How Intellectual Property Strategies (IPS) Establish Open

Innovation Platforms for the Wind Energy Industry

Stavros Thomas1

1Wind Power Industry Research, Anemorphosis Investigation Analysis Platform1University of East Anglia,Computer Science Department

1DTU, Technical University of Denmark

Abstract

Intellectual Property Strategies (IPS) - especially those patents relating to technological innovationin the wind energy industry - is full of heated rhetoric and polemics between business parties. Almostall the key players have taken a stance on whether it would be a severity risk if the industry policymakers and regulators underestimate the IPS practises except for the team that may matter the most.The Wind Power Industry itself (the Team), has not yet holistically proposed how it would classify orreact to a problematic intellectual property rights framework. While many key-players and experts inthe segment keep saying that this is a sign of the industry’s maturation, there are several concerns to beconsidered as soon as possible. Unlike the very first days of wind energy, innovation and openness are nolonger freely shared at conferences and public forums. There has been a ten-fold increase in the numberof technologies licensed to the wind power industry from certification Bodies and Institutions since 2010.However, as the industry comes up with new inventions, the major players - Enercon, GE, Siemens,Vestas, Nordex and Repower - are spending millions of euros building and maintaining sustainable IPportfolios to drive profit and gain the strategic upper hand, or, at the very least, bring some constructiveequilibrium into the discussion.

1 A paradox

Open innovation and a sustainable ecosystem of synergistic interactions could address a common problem -the failure of wind power developers and investors to leverage their IPS financially by profiting from othersuse of their own technology through licensing agreements, joint ventures, partnerships, strategic alliancesand other arrangements. In other words, a symbiotic relationship which could create a win/win model.Examples of such symbiosis in other sectors include Facebook, Amazon Web Stores, Google’s platforms andapplications or the Aviation and Aerospace Industry partnerships.

The most innovative organizations have in place several Intellectual Property approaches, depending onthe situation and complexity, asking multi-directional, context-specific and critical thinking questions. Bydoing so, they achieve both short-and long-term advantages while positioning themselves as leaders, andthe strategies they are using for success in the market. However, there is a paradox in this story. HenryChesbrough in his book Open Services Innovation: Rethinking Your Business to Grow and Compete in aNew Era states that:

“ Open innovation is a paradigm that assumes that firms can and should use external ideas as well asinternal ideas, and internal and external paths to market, as the firms look to advance their technology.”

Indeed, open innovation is defined as the use of purposive inflows and outflows of knowledge to accelerateinternal innovation, facilitate decision making and improve the markets adaptability framework for externaluse of innovation. Since knowledge is not a pathless land, open innovation typically starts with either anunmet need, around which you build a competitive marketplace, or a network, around which you could also

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Figure 2: Patents facilitate advances throughout the technology life cycle

establish a collaborative community. Once open innovation is adopted, the organization’s boundaries becomepermeable and begin to interlink and collaborate. Thus, collaborative development opportunities occur andthis “genesis” allows combining the company’s internal resources with external co-operators and partners.

Figure 1: Open Innovation Vs Closed Innovation.

In contrast, Closed Innovation companies innovate by using only internal resources. Usually during theinnovation process, ideas are evaluated and only the best and most promising ones are selected for theirdevelopment and commercialization. The ones that show less potential are abandoned.

Intellectual Property Rights (IPRs) are generally designed to exclude others from using a firm’s protogenicideas and inventions. At first glance Open Innovation and IPR seem irreconcilable to each other. That is,open innovation implies a willingness to allow knowledge produced within the firm to spill over to others(possibly in with the expectation of receiving knowledge spillovers from others in return) whereas IPRprotections allow innovative entrepreneurs to protect their inventions by excluding others from using thatknowledge or by preventing rivals from patenting related inventions. However, IP practises can also createbarriers to the development of entrepreneurial ideas and hamper knowledge diffusion and innovation.

In spite of this contradiction, some of the world’s largest organizations and companies have embracedthe open innovation model. The Open Innovation Strategy and Policy Group mentions several companiesfrom the energy sector, such as, Endesa, GE, ABB ,GDF Suez, AkzoNobel, Novozymes, Siemens etc. OnNovozymes’s corporate website, one reads:

“Novozymes has initiated several open innovation actions related to biofuels. Collaborative crowd-foresightingis focusing on identifying and assessing emerging technologies, needs and problems via roundtables and Twit-ter. Through crowd-sourcing, the company wants to engage as many brilliant minds as possible to generatecutting-edge ideas together.”

Another example is GE which establish open innovation methodologies, by launching its Ecomagination

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Challenge that solicits ideas for new business ventures relating to energy and environmental issues (RenewableEnergy, Grid Efficiency, Low Carbon Technologies and Eco Buildings). The latest GE’s EcomaginationChallenge has been launched in partnership with Saudi Aramco in April 2014, and is aimed at findingrenewable energy solutions for seawater desalination.

Open Innovation is often best carried out through partnerships and strategic alliances. The days ofinnovating in isolation are over. It is more than certain that, no one company can be expected to know allthe answers. That’s why the need to regularly work together with a wide network of educational institutes,governmental bodies, companies and policy makers to jointly develop meaningful new breakthroughs, isindispensable.

In the wind energy industry sector the example of Dong Energy revolutionizes the industry itself.Their annual report emphasizes their need to tap into knowledge from universities, research institutes, andcompanies worldwide, to the extent that their experts and scientists from the Research and Developmentdepartment create virtual labs incorporating information from outside. In May 2007, Novo Nordisk andDONG Energy together launched the first Climate Partnership in Denmark. Since then, DONG Energy hasentered into several Climate Partnerships and developed a unique partnership model with a variety of Danishorganisations, companies, municipalities and other business stakeholders. They all share the common goalof decreasing their activities carbon footprint, besides running economically viable and feasible investments.

So the natural question is to ask how the firms in the wind power industry could use the IPR practises inlight of their engagement with sustainable open innovation models? And why do other firms, such as RES,RWE or Sinovel Wind Group who are also heavy patenters, not even mention the phrase open innovationon their websites?

2 Business as usual?

A skeptical person could argue that the IPR framework practises being given up by these large firms are notvery valuable and economically feasible to them, and that obsession to open innovation is merely a convenientway of saying that they are open to taking their competitors ideas and prototypes without giving up any oftheir property rights or copyright. It is well known that Industrial rights take a range of forms and include,among others, patents to protect inventions, trademarks, industrial designs, and commercial names. At onepoint, the skeptic would be right that these organizations could not decline their quest for economic profitsand prestige in embracing the open innovation model practises.

Technology can play a prominent role in the entire IPR life cycle development, from the initial Researchand Development phases to the market introduction where competitive IT tools and practises can be pro-tected with patents and licensed out to third parties in order to optimize value creation and its distributionamong the stakeholders and most important and maximize the ROI. However, technology tools and practisesthey offer to the public will not be that which is most valuable to them; it will be that which they haveno plans to develop but where they think there is a possibility that development by others may ultimatelybenefit them via knowledge sharing or increased demand for the firm’s own products services.

However, the skeptic would be wrong in supposing that “open innovation” is intrinsically not valuableenough in modern economies. These organizations have simply recognized four key parameters:

• No organization is able to develop all the technology it needs internally

• The products they produce need to work well with those produced by other firms

• Encourage and include partnerships with competitors and firms with different business models andPortfolio Management approaches.

• A sustainable IPR framework facilitates the free flow of information by sharing the protected know-how critical to the original, patented invention. In turn, this process leads to new innovations andimprovements on existing ones

• Not all inventions are patentable

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Bringing all of these important and diverse points together, provides us the impression that managingIPR carefully and synergistically is only one of the possible ways firms can achieve success. These rights areembraced by all sectors of industry - small, medium and large companies alike - and by labor organizations,supply chain stakeholders, tenders and other trade associations. IPR can be used in a plethora of waysto facilitate the management of open innovation and knowledge sharing. First, to allow policy inventionsto occur and establish structural collaboration agreements, policymakers should provide protective space tomake the necessary codification of an invention or technology when a patent is successfully applied. However,one should respect the uncertainty, inconsistency and imprecision that is invariably associated with any pieceof technology tool or approach (method)that is to be licensed to another party.

Second, since a firm’s IPR strategy can encourage innovation and provide vital information for others,hamper the free flow of information and technological development. These property rights are protectedprimarily to stimulate innovation, design and the creation of technology. In this category fall inventions(protected by patents), industrial designs and trade secrets. IPR can be used defensively to negotiate crosslicenses with others in the industry who hold complementary technologies, thus avoiding mutual litigation.The main purpose is to provide protection for the results of investment in the development of new technology,thus giving the incentive and means to finance research and development activities and last but not least,stimulate the creativity.

Third, Intellectual Property protection generally plays a quite different role in the renewable energyindustries than it does in other sectors for example, the pharmaceutical sector. In general, in the pharma-ceutical sector, an individual patent may have a very substantial impact, for a specific drug may not haveany substitutes. In such circumstances, the patent holder is in a very strong market position and may beable to charge a price well above production cost. In contrast, in the wind power industry considered here,the basic approaches to solving the specific technological problems or deal with the potential risks have longbeen off-patent. What are usually patented are specific improvements or features or equipment. Thus, thereis competition between a number of patented products and the normal result of competition is to bringprices down to a point at which royalties and the price increases available with a monopoly are reduced.

Four,IPR are territorial in nature and are governed by national patent laws and regulations. This meansthat a patent is valid and enforceable only in the territory of the country in, or for which, protectionis granted, in accordance with the applicable law of that country. Therefore, if an invention needs to beprotected in another country, the owner needs to file another application for a patent in that country. Patentsare also used as an indicator for monitoring the innovation of technologies, the technology competitivenessof a country or the economic performance of a firm or a market-economy. Quality patents help increasecertainty in the marketplace and will help enhance technological innovation. Thus, owning the rights tocertain inventions only allows a firm to write licensing agreements that encourage the development of atechnology that might otherwise languish on the shelf but at the same time creates significant barriers tothe research and development.

2.1 IPR Tactics and Approaches

Besides the fact that wind energy industry’s companies are actively looking to protect their intellectualproperty, Due diligence of potential suppliers is crucial. The Clash of Titans between GE and Mitsubishi,Gamessa vs Enercon and Enercon with Yogesh Mehra are just some of the most important paradigms todemonstrate the necessity for effective Due Diligence and Project Portfolio management tactics and method-ologies. However, the uncertainty comes again since a would-be joint-venture may have robust patents,but a rogue manager who steals business secrets which are not protected legally except by confidentialityagreements or an ex-employee who retains computer access.

Other IPR management strategies exist as well. These may involve multiple rather single approachesor vice versa, and their efforts are tailored to the specific organizational context and problems addressedby open innovation. As a paradigm, Siemens the wind power manufacturer giant from Germany, in somecases funds university research without precisely specifying the goal of research or the preferable area ofinvestigation, something that would be anathema to the academic institutions participants. However, this

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tactic it protects itself by requiring a royalty-free license to any university patents emerging from the researchthat it has funded.

2.2 Storm Warning - Storm Patent

Siemens, Dong Energy and London Array - the world’s biggest operating offshore wind farm are all headingfor a UK court showdown with German wind turbine maker Enercon over alleged patent infringement of’Storm Control’ technology developed by the latter’s founder, Aloys Wobben. The Siemens High Wind RideThrough application allows a wind turbine to operate at some storm-level wind speeds and is a breakthroughin stabilizing energy output while Enercon names its Storm Warning system Storm control. GE Energy likelyas a way to avoid a IPR battle with Enercon uses a de-rating approach that collectively de-rates of all the windturbines at a wind power plant. Their invention is directed to wind turbine plant operation. In particular,the invention is directed to wind turbine plant operation of a plurality of wind turbine exposed to high windconditions. Spain’s wind power manufacturer Gamesa fought a three year battle to invalidate Enercon’spatent, but lost the battle in February of 2014. From a business perspective, high levels of competitionbetween wind turbine manufacturers and developers can only be a good thing. The ongoing battle betweendevelopers can only lead to greater innovation, initially in terms of new applications and then, upgradedoperating systems and infrastructure.

3 Lessons Learned And Challenges

Indeed, as we look more closely at the open innovation processes and approaches, we see that there is noparadox - in fact the increased attention involved to IPR framework management. The way in which openinnovation operates in a commercial organization empowers co-workers and stakeholders to tackle challengesand improve their internal structure. There is an important flow of external knowledge into the organizationwhich turns into projects in co-operation with external partners and causes the purchase and incorporationof external technologies. At the same time, the innovations generated within the company can be sold astechnology and/or industrial property to other organizations since either they are not applicable within theirbusiness model or because the company has no capacity or experience to develop the invention.

Over recent years, strategic alliances in the wind energy sector have proven to be the secret to success.When two or more partners join forces the limits of what they can achieve grow significantly. Joint venturesundoubtedly offer greater ROI over a shorter period of time, reduce competition in the market and facilitatevalue creation and its distribution among the stakeholders.

Principally in the wind energy sector partnerships and alliances are entered into for the following reasons:

• bring different skill sets together such as asset development with EPC and O&M expertise;

• enable financial investors to participate and fund the project for development and/or construction

• allow partners to hedge their risk particularly on larger projects with significant capital demand

• allow developers to partner with those with local knowledge in emerging renewable energy markets

• the developmental goals can be achieved in terms of capacity to build capacity

• easier monitoring of the potential impact and risks (open sharing allows open tracking)

• value creation and knowledge sharing

In many ways the wind energy sector is a perfect fit for joint ventures and strategic alliances. Thereis a diverse range of expertise and knowledge which is required for each stage of the project development;planning manufacturing, construction engineering, lenders engineering, interacting with financial and aca-demic institutions, site control, operations and maintenance, policy makers which lends itself to join venturesarrangement.

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Based on the studies already conducted, and in collaboration with key partners, Anemorphosis ResearchGroup will extend the concept of the IPR information platform development in 2015 to a larger framework toinclude other information on innovation instruments, in particular IPR standards. The analysis of renewableenergy patent information in specific wind power applications will be expanded in order to better understandthe latest overview and innovation in wind power industry. The case study on renewable energy desalinationhas provided valuable insights and will be expanded to other innovative technology fields such as wave(ocean) energy technology.

References

Kevin Closson, How Intellectual Property Policies Can Create Sustainable Energy Infrastructures (2008)management Knowledge management Intellectual Property Strategy (The MIT Press Essential Knowledgeseries) by John Palfrey, 2014 Essentials of Intellectual Property: Law, Economics, and Strategy by Alexander

I. Poltorak, 2012 Intellectual Property and Competitive Strategies in the 21st Century 2nd Edition by Shahid

Alikhan, 2014 OECD (2014): Open Innovation in global networks. Paris. Seibold, Balthas / Winter, Phillip

(2010): Freedom to innovate. In: Development + Cooperation / D+C, 2010/04, p. 170-172. UNCTAD

(2015): Knowledge, Technological Learning and Innovation for Development. Geneva All articles related to

Intellectual Property Rights (IPR) on energypedia

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