Monday, February 2, 2009

Should Hawaii Be A "Patent-Free Zone" For Renewable Energy Technologies?

Patents are sought by inventors to secure exclusive legal rights in their inventions. For a patent to be granted, the invention must meet a high standard of being "new" and "nonobvious" over all prior published knowledge cited in Patent Office examination and in any subsequent legal challenges. Once granted, a patent provides the inventor with exclusive rights for a limited term of 20 years from filing within which to try to derive profit from their invention. A principal requirement of the patent system is that the inventor provide a complete disclosure to the public in the patent document of how to do something that was not known before in exchange for grant of a 20-year patent monopoly.

However, the U.S. patent system has been increasingly criticized as imposing heavy transaction costs and creating legal frictions that stifle competition in industries due to what some economists refer to as "excessive rent-seeking behavior". Defending against patent infringement claims can impose heavy legal costs on companies seeking to develop new products in areas where others have obtained prior patents. Also, in seeking to maximize the acquisition of patent rights, typical company policies require company research to be kept secret until patents are applied for.

In certain fields of cooperative research requiring the participation of multiple parties, such as in long-term medical research or joint university research, it is common to form research consortiums to jointly manage or pool together patent rights in order to remove ownership and enforcement issues as obstacles to sharing research work among participants. Also, in circumstances where multiple parties must develop and optimize different parts of a complex system, such as occurred in the development of digital television and microprocessors, allowing component developers to be licensed under collective patents for the whole system can remove the legal friction that might otherwise occur from the assertion of patent rights between contributing parties.

The State of Hawaii, in partnership with the U.S. Department of Energy, has set ambitious goals (the "Hawaii Clean Energy Initiative") to convert its current, almost total dependency on imported fossil fuels to 70% renewable energy usage by 2030. To accomplish this, many new or improved renewable energy (RE) systems, processes and products must be developed, optimized, and deployed widely in the State within the 20-year timeframe. This will require cooperation in research in diverse fields among multiple parties, as well as the removal of legal frictions between multiple contributors to complex systems.

I suggest that renewable energy policy agencies in Hawaii should consider making Hawaii a "patent-free zone" for renewable energy technologies. Since much RE research will be funded at least in part by research grants, implementing a "patent-free zone" policy can start by grantor agencies adopting a policy to retain shared patent licensing rights for all grantees to use any RE technology developed in whole or in part under research funding received from those agencies.

Companies can still file for their own patent rights to keep their investors happy, but would be able to license or enforce them only outside Hawaii. Since Hawaii's economy is relatively small in relation to national and international markets, the loss of possible licensing revenues foregone in Hawaii would be relatively small, while the benefit to all companies working toward the State's renewable energy goals would be large.

As an example, the Federal Government already requires retention of a royalty-free non-exclusive license under the Bayh-Dole Act when it allows small companies to take title to inventions funded under government research grants such as SBIR and STTR. The Federal Government will only exercise its access rights if the patent owner does not or can not commercialize a patented technology that is needed within a relevant industry.

As a parallel example in the State of Hawaii, the Hawaii Renewable Energy Development Venture (HREDV) has been set up through PICHTR as a central coordination agency for channelling federal funding for RE research in Hawaii. HREDV would be well-positioned to institute a "patent-free zone" policy by retention of licensed access rights to RE technologies developed by companies receiving research grant funding. Since it is a private industry organization, HREDV could implement such a policy without requiring the passage of legislation. It can also serve as an example or starting point for State-funded research entities like the University of Hawaii and the Hawaii Natural Energy Institute, and private companies in renewable energy research and Hawaii's utility company HECO to join the "patent-free zone" policy.

With at least the main clusters of RE research in Hawaii implementing a "patent-free zone" policy, all participating companies can freely cooperate on RE research in Hawaii knowing that they will not be blocked from using whatever they have contributed, thereby promoting shared research and removing legal frictions to help attain the State's renewable energy goals.


  1. Well, still going through hoops to comment, so let's see if this one works. Anyway, interesting point. Does any other state or nation have something similar?

  2. Yes, sorry about the quirky Blogspot Comment function. Others have complained that it occasionally does not work. I've found that if you resubmit, eventually the system accepts it within one or two tries. Make sure to copy the text before you submit, so you can paste it back in if it does not work.

    To answer your question, I know of no other state that has implemented a patent-free zone for a particular industry. Implementing such a policy as mandatory under State law would probably encounter problems of constitutional conflict with Federal law (pre-emption). However, there are many examples of IP pooling or joint management in private cooperative research agreements. This is why I suggest that a cooperative research agency such as HREDV should be able to implement such a policy without legislation.

  3. A respondent asked whether making Hawaii a "patent-free zone" would discourage companies from doing RE research here? My response is as follows:

    My suggestion is that only Hawaii be made a patent-free zone for RE technologies. Companies are free to obtain patents and license them throughout the rest of the U.S. and in foreign countries (if they obtain parallel foreign patents), to keep their investors happy.

    In practicality, the amount of licensing revenues a patent owner can derive from other users in the State would probably be tiny to non-existent. Our GDP is 1/3000 of U.S. GDP. Past patent litigation efforts undertaken against infringers in Hawaii such as by Aquasearch (microalgae) and Hawaii International Seafood (frozen smoke treatment of fish) have resulted in those companies being nearly bankrupted by legal fees which dwarfed any license revenues they might legitimately have been entitled to.

    If a company originated an RE technology that proved to be unique, it would likely derive the lion's share of its revenues by selling those systems throughout the State. Thus, in a reverse manner, not being able to enforce their patents against competitors in the State would motivate those patent owners to sell as fast and as many systems as they could in Hawaii, which would benefit them as well as the State. This is exactly the argument made by economist Michele Boldrin in "Against Intellectual Monopoly", published by University of Washington Press.

  4. Leighton: Thank you for providing such great "out of the box thinking" on an important subject. There are loose analogies in Free Trade Zones and Special Economic Zones, the most famous of which is Shenzen, China now a city of 10 Million people up from the small village it was before that designation by Deng Xiaoping.
    Since Hawaii is such a small piece of the country's and world's economic pie, it would provide inventors the advantage of getting their technology and its efficacy demonstrated without significant loss of revenue. Such "loss" would be counterbalanced by the potential for hughly significant gain from having their invention proved in practice. Hawaii's remarkably defined geographic boundries would minimize "drift" out of the zone that would otherwise be likely if the zone were just a designated part of the U.S. mainland.
    Dan Bent

  5. Interesting idea. Here's where Hawaii's tiny market size becomes an asset in being patent-free. There's essentially little revenue loss, yet companies don't forgo any benefits of the patent process. "I'm not Leighton Chong" but I like the idea!