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IPR: IP Strategies for EU ‘Cleantech’ Businesses in China: Part I
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China is the fastest growing market for wind and nuclear power generation, and is investing heavily in exploring alternative, renewable means of addressing its immense energy needs. With a large potential cleantech market, and strong government support for the development and adoption of new clean technologies, China presents great opportunities for European cleantech SMEs.
 
However, as the market becomes increasingly competitive, it becomes even more essential to strategically manage, protect and leverage your IP. Not understanding how IP fits into the overall strategy of your business in China can lead to missed opportunities and significantly weaken competitiveness. In this first instalment of a two-part article we discuss some useful strategies used by cleantech companies in China to assess risk and manage IP. 
 
Is bringing technology to China to access the Chinese market worth the IP risk?
China's large cleantech market potential means that cleantech businesses cannot risk losing a strategic foothold in China by waiting to act. Cleantech businesses that choose to start working with China need to understand that while good execution, effective management, and access to financing is critical to maintaining a competitive advantage, protecting good technology is also equally critical. Although technology transfer can be structured in a way that minimises IP risk, additional preparation and measures directed at the IP environment in China need to be considered by cleantech businesses with China aspirations.
 
What does it mean to have an IP strategy?
The cleantech industry is diverse to the point of being difficult to define, and, not surprisingly, IP strategies will differ markedly for different cleantech businesses. How IP fits into the overall business strategy will depend on whether the business is a start-up or a growth business, and also whether the technology itself is new and untested in the market, or mature and off-patent (technology that is no longer protected by patent). Different businesses will use IP to achieve different business objectives, e.g. maximise revenue-generation by monetising their IP portfolio through licensing, increasing opportunities for partnerships and cross-licensing, or barring new entrants into the market form emulating their unique selling points.
 
For example, a manufacturer of wind turbine components might consider focusing efforts and resources towards obtaining patent protection of component designs because infringement by counterfeit components can be easily demonstrated and proven in court. They may then also focus on budgeting sufficiently for enforcement campaigns to actively identify counterfeiters. On the other hand, a cleantech business that has developed a biomass on-site power generation system for livestock farms, and is looking to license the technology to farms across China, may want to obtain patent protection and explore ways to ‘black box’ (i.e. to withhold or keep secret) key parts of the technology. This could be done by supplying specialised equipment or by having a trusted contractor perform the installation because the technology will need to be taught and practiced by the licensee.
 
Developing an IP strategy
Developing an IP strategy requires interfacing with all parts of your business, including operational leaders, legal advisors, and development teams. As a first step, cleantech businesses should conduct an IP audit by identifying and cataloguing IP that the business owns. The next step is to link every piece of IP with a revenue stream, product, development goal, risk and/or strategic target. A close look at the market and competitors should be conducted. Core technology should be identified, and strategies should be developed on how best to exploit it. The business should then look at how it is capturing and managing IP, and whether additional steps need to be taken to secure and protect it (including resolving ownership issues and reviewing policies related to the notification and reward of inventions by inventors). Internal policies for protecting trade secrets and confidential information, and for dealing with third parties should also be developed.
 
Developing an IP strategy is an involved process that can be hard for cleantech SMEs to devote resources to. One helpful strategy is to start small. Make a list or spreadsheet of the IP the business has and add to it over time. Slowly expand on this list, drawing connections to relevant parts of the business.
 
altBuilding a valuable cleantech patent portfolio
Patent protection is perhaps the most common form of IP protection in the cleantech space. This is because many clean technologies are capital-intensive and take a long time to achieve market acceptance, especially for those that are currently too expensive to be commercially viable. As a result, cleantech investors often demand patent protection as a way of securing monopoly profits to achieve expected returns. Having a cleantech patent portfolio can bring other tangible business benefits such as stability, credibility, increased valuation, access to investment and financing, availability of defensive patent strategies (i.e. the strategy of filing patents directed at using them primarily to block competitors from using similar technology), opportunities for partnerships and/or cross-licensing, etc. Being able to leverage exclusive rights can influence strategic decisions and the direction of investment. Thus, for many cleantech businesses, investing in the development of a valuable patent portfolio can be a smart move if it is directed at achieving specific business objectives.
 
How to build a valuable cleantech patent portfolio
Building a quality patent portfolio requires properly incentivising development teams, keeping open lines of communications between legal advisors and development teams, implementing disclosure policies, and providing trainings within the company to raise awareness of patentable inventions to improve disclosures and help capture new inventions. Because new inventions whichthat become publicly known, i.e. in a publication (including the inventor’s own publication), will no longer be patentable, it is critical to ensure that development teams periodically disclose inventions to IP managers, maintain the secrecy of inventions, and do not inadvertently disclose information about new technologies to people outside the business, before a patent application is filed. Cleantech SMEs also need to consider the possibility that employees in China make improvements to their technologies; it is therefore essential to have the right contractual provisions in place for creator-employees conducting research and development within the company. 
 
What to protect
Cleantech businesses will need to decide whether to protect inventions as patents or keep them as trade secrets and know-how. Inventions that are protected by patents can become public knowledge, which can allow competitors to refine, design-around, or re-invent the technology so that it can no longer be protected by the patent. Cleantech inventions with a commercial shelf-life of significantly longer than 20 years should be considered for trade secret protection, but only if the business is confident in its capacity to protect its trade secrets (i.e. has sufficient know-how, IPR, IT, HR and legal resources directed at trade secret and confidential information security).
 
In some respects, patents filed for a product can be prioritised over patents filed for methods or processes that cannot be readily distinguishable in a product. This is because it is easier to enforce a patent when it can be identified in a product than it is to enforce a patent for a method or process as this would involve determining and proving whether a product was created using that particular method or process. However, methods or processes with broad applicability are suitable for patent protection and can be very valuable.
 
Managing budget
Building a valuable cleantech patent portfolio requires devoting a substantial amount of financial and management resources. ‘Shot gun’ approaches (i.e. setting a target number of patents and allocating a certain amount of money for each patent) to filing and prosecuting patents are attractive to businesses with limited budgets, but fail to deliver quality patents more often than they succeed. Rather, new inventions need to be qualitatively evaluated on their merits to determine how much of a business' limited resources need to be devoted to ‘prior art’ searches, drafting of claims, and the filing and prosecution of the application so that a strong patent is obtained.
 
When to file
A trickier question facing cleantech businesses is when to file for a patent. When a new invention is developed, it can often be difficult to predict the direction in which the technology will develop, as well as shifts in market trends. Filing too early may result in a patent that is not directed at how the technology is developing several years later. However, filing too late can risk someone else filing a patent for the same invention, or risk losing patentability if the secrecy of the invention is somehow lost. Businesses will often need to assess these questions on a case-by-case basis for different patents. This issue is even more important in China which is a ‘first-to-file’ system, making it easier for other parties to block you from using your own IP in China by registering your IP assets before you. It is also important to note that the registration process can be very lengthy, and your patents can only be protected in China once the registration has been completed. Breaking up the invention into several broad and specific patent applications may be possible and can be considered either initially or as a divisional application. Alternatively, consider whether combining invention patents with utility models can be used to provide additional flexibility.
 
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Review and adjust
It is often easy to feel that the job is done whenonce a patent has been granted. However, in an industry where technologies develop and market trends shift rapidly, periodically reviewing the patent portfolio can instruct a cleantech business on what adjustments need to be made and help them answer questions such as:
• Do the patent claims reflect the current state of the technology and the market trends?
• Do I need to be more specific when claiming so that I can better use the patents to block my competitors?
 
altDon't forget about utility models
Although some clean technologies are cutting-edge, many are based on technology that has been in existence for many years (so-called ‘legacy technology’). As a result, the cleantech space in many areas is characterised by incremental innovation and a convergence of existing technologies. It is important to recognise that such new technologies can be protected, either with an invention patent or as a utility model patent, and should not be overlooked by development teams as insignificant innovations.
China differs from many Western jurisdictions by providing patent protection for utility models, which protects the shape, structure, or the combination of shape and structure of a physical product (methods and compositions can only be protected by invention patent) for a term of 10 years (compared to 20 years for invention patents). Obtaining a utility model patent, sometimes colloquially called ‘mini-inventions’, requires a lesser degree of ‘inventiveness’ (i.e. the degree of innovation over known technology) than needed to obtain an invention patent. Utility models are inexpensive and quick to obtain, on average within 9-12 months, and are well suited to protecting products with shorter product life-spans.
 
Utility models are often viewed as a weak form of IPR because utility model applications are not substantially examined for patentability, and are often discounted by foreign businesses because they are unfamiliar with them. However, Chinese businesses have been taking advantage of utility model patents in vast numbers for years and have successfully used them to block foreign competitors and obtain huge pay-outs. In the well-known Chint vs. Schneider case, the Chinese company was able to settle the case for USD 23 million using a utility model. Combining utility models with invention patents can also be a smart way to deal with clean technology based on legacy technology.
 
Take-away messages:
European cleantech SMEs need to be proactive in understanding and taking measures to minimise IP risk when doing business in China. Often SMEs get caught up in fast-moving deal opportunities and do not adequately address critical IP issues. SMEs can avoid incremental losses to competitiveness through IP loss by thinking strategically about IP, and should follow these guidelines:
• Develop a comprehensive and well-articulated IP strategy that is directed towards achieving business goals.
• Think strategically about developing a valuable cleantech patent portfolio and devote sufficient resources so that strong patents are   obtained.
• Compartmentalise or ‘black box’ the technology and establish control points to ensure that no single party can practice the complete technology and keep critical, core technology or components separate.
• Develop a working knowledge of IP so that considerations of IP risk can inform business decisions.
 

By Philippe Healey

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