Clearing the IP Pathway for Chinese Alternative-Energy Companies

Authored by Esther H. Lim

Introduction

Global demands for energy supply, increased environmental awareness, and rising costs of traditional energy sources have fueled recent growth in the alternative-energy industry. China stands as an emerging leader in the world's alternative-energy market, with notable success in solar photovoltaic and wind-turbine technologies. To ensure continuing and sustainable national growth, the Chinese government has approved many incentive programs to promote further expansion of its alternative-energy industry. The 12th Five-Year Plan outlines the government's objectives to cut carbon emission, cut energy consumption, and meet primary energy requirements from nonfossil sources by 2015.

Chinese companies have witnessed market expansion driven by domestic implementations and foreign exports. Many solar-photovoltaic products manufactured in China are exported to the United States and Europe. Wind-turbine products are installed domestically and exported worldwide. This article will address patent considerations and associated business implications for the developing alternative-energy industry to ensure continued exports abroad.

Recent U.S. Litigations Involving Alternative-Energy Technology

To enforce a U.S. patent, a patent owner can sue in the U.S. International Trade Commission ("ITC") or in U.S. district courts. U.S. patent owners have increasingly relied on the ITC for speedy resolution of disputes over patent infringement, referred to as "Section 337 investigations." If an import is found to infringe a valid U.S. patent, and the complainant can satisfy the requirement of showing that a "domestic industry" is affected, the ITC can exclude that product from entering the United States. Thus, Chinese companies aiming to export alternative-energy products into the United States should consider recent ITC lawsuits.

A. Patent Infringement Actions at the ITC

Section 337 investigations block imports that infringe U.S. IP rights. A recent example of a Section 337 investigation involving alternative-energy technology is In the Matter of Certain Variable Speed Wind Turbines and Components Thereof (Inv. No. 337-TA-641). In 2008, General Electric Co. filed a Section 337 complaint against Mitsubishi Heavy Industries Ltd., alleging patent infringement of several patents covering wind-turbine technology. Another example is In the Matter of Certain Integrated Solar Power Systems and Components Thereof (Inv. No. 337-TA-811), in which Westinghouse Solar Inc., a U.S. manufacturer and distributor of solar power systems, filed a complaint over its "plug and play" solar panel installation design. Westinghouse alleged that certain designs practiced by the respondents, Zep Solar Inc. and Canadian Solar Inc., infringed two U.S. patents. According to the complaint, the respondents manufactured the allegedly infringing products through a Chinese entity. Westinghouse later sought to add Yingli Green Energy Americas, Inc., as an additional respondent. In a related litigation, Zep Solar, Inc. v. Westinghouse Solar, Inc., No. 3:11-cv-03800 (N.D. Cal.), Zep Solar and its licensees, Trina Solar, Inc. and Changzhou Trina Solar Energy Co., Ltd., filed a declaratory-judgment lawsuit against Westinghouse in the Northern District of California in 2011.

B. Offensive and Defensive Strategies in an ITC Investigation

Chinese companies should be aware of both defensive-and offensive-litigation considerations in a Section 337 investigation. When defending against an infringement allegation, in addition to noninfringement or invalidity arguments, a respondent can attack the complainant's lack of "domestic industry." Under 19 U.S.C. § 1337(a)(3), "domestic industry" can be shown by a significant investment in manufacturing facilities, a significant employment of labor or capital, or a substantial investment in exploitation of the asserted patent in the United States. A foreign company may satisfy the "domestic industry" requirement through its U.S. licensing activities, where the licensee has significant investments on labor and capital regarding the licensed products. Alternatively, as seen in Zep Solar, if a foreign company anticipates an imminent suit in the United States, the company can sue as a declaratory-judgment plaintiff in a U.S. district court. Declaratory-judgment plaintiffs should carefully consider the appropriate venue when filing a preemptive action.

Strategic Patent Considerations

As China takes the lead in developing pioneering technology in the alternative-energy industry, Chinese companies should obtain patent protection covering these innovations in large markets like the United States and Europe. Business decisions should be coordinated with the company’s patent strategy. The U.S. Patent and Trademark Office's green-technology program enables accelerated examination of certain clean-energy patent applications and thus may provide a way to obtain U.S. patents more quickly. A comprehensive patent portfolio not only can maximize IP protection for Chinese companies but can level the playing field and promote settlement of lawsuits. Before exporting products to the United States, a company should work with qualified U.S. attorneys to conduct freedom-to-operate studies to clear third-party IP rights. Qualified attorneys may also propose viable design-around solutions to avoid possible infringement suits and ensure safer entry into the U.S. market.

Conclusion

Adequate clearance studies are recommended before U.S. market entry. Additionally, obtaining patent coverage on proprietary innovations may deter third-party suits. Looking ahead, Chinese alternative-energy companies should build valuable patent assets while avoiding existing patent rights of others to maintain market success. Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm’s clients.