In a prior article, I discussed how patent disputes in the clean energy sector will continue to accelerate as the market expands. We are already seeing increases in patenting, patent licensing and patent litigation activities in the sector, and those activities will only continue to proliferate. In response, firms are increasingly responding to this development by strengthening their patent portfolios, for both offensive and defensive reasons.
What methods are being used to build these patent portfolios?
Clearly, a company’s own R&D efforts can translate into a robust patenting program if proper resources are devoted. There are well-known corporate procedures that are typically utilized: engineers are often encouraged to submit invention disclosure forms to the legal department for evaluation, for example, and counsel is retained to carry out the patenting process if merited.
But patent portfolios are also being assembled by other means -- on the open market, for example. Experienced patent brokers abound, offering services both to intellectual property owners seeking to monetize their patents and to potential buyers. Ocean Tomo, ICAP and other similar entities regularly organize both live and private patent auctions that have attracted significant attention in a variety of technological industries. The sophistication of the IP marketplace in the United States has become impressive and should not be underestimated. In essence, an entire industry has sprung up to administer and support these transactions.
Patent acquisitions have been particularly useful for entities that have not had a history of conducting R&D in a particular technological space. The recent acquisition of Fisker Automotive Holdings out of bankruptcy by the Wanxiang Group, an auto parts manufacturer, is one example: the assets purchased included numerous electric and solar vehicle patents and patent applications, and it was reported that this gave the Chinese entity a “jump start” in constructing a U.S. patent portfolio relevant to those technologies.
Some firms have also needed to grow their overall portfolios quickly and have not had the luxury of spending the time and resources necessary to assemble a collection of “home-grown" patents. Indeed, patent acquisitions are often made quickly for targeted, tactical reasons.
On September 23, 2014, for example, Enphase Energy revealed that it had negotiated the purchase of two patent portfolios related to PV module construction and system interconnection from SANYO Electric, including U.S. Patent No. 5,951,785 to Uchihashi. Less than three weeks later, Enphase asserted the Uchihashi patent in a federal patent lawsuit filed against its competitor, SolarBridge.
Bankruptcies have provided excellent opportunities for clean energy patent acquisitions. Wanxiang’s acquisition of Fisker is one example, but patents are more commonly sold individually or on a portfolio basis in bankruptcy proceedings, separate and apart from any tangible assets that may be being liquidated.
Azure Dynamics’s sale of hybrid electric vehicle patents to MOSAID Technologies exemplifies the latter, more limited approach typically taken. MOSAID, which has now rebranded itself as Conversant Intellectual Property Management, has been a well-known patent licensing entity and aggressive patent litigator in the semiconductor and electronics space. Conversant now offers an “automotive portfolio” of patents available for license: will hybrid vehicle patent litigation follow?
Perhaps the most notorious clean energy bankruptcy was that of Solyndra, a lightning rod for controversy surrounding the Obama administration’s renewable energy loan program. What has happened to Solyndra’s patents related to its cylindrical solar panel technologies? According to PTO records, they remain assigned to Solyndra Residual Trust, the entity to which Solyndra’s assets were assigned during the bankruptcy process. Presumably those patents will hit the open market as the Solyndra liquidation process continues.
In this regard, patents developed from R&D conducted in the context of federally funded research grants or other federal funding have presented some unique issues. Under the Bayh-Dole Act, the federal government retains certain legal rights with respect to such patents, which places limits on the ways in which such patents can be transferred. This occurred during the bankruptcy of Evergreen Solar, in which patents were an important part of the assets being liquidated.
Citing Bayh-Dole, the U.S. Department of Energy intervened in the bankruptcy in an effort to obtain title to certain patents, an action that was perceived to have been taken in order to prevent the patents from being conveyed to the Chinese.
Entities looking to acquire patent rights for purely defensive purposes have considered additional options. In many technology spaces, companies have banded together to form patent pools or other cooperative arrangements in which patent rights are shared. Other third-party entities known as patent aggregators have more recently been formed, the most prominent of which is probably RPX Corporation in San Francisco. RPX is a membership organization that acquires patents and provides licenses to its members with the goal of mitigating its members’ patent litigation risks.
Given the complexities inherent in evaluating and purchasing patents and the sophistication of the IP marketplace, clean energy companies looking to use patent acquisitions to bolster their portfolios have been conducting significant due diligence.
Patents must be reviewed from both a technological standpoint, to determine coverage and thus strategic value, and a legal standpoint, to determine the legal quality of the patent. Is the patent subject to attack as being invalid or unenforceable based on the current state of the patent law, the prior art, and the events that transpired during the patent’s prosecution at the PTO? And if the purchase of patent applications is being considered, what is the status of the applications, and are their opportunities to file continuation applications in order to sharpen or reposition claim coverage? Finally, the practical question of how best to approach a seller and initiate negotiations must be carefully thought through.
Growing a substantial clean energy patent portfolio may seem daunting or even unachievable, and spending the time and resources necessary to conduct due diligence and negotiate patent acquisitions may seem unattractive. But companies are finding creative and reasonable ways to get it done.
As the inevitable wave of patent litigation sweeps over the industry, the companies that have made the investments in their patent portfolios will be prepared for battle and will reap the rewards.
Teague I. Donahey is a partner in Sidley Austin LLP’s San Francisco, California office, where he focuses on patents, including the representation of technology companies in litigation and trials in U.S. courts and in Section 337 proceedings before the U.S. International Trade Commission.
The views expressed in this article are exclusively those of the author and do not necessarily reflect those of Sidley Austin LLP and its partners.