44 20 7466 2697]

[show_profile name="Julie" surname="Chiu" jobtitle="Senior Associate (Australia), London" phone="+44 20 7466 2658]