Green-Car Patents Raise Old Issues, New Questions

BRIGHTON, England – Automakers are facing tough legal decisions as they increasingly move toward adopting green technologies: do they patent their inventions or deliberately leave them unprotected, encouraging other companies to improve their design?

Experts tell WardsAuto there is no one-size-fits-all solution, given the variety of innovations now under consideration.

Patents expert Efrat Kasznik, president and founder of California-based Foresight Valuation Group, says the auto sector currently is focused on defensive patenting, even for innovations it does not use.

“In R&D-intensive industries, such as the auto industry, the patent yield is highly correlated with the R&D budget as it is perceived to be a direct return on innovation,” she says.

“Auto companies are traditionally very large patent holders, and a lot of the innovation in the auto industry is driven by regulations. Oftentimes, an auto company will try several possible solutions to achieve an emissions standard that is coming up 10 years from now, and only adopt a small section of the solutions, leaving several of the other solutions unimplemented.

“Having said that, many of these solutions will still be patented, leading to large patent portfolios covering innovations that are not necessarily present in products.”

Patents, Kasznik explains, have two types of value: enforcement, or “stick,” value; and technology transfer, or “carrot,” value. Enforcement value is associated with the right to enforce the patent. Factors such as age, patent classification, patent family, length of claim and filing history with the patent office influence this value.

Technology-transfer value is associated with newer patents that will be applicable to future products in emerging markets. This type of patent is monetized through the holder’s own products or by licensing to others who wish to bring new products to market.

“Here, what is really important is the path to market as this patent gains value from future products,” Kasznik says. “Also important is the existence of know-how and other technology, in addition to the patent, since a patent alone is not enough to build a product.

“All the patent provides is the right to exclude others, so it gives the holder a limited monopoly and the ability to gain some early market share.”

Fernando Torres, chief economist at IPmetrics, tells WardsAuto: “Since patents are ‘exclusionary rights’, they are valuable to a company if they allow companies to exclude others from using the innovation.”

Share or Shelter?

Thus an auto company that can develop or license a unique technology essentially can carve out a specific market segment for itself. This is exceedingly difficult in the auto business, given its high level of differentiation based on well-known common technologies.

“These are not strictly ‘patentable subject matter,’” Torres says. “Rather, these are decorative differentiators, quality/pricing differentiations and functional differences – for example, a 2-seat, family sedan, SUV and so on.”

Furthermore, companies may be better off leaving some truly innovative features unprotected. An example is the “clean tech” charging stations developed by California-based electric-vehicle maker Tesla, which announced last year it would be sharing patented technology.

“So their patents are not valuable to them and can be ‘given away’ to expand technology adoption,” Torres says. “Also, there is a benefit to standards, such as the plug configuration for plug-in hybrids and all-electric cars. Adopting a (free) or very low-cost standard allows for the market to exist and it is a better solution than competitive patenting by every market participant.”

Adds Peter Cooke, professor emeritus of automotive management at the University of Buckingham: “Unless the technology is absolutely amazing, fantastic and cheap to implement, it will probably not add value longer term – it will merely protect it. What one OEM has today, competition will match tomorrow.”

Specialized technologies such as braking systems will be developed for Tier 1 suppliers by outside experts, he says.

“These suppliers have specialists continuously developing the technology for more than one OEM, so the leading-edge technology spreads,” Cooke notes. “It is more effective for OEMs to utilize external specialists rather than try to develop new systems in-house every three to four years.

“Specialists need to keep developing technologies – and they are expensive.”

Is there a value difference between clean technology and traditional technology patents?

Louise Wallis, head of business development at the U.K.’s National Franchised Dealers Assn. thinks so: “These are the things that pension funds are investing in, so ‘clean’ patents are going to push up the share price for those companies.

“It is trendy, as well – a younger generation of car owners is coming through who are switched on to the environmental impact and will base spending decisions on environmental concerns. This sells cars.”

Mike Pellegrino, founder and president of U.S.-based Pellegrino & Associates, an intellectual property valuation company thinks not: “First, there is no correlation to GDP growth and clean innovation that survives scrutiny.

“Second, there is massive data that suggests clean innovation and regulation merely moves the dirty activity to locations of comparative advantage – for example, ‘dirty’ manufacturing moving to China from the U.S. because U.S. regulations became too onerous.

“Third, many of the subsidies and research dollars were squandered on projects with little fundamental economic viability,” Pellegrino says, citing the ethanol craze in the U.S. in 2006-2008 and the EV craze of 2010-2012.