Griffith Hack Clean & Sustainable Technologies


Renewable energy technology in China: Protect and profit by Justin Blows
March 22, 2010, 7:10 am
Filed under: Feature

China will soon be, if not already, one of the greatest commercial opportunities for enterprises in the renewable energy and energy efficiency business. Demand for electricity is rising at 15% a year [R1]. China is projected to need 9 times the energy generation capacity of the United States within the next decade [R1]. China is committed to 15% of electrical power being from renewable sources by 2020 [R2] and the Chinese Premier has pledged that China will reduce its carbon intensity by 40-45% by 2020 from 2005 levels [R3].  In another post I discuss the amazing growth in renewable energy technology patent filings.

It is estimated that China will need to invest around US$400 billion to realise these targets [R4]. Much of this investment will be in wind [R5] but other technologies will also attract strong investment. Because Chinese coal reserves are estimated to run out in 50 years [R4], and currently the lions shares of electrical power is from coal fired generation, this investment is just the start of much bigger things.

Will renewable energy in China follow the great wall in ambition and scale?

Open for Business

Foreign companies and investors are taking advantage of the opportunity. For wind turbine manufacturers such as India’s Suzlon and US-owned GE, China is a very important, if not the biggest market [R6, R7]. Denmark’s Vestas has acknowledged this opportunity and built the world’s biggest wind turbine manufacturing complex in China [R1, R8]. Siemens is likewise manufacturing wind turbines in China [R9]. FirstSolar, an Arizona based solar company that manufactures solar modules, recently won a contract to build a 2 gigawatt solar field in China [R10].

The Local Competition

The competition from local companies is very strong. China’s manufacturing strength is great and it can turn out a product at a highly competitive price for export. China now manufactures more solar panels and wind turbines than any other nation [R11, R1, R12]. Local wind turbine manufacturers include Sinovel and Goldwind, and solar photovoltaic (PV) manufacturers include Suntech and Trina Solar. As local competition moves from me-too manufacturers towards technology leaders, intellectual property (IP), and particularly registered IP, is going to become even more important to foreigners operating in China.

IP – A Foothold into China

That foreigners are now successfully competing in China against such strong local competition may be attributed, at least in part, to the valuable IP embodied in their technology. Keeping this IP out of the hands of competition or at least licensing this technology to them for commercial gain, is paramount.

China is often considered to be, at best, ambivalent towards IP protection. There are plenty of anecdotes about new imported technologies being rapidly copied by counterfeiters, aided by what many consider a weak Chinese IP system.

This view is no longer representative of the experience many foreign companies have in China. China’s formal IP patent system has dramatically improved in recent years. Foreign companies operating in China have also worked out strategies that operate outside the patent system to largely secure their IP.

In fact, eSOLAR is so confident that their IP – both patents and know how – are secure in China that they have entered in joint venture (JV) agreement with Shandong Penglai Electrical Power Equipment Manufacturing Company. eSOLAR brings their IP to the JV and Shandong Penglai will manufacture the components. Any new IP developed during the course of the JV will be shared [R3]. The JV plans are ambitious – 2 gigawatts of solar electric power by 2020.

The power of IP in China is well demonstrated by the licensing of patented DVD technology and the DVD trademark and brand to Chinese manufacturers. In this case, the licensee is the DVD6C Licensing Group comprising Hitachi, JVC, Panasonic, Mitsubishi, Sanyo, Sharp, Toshiba, Warner Home Video and Samsung – none of which are based in China. The licensing fees appear to be around US$15-US$20 per DVD capable unit, which is a significant fraction of the final price [R22]. The IP around DVDs appear to be strongly and successfully enforced in China by the DVD6C Group.

The Chinese Position on IP

The official Chinese position on IP protection often depends on who you ask and where. The central government, at least, has the policy we should intensify IP protection, and amplify the system for IP protection [R14].

This is great news for those filing patents in China now as the enforceability of the patents is likely to rise further over the coming years. China now has a rapidly developing, and often effective, administrative and judicial system for enforcing IP rights.

Simultaneously, however, there are elements in China, and especially in certain less developed regions, that believe IP protects foreign, and not Chinese, interests, and perhaps even that local infringement and counterfeiting are desirable [R14]. For example, here is a quote from China View [R15]:

“Unfortunately, techno-rich industrialized nations cling to repulsive standards in technology trade and cross-border licensing. The current intellectual property right (IPR) regime is “unduly biased toward the owners rather than the users of technology”, said the UN World Economic and Social Survey 2009 released recently. Combined with the market power of multinationals in the advanced economies, such a regime could thwart global effects in environment by suppressing low-emission uses of developing nations.”

Meanwhile, Chinese companies are steadily increasing their share of patent filings. According to statistics from the World Intellectual Property Organisation, China is currently ranked 5th in the leading nations that file international patent applications.

Foreign companies like Toyota are also dramatically increasing their IP presence in China. Toyota increased their registered design applications by around 300% over the last decade to around 250 applications per year [R16]. They are “deeply impressed” by recent court rulings [R17]. Siemens is also strongly increasing its patent portfolio in China [R18]. Foreign companies are investing heavily in IP in China.

Chinese cleantech companies are also investing heavily in IP. These include Suntech, a manufacturer of solar cells, and BYD, a manufacturer of lithium ion batteries and electric cars.

Companies operating in China need to consider their IP and enforcement strategies very carefully. Some courts and administrative bodies are more IP literate and considerate of IP rights than others [R19]. Choosing the right venue may determine the outcome a patent holder desires. For example, the provinces of Pudong (Shanghai), Xian, and Wuhan have experienced IP Courts [R20] which may provide a more reasonable outcome.

Interestingly, China has two systems that receive and consider IP related complaints. The judicial system offers pre-trial injunctions, permanent injunctions and damages. There is also an administrative system which is very fast and requires little preparation of evidence. The administrative authorities will usually carry out a raid action within hours of the complaint being filed, issuing in effect stop orders and fines [R21].

Recent studies of foreign companies operating in China found that many have sophisticated IP management strategies additional to the patent and related formal IP systems [R23]. These strategies include:

• marking of products to authenticate genuine products and aid identification of supply chains;

• conducting road shows to promote the benefits of the genuine article over counterfeits;

• developing relationships with local partners and investigatory bodies so that the local response to an infringement is more effective;

• building the company’s brand;

• enhance the product offering and broadening the product range, each of which make it more expensive for competitors to compete;

• promoting product attributes such as environmental quality, health and safety, which counterfeiters are often reluctant to compete on;

• obligate contracted parties to enforce IP;

• selling IP rights, passing on infringement risks;

• retain key know-how in‑house;

• communicate with supply chain members directly reducing the likelihood that infringing products will enter the supply chain and facilitate early detection of infringing products;

• registering copyright, especially for new media and logo copyright.

It is also a good idea for employees and business partners complete an IP protection agreement [R21]. Non‑compete and confidentiality agreements signed by employees and partners can be effective as China has trade secret laws that have been effectively used. As IP is a relatively new idea in China, educating employees is important.

It is not uncommon to find that a local JV partner has entered into a JV purely to extract IP from a foreign party for use in its own operations [R21]. Clearly, JV’s must be entered into with open eyes, strong IP management strategies, and an agreement in place. Regular searching of official patent and related databases, to check your partners are not misappropriating technology, can be a first step in preventing this type of IP leakage.

Conclusion

The opportunities in China for energy technology enterprises, particularly those involved in renewable energy technology, are immense. However, a careful consideration of IP strategy is required, and strong IP protection is essential to effectively compete against the local competition. The formal IP system and IP enforcement in China have greatly improved over recent years and can now offer effective protection. Nevertheless, implementing IP strategies that operate outside of the formal registered-rights systems is very wise.

Justin Blows

Citations

R1 China’s edge in renewable energy, The New York Times http://www.statesman.com/opinion/insight/chinas-edge-in-renewable-energy-217186.html

R2 Silicon Valley faces fierce global competition in cleantech, Mercury News http://www.mercurynews.com/search/ci_14233459?IADID=Search-www.mercurynews.com-www.mercurynews.com

R3 Green energy program drafted, China Daily, http://www.chinadaily.com.cn/bizchina/2010-03/02/content_9523550.htm

R4 China’s Energy Priorities, Forbes Magazine http://www.forbes.com/2009/11/16/china-beijing-renewable-energy-business-oxford-analytica.html

R5 China to Invest $14.6 Billion in Wind Power by 2010, Bloomberg http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aX7usNmOCAIE

R6 General Electric Cutting Wind Deals at Home, China, The Associated Press http://abcnews.go.com/Business/wireStory?id=9543446

R7 Green China: Friend or foe?, The Energy Collective http://theenergycollective.com/TheEnergyCollective/56277

R8 Vestas grows wind presence in China, Cleantech Group http://cleantech.com/news/print/4089

R9 Siemens breaks ground in China’s wind market, Cleantech Group http://cleantech.com/news/print/4501

R10 Tower of Power, Time in Partnership with CNN http://www.time.com/time/magazine/article/0,9171,1931616,00.html

R11 China’s lead on alternatives is not as significant as it looks, Financial Times http://blogs.ft.com/energy-source/2010/02/16/chinas-lead-on-alternatives-is-not-as-significant-as-it-looks/

R12 The Real Story on Cleantech in China, Cleantech Group http://cleantech.com/news/5125/real-story-cleantech-china

R13 Solar thermal plant will serve as a model for future enterprises, People’s Daily Online http://english.people.com.cn/90001/90778/90860/6898837.html

R14 Kaizhong, H., “An Analysis of Determination of Level of Intellectual Property Protection in China”, [2008] E.I.P.R. Issue 12 © 2008 Thomson Reuters (Legal) Limited and Contributors, pgs 515-520

R15 Changing to meet climate change, Xinhuanet http://news.xinhuanet.com/english/2009-09/22/content_12094425.htm

R16 Yongjun, B., “An Analysis of Design Patent Applications for Auto Products in China”, China Intellectual Property, Mar-Apr 2008 304, Issue 23, pgs 49-54

R17 Li, D., “Research & Innovation Decides IP Protection Strategy”, China Intellectual Property, May-June 2009, Issue 30, pgs 30-31

R18 Ma, A., “Siemens: customized and regional IP strategies”, China Intellectual Property, Mar-Apr 2008 3-4, Issue 23, pgs 18-21

R19 Where to sue in China, Managing Intellectual Property, June 2009

R20 Cheung, H.T. and Prew, T., “China and Hong Kong – IP and manufacturing”, 08/08 Copyright © 2008 by The Bureau of National Affairs, Inc. IPTP:IPA, pgs 29-31

R21 Murphy, M., “How to protect your IP rights in an investment or joint venture in China”, Journal of Intellectual Property Law & Practice, 2009, Vol. 4, No. 3, March, pgs 213-219

R22 Redfearn, N., “Patent Pools in China”, Intellectual Asset Management September/October 2009, pgs 102-105.

R23 Mason, E.L. and Cross, A.R., “The effect of national IP enforcement on the IP management strategies of firms: the case of India and China, Int. J. Intellectual Property Management, Vol. 3, No. 3, 2009, pgs 195-221

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