Intellectual Property Infringement Risks Threaten Offshore Project Viability
Totaro & Associates, Hamburg, HH, Germany
Presently, independent intellectual property rights (IPR) infringement risk certification is not mandated in virtually any industry where project finance is utilized. In the offshore wind energy sector, most turbine OEMs provide their own data and validation to turbine purchasers and project financiers. This only transpires if asked, and typically only in matters related to patent infringement litigation recognized in the public domain.
Unfortunately, this validation from the turbine manufacturer is not an independent assessment. What most turbine OEMs and EPC contractors do not realize, or have not publicized, is that they are all infringing on one another, and thereby inducing infringement for the project developers. This information is typically ignored unless addressed to a turbine manufacturer or known by an OEM and EPC contractor. If the infringement risk is known, the potential infringement liability is typically kept quiet and not fully shared with the project developer.
Additionally, wind turbine manufacturers are introducing another level of risk for project financiers and turbine purchasers by not providing full indemnity in turbine supply contracts specifically to limit their own liability.
The process of IPR infringement risk mitigation works by starting off with a comprehensive patent landscape and catalogue of IPR and technology in the industry. The patent claim breadth of each filing must be compared to the known use of that technology in the industry. The composite risk score is then calculated based on the number of patent filings which can be classified in each risk category. These results are consolidated to provide an overall relative ranking and provide an understanding of the scope of mitigation work required, or the risk premium which can be assessed.
Presently, over 36billion Euros in outstanding patent infringement liability damages and royalties threatens approximately 18GW of installed and proposed projects in the UK, Germany, France and China. Offshore turbine OEMs and EPC contractors have a combined 223 patents which they potentially infringe, and the associated liability is not being fully identified or mitigated during the project finance due-diligence.
Turbine OEMs, project developers and even the EPC contractors share liability for patent infringement. However, this risk is not being fully captured and mitigated contractually for offshore wind projects. There is an opportunity here to plug these holes with an insurance product, but that is a stop-gap measure if the insurer can't quantify IPR infringement risk. They also require an assessment of IPR infringement risk and this type of analysis is typically not a core competency. In this manner an independent assessment can provide the needed clarity.