Posted by: davidgarnerconsulting | March 16, 2010

Intellectual Property Rights in Renewable Energy Investment

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The sharp North-South divide on intellectual property rights (IPR) remains unresolved after the United Nations Climate Change Conference in Copenhagen, Denmark. Negotiations on this issue in the Ad Hoc Working Group on Long-term Cooperative Action (AWG-LCA) have been polarized with developed countries insisting that there should be no reference to IPRs and developing countries advancing proposals on measures that can be taken to remove barriers to the development and transfer of technologies arising from IPRs.

Developed countries claim that strong IPR protection is necessary to provide incentives to spur innovation. This position is driven by the fact that companies or individuals in developed countries own the overwhelming share of patents in Environmentally Sound Technologies (ESTs).

This puts firms in developing countries at a disadvantageous bargaining position in negotiating technology licensing agreements and compels them to agree to iniquitous terms that perpetuate a relationship of technology dependence.

In order to enable developing countries to leapfrog in developing endogenous ESTs that are suitable and affordable for them, it is necessary to ensure that IPRs do not obstruct their path. However, an overview of a few crucial sectors of ESTs shows that IPRs can be an impediment to development, diffusion, and transfer of technology.

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Wind Energy

There has been a dramatic increase in patenting of wind energy technologies since 2000. These patents are not just on wind energy turbines but also apply to aspects of transportation, erection, maintenance, and operation of the wind turbine. It is noteworthy that the wind turbine industry is highly concentrated and some of the leading firms with large patent portfolios have been aggressively enforcing their patents against competitors. A recent study shows that almost half of the patent filings on wind energy are in the United States, Japan, and European Union and the majority of assignees in each wind sub-sector (generators, drive-trains, and gear boxes, offshore wind turbines, energy storage, and software or control systems) are from the OECD countries.

The increasing number of patents in this sector can be a significant impediment to the developing countries that need to leapfrog in this sector. For instance, China has a target of developing 20 gigawatts of domestic capacity in the wind energy sector by 2020 using domestically manufactured wind turbines to the greatest extent possible. To meet this target, Chinese technology will have to catch up with the developed countries that produce technologically advanced wind turbines. However, by exercising control through IPRs, European and American firms have refrained from transferring state-of-the-art technology that could facilitate this leapfrogging and complement the Chinese policy.

The level of concentration in the wind energy sector is likely to increase over time with increasing merger and acquisition (M&A) activity anticipated in novel areas of the industry such as offshore wind turbines. This suggests that though developing country firms have been climbing up the ranks of global wind power firms through acquisitions of European firms, as they become more competitive through such acquisitions, they are likely to witness aggressive patent litigations from competitors in developed countries. For instance, a patent dispute with GE from the early 1990s to 2004 prevented a leading European firm, Enercon, from entering the U.S. market, until the firm was eventually acquired by GE.

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Solar Power

The core technologies that are prevalent in the solar power sector—namely silicon-wafer based or thin-film photovoltaic (PV) technology—are available in the public domain. This has enabled some developing countries to conduct R&D on technology for utilizing solar energy. However, advances in this sector are expected to be based on developments in the next generation of PV technologies like nanotechnology and dye-sensitized approaches. Innovations in these areas are likely to lead to extensive patenting activity. Since the mid-1990s patenting trends in PV technology have reached similar levels to patenting in wind technology. More than half of the worldwide patent filings on PV are in the United States and Japan.

Despite the availability of the basic technology in the public domain, there have been instances where the transfer of patented solar technology has been conditioned to unreasonable terms other than high royalty. For instance, a Malaysian firm called Solartif could gain access to foreign technologies after difficult negotiations on condition of buying machines from the same company.

There has also been an increase in patent litigations in this sector, particularly in relation to new generation technologies. For instance, U.S. firm Nanosys filed a patent infringement lawsuit against a U.K. firm claiming infringement of five patents over seminal quantum dot technology.

The Nanosys patent over quantum dot technology is a key patent on semiconductor nanocrystals. The patent claim is quite broad and extends to semiconductor nanoparticles like boron, aluminum, gallium, etc. Thus, the patent claim covers many chemical elements in the periodic table of chemical elements, which constitute the building blocks of all living and non-living matter on Earth. This suggests that many of the basic ideas in nanotechnology have already been patented. This could impair downstream research in these technologies.

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Much of the technology for producing the first generation biofuels such as bioalcohol fuels like ethanol, biodiesel, biogas, etc. is in the public domain. However, increasing demand for biofuels puts enormous stress on food and feed crops which are also sources of these biofuels. This makes it necessary to develop biofuels from new sources that do not put stress on food and feed crops. These alternative sources can be found in second and third generation biofuels.

Second generation biofuel processes seek to extract biofuels from biomass comprising residual non-food parts of crops as well as from non-food crops and wastes. Sugar molecules are freed from the cellulose of such biomass using enzymes, steam heating, or other processes. The extracted sugar is then fermented to produce biofuels like bioethanol. Third generation biofuel processes seek to develop biofuel by designing varieties of biomass crops that are more readily amenable to bioconversion processes by embedding particular enzymes into the crops.

Thus, developments in biofuel technology will be influenced to a large extent by biotechnology and synthetic biology. Technological advances are expected to come from new enzymes and microorganisms that can break down starch or cellulose into sugar and fuels. Many small biotech firms are conducting research on developing new varieties of biofuel crops with higher lignocellulosic content. Transnational seed companies have shifted their R&D resources to develop new hybrid varieties of crops that can produce more biofuel.

An increasing number of patent applications are being filed on biofuel technologies, particularly in United States, European Union, and Japan. It is anticipated that there will be a significant increase in the number of agricultural biotechnology patents as transgenic plant technology is directed to biofuel applications. A substantial increase is also expected in cellulosic biofuel patents. Almost 90 percent of biofuel related patents are in enzyme research with two enzyme companies, Genencor and Novozymes, holding 60 percent of the patents on enzymes in biofuels. A dispute involving infringement of Novozymes’s patents forced Genencor to withdraw its enzyme from the market.

There is also increased patenting in the field of synthetic biology. Synthetic biology processes involve designing molecular operating systems on a computer and replicating them as genetic circuits constructed with parts of DNA. In its application to biofuels, synthetic biology approach involves custom designing a microorganism that can perform multiple tasks by incorporating built-in cellulose degrading machinery, enzymes that break down glucose, and metabolic pathways that optimize efficient conversion of cellulosic biomass into biofuel. IP claims on synthetic biology involve not just synthetically produced nanoscale DNA, but also computers and software. Extremely broad patents have been granted on many of the products and processes involved in synthetic biology.

Concerns have been expressed that restrictive licensing and broad patent claims could stymie technological development in this field. There is also a lot of concern about the negative and devastating ecological and systemic impacts of synthetic biology and also its impact on food sovereignty in the South.

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Abiotic Crops

Farmers have traditionally developed new varieties of crops by drawing on breeding materials from within their communities and also from germplasms introduced from outside, including commercial varieties, by saving and exchanging seeds. Because of the climate crisis, there is a lot of interest in developing crop varieties that can resist environmental strain.

However, a study points out that transnational agricultural and seed companies are increasingly patenting genes that are tolerant to environmental stress. This could “… drive up costs, inhibit independent research and could further undermine the rights of farmers to save and exchange seeds.” This could also impact the research being conducted in the various centers under the umbrella of the Consultative Group on International Agricultural Research (CGIAR), where public sector deployment of patented transgenes could raise issues of liability for patent infringement. Similar issues could also arise before the Climate Technology Centre and Climate Technology Network [PDF] which has been proposed by the AWG-LCA.

It should be noted that under the WTO TRIPS Agreement countries have the freedom to develop effective sui generis systems of plant variety protection that are unique to their situations by striking a balance between the plant breeders’ rights (PBR) and farmers’ rights. However, developed countries have been insisting that the only effective sui generis system in existence at present is the system of PBR protection under the WIPO-administered UPOV Conventions of 1978 and 1991 [Union for the Protection of New Varieties of Plants]. The UPOV system gives exclusive patent-like protection to corporate plant breeders like the transnational agricultural and seed companies, disregarding the rights of farmers to save, use, and exchange seeds. Increasing pressure is exerted on developing countries in bilateral free trade agreements and WTO accession negotiations to adopt the UPOV model.

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The above analysis suggests that IPRs can significantly limit the ability of developing countries to acquire, adapt, and further develop technological solutions to their adaptation and mitigation needs. Availability of ESTs and related know-how in the public domain lies at the core of any mechanism for facilitating transfer and endogenous development of ESTs suitable to the adaptation and mitigation needs of developing countries.

Indeed, the availability of core technologies in the public domain has enabled some developing countries to invest in R&D and deployment of first generation ESTs in the areas of wind energy, solar power, and biofuels. Farming communities in developing countries also have the potential to develop plant varieties that could adapt to environmental stress through traditional breeding techniques.

However, the ability of developing countries to use their endogenous innovative capacity to address climate change can be significantly undermined by IPRs. Increased IPR protection on next generation ESTs, particularly IPRs over basic platform technologies, could undermine the sharing and availability of ESTs in the public domain. Risks of liability for IP infringement could have a negative impact on the functioning of the proposed Climate Technology Centre and Climate Technology Network.

However, international IP regimes have shown an alarming tendency of raising standards in favor of stronger protection of IPRs and expanding the domain of IP protection. Thus, taking measures to mitigate the rigorousness of IPRs lies at the core of any meaningful international mechanism for facilitating development and transfer of technology that would enable developing countries respond effectively to the challenge of sustainable development and climate change. For an effective response to climate change, there must be an agreement on IPR flexibilities in the UNFCCC negotiations.

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