Sunday, February 15, 2009

Legal Issues of Making Hawaii A Patent-Free Zone For Renewable Energy Technologies

Respondents to my earlier blog “Should Hawaii Be A Patent-Free Zone For Renewable Energy Technologies?” have raised the question, “Why limit patent-free use of renewable energy technologies in Hawaii to research grantees? That would leave out non-grantee patentees and out-of-state patentees. Why not pass a State law to exempt renewable energy technologies from patents State-wide?” This blog will outline some of the legal issues involved.

The U.S. Patent Laws are a federal statute implemented under authority of Article 1, Section 8, of the U.S. Constitution granting Congress powers (inter alia) … “To promote the progress of science and useful arts, by securing for limited times to … inventors the exclusive right to their … discoveries.” No state can enact legislation which contravenes or interferes with the U.S. Patent Laws under the well-established constitutional doctrine of Federal Pre-Emption. Therefore, the State of Hawaii cannot enact a state law that would contravene or interfere with the U.S. Patent Laws.

Enactment of any state law that would allow use of a patented invention without just compensation would probably also run afoul of the Due Process Clause of the Fourteenth Amendment to the Constitution, that “No state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any state deprive any person of … property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.”

The U.S. Patent Laws could be amended to modify provisions for patents on renewable energy technologies in the United States. However, this would require hearing, debate, and passage through both houses of Congress, and therefore must be legislation that would be favored by Congress as consistent with national patent policy.

Another approach might be to invoke immunity from patent suits under the States’ Immunity Clause of the Eleventh Amendment to the Constitution, that no suit may be “commenced or prosecuted against one of the … [states] by citizens of another state, or by citizens or subjects of any foreign state”. However, in order to pass muster under the Constitution, prior Supreme Court precedents indicate that a state must demonstrate that compulsory licensing of patents is necessary to achieve an overriding state purpose, the state must create a state agency to own the facilities as to which it will invoke immunity, and it must offer procedural and substantive due process of providing “just compensation” to the patentees of infringed patents. These requirements may be too complex and onerous for a state to implement.

As suggested in my prior blog, perhaps the quickest and most effective way to create a patent-free zone for renewable energy technologies in Hawaii would be to have grantor agencies for renewable energy research implement a policy of offering grantees to voluntarily exchange a non-exclusive royalty-free license to use any patented technology in Hawaii developed under research grant funding in exchange for a similar license to them to use those of any other grantees. This would be a simple “quid pro quo” for receipt of grant funds, and would probably be of most benefit to the grantees themselves. It would be entirely consistent with grantor agencies’ policies to promote cooperative and effective research efforts on renewable energy in Hawaii.

The shared patent licensing pool can be expanded by encouraging State agencies to join the pool, for example, by having the University of Hawaii and the Hawaii Natural Energy Institute renegotiate appropriate incentives for patent royalty sharing with its researchers to offset potential loss of patent revenues due to royalty-free use in Hawaii. Private companies doing renewable energy research, as well as Hawaii's utility company HECO, could also be encouraged to join the patent-free licensing pool since they have far more to gain by eliminating legal costs and roadblocks to deploying RE technology than they stand to lose in patent revenues foregone in Hawaii. Even out-of-state patentees might find it advantageous to join the patent-free licensing pool and make profits by selling RE products and systems in the State without roadblocks from patents owned by others.

** For full disclosure, Leighton Chong has handled patent matters in renewable energy technologies for the University of Hawaii, Office of Technology Transfer & Economic Development, Hawaii’s utility company HECO, and private renewable energy companies in Hawaii and on the Mainland.

1 comment:

  1. A respondent offered the following comments:

    "I think the grantor's right to sublicense the technology to whomever it liked in the state would as a practical matter lead many patent holders to forego grant applications in Hawaii because they would not have the ability to choose with whom they do business. People choose business partners partly on the basis of whether a potential collaboration is likely to lead to disputes. Parties who work together to develop a patented technology may create intellectual property in the course of that collaboration that is itself patentable. Sorting out how to divvy up intellectual property rights in such a situation is complex and could strain the relationship even among parties who have a history of collaboration and trust."

    My response:

    Nothing would change for joint R&D relationships receiving research funds from a grantor agency under my proposal. Parties will still choose who they want to do joint R&D with on the basis of trust. The U.S. patent system requires that the real inventors be named correctly in a patent application, so parties will still need to determine who invented what in naming the correct inventors on a patent application.

    Patent applications are published at 18 months from filing, and patents in this field currently take about 2-3 years to go through examination, Patent Office approval, and issuance. So a collaboration for joint R&D on an invention would not be made known to others until the 18-month publication date from filing. And if any patent is issued, it would not be until 2-3 years after filing.

    The only change under my proposal is that if and when a patent issues to the joint R&D venture, they will not be able to stop other parties from making and selling that RE product in Hawaii, since other grantee parties would be licensed to access the technology in Hawaii by the grantor agency. This is exactly what I intend. The point is to get RE inventions used and deployed widely in Hawaii without the threat of patent infringement law suits gumming everybody up. Since they cannot stop others, the recourse of the R&D venture is to sell their own patented product in Hawaii as quickly and as widely as possible. They stand to make more profit this way anyway, than suing people and trying to extract license royalties from them. They can still attempt to license the patent on the Mainland, which is a 300X market.

    In general, companies in Hawaii stand a better chance of making a profit from a new product by being the first to attract customers to buy the product rather than trying to extract license fees from other companies that want to sell a similar product. This is true because the costs of trying to legally enforce patent rights against one or more small companies in Hawaii's small market can far outweigh the amount of license fees that can be extracted.