Renewable energy technology in China: Protect and profit

China will soon be, if not already, one of the greatest commercial opportunities for
enterprises in the renewable energy and energy efficiency business. Demand for electricity
is rising at 15% a year [R1]. China is projected to need 9 times the energy generation
capacity of the United States within the next decade [R1]. China is committed to 15% of
electrical power being from renewable sources by 2020 [R2] and the Chinese Premier has
pledged that China will reduce its carbon intensity by 40-45% by 2020 from 2005 levels
[R3].

It is estimated that China will need to invest around US$400 billion to realise these targets
[R4]. Much of this investment will be in wind [R5] but other technologies will also attract
strong investment. Because Chinese coal reserves are estimated to run out in 50 years [R4],
and currently the lions shares of electrical power is from coal fired generation, this
investment is just the start of much bigger things.

Will renewable energy in China follow the great wall in ambition and scale?

Open for Business

Foreign companies and investors are taking advantage of the opportunity. For wind turbine
manufacturers such as India’s Suzlon and US-owned GE, China is a very important, if not
the biggest market [R6, R7]. Denmark’s Vestas has acknowledged this opportunity and
built the world’s biggest wind turbine manufacturing complex in China [R1, R8]. Siemens is
likewise manufacturing wind turbines in China [R9]. FirstSolar, an Arizona based solar
company that manufactures solar modules, recently won a contract to build a 2 gigawatt
solar field in China [R10].

The Local Competition

The competition from local companies is very strong. China’s manufacturing strength is
great and it can turn out a product at a highly competitive price for export. China now
manufactures more solar panels and wind turbines than any other nation [R11, R1, R12].
Local wind turbine manufacturers include Sinovel and Goldwind, and solar photovoltaic
(PV) manufacturers include Suntech and Trina Solar. As local competition moves from
me-too manufacturers towards technology leaders, intellectual property (IP), and

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particularly registered IP, is going to become even more important to foreigners operating
in China.

IP – A Foothold into China

That foreigners are now successfully competing in China against such strong local
competition may be attributed, at least in part, to the valuable IP embodied in their
technology. Keeping this IP out of the hands of competition or at least licensing this
technology to them for commercial gain, is paramount.

China is often considered to be, at best, ambivalent towards IP protection. There are plenty
of anecdotes about new imported technologies being rapidly copied by counterfeiters,
aided by what many consider a weak Chinese IP system.

This view is no longer representative of the experience many foreign companies have in
China. China’s formal IP patent system has dramatically improved in recent years. Foreign
companies operating in China have also worked out strategies that operate outside the
patent system to largely secure their IP.

In fact, eSOLAR is so confident that their IP – both patents and know how – are secure in
China that they have entered in joint venture (JV) agreement with Shandong Penglai
Electrical Power Equipment Manufacturing Company. eSOLAR brings their IP to the JV
and Shandong Penglai will manufacture the components. Any new IP developed during the
course of the JV will be shared [R3]. The JV plans are ambitious – 2 gigawatts of solar
electric power by 2020.

The power of IP in China is well demonstrated by the licensing of patented DVD

technology and the DVD trademark and brand to Chinese manufacturers. In this case, the
licensee is the DVD6C Licensing Group comprising Hitachi, JVC, Panasonic, Mitsubishi,
Sanyo, Sharp, Toshiba, Warner Home Video and Samsung – none of which are based in
China. The licensing fees appear to be around US$15-US$20 per DVD capable unit, which
is a significant fraction of the final price [R22]. The IP around DVDs appear to be strongly
and successfully enforced in China by the DVD6C Group.

The Chinese Position on IP

The official Chinese position on IP protection often depends on who you ask and where.
The central government, at least, has the policy we should intensify IP protection, and
amplify the system for IP protection [R14].

This is great news for those filing patents in China now as the enforceability of the patents
is likely to rise further over the coming years. China now has a rapidly developing, and
often effective, administrative and judicial system for enforcing IP rights.

Simultaneously, however, there are elements in China, and especially in certain less
developed regions, that believe IP protects foreign, and not Chinese, interests, and perhaps
even that local infringement and counterfeiting are desirable [R14]. For example, here is a
quote from China View [R15]:

“Unfortunately, techno-rich industrialized nations cling to repulsive standards in

technology trade and cross-border licensing. The current intellectual property right (IPR)

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regime is “unduly biased toward the owners rather than the users of technology”, said the
UN World Economic and Social Survey 2009 released recently. Combined with the market
power of multinationals in the advanced economies, such a regime could thwart global
effects in environment by suppressing low-emission uses of developing nations.”

Meanwhile, Chinese companies are steadily increasing their share of patent filings.
According to statistics from the World Intellectual Property Organisation, China is
currently ranked 5th in the leading nations that file international patent applications.

Foreign companies like Toyota are also dramatically increasing their IP presence in China.
Toyota increased their registered design applications by around 300% over the last decade
to around 250 applications per year [R16]. They are “deeply impressed” by recent court
rulings [R17]. Siemens is also strongly increasing its patent portfolio in China [R18].
Foreign companies are investing heavily in IP in China.

Chinese cleantech companies are also investing heavily in IP. These include Suntech, a
manufacturer of solar cells, and BYD, a manufacturer of lithium ion batteries and electric
cars.

Companies operating in China need to consider their IP and enforcement strategies very
carefully. Some courts and administrative bodies are more IP literate and considerate of IP
rights than others [R19]. Choosing the right venue may determine the outcome a patent
holder desires. For example, the provinces of Pudong (Shanghai), Xian, and Wuhan have
experienced IP Courts [R20] which may provide a more reasonable outcome.

Interestingly, China has two systems that receive and consider IP related complaints. The
judicial system offers pre-trial injunctions, permanent injunctions and damages. There is
also an administrative system which is very fast and requires little preparation of evidence.
The administrative authorities will usually carry out a raid action within hours of the
complaint being filed, issuing in effect stop orders and fines [R21].

Recent studies of foreign companies operating in China found that many have
sophisticated IP management strategies additional to the patent and related formal IP
systems [R23]. These strategies include:

• marking of products to authenticate genuine products and aid identification of supply

chains;

• conducting road shows to promote the benefits of the genuine article over counterfeits;

• developing relationships with local partners and investigatory bodies so that the local
response to an infringement is more effective;

• building the company’s brand;

• enhance the product offering and broadening the product range, each of which make it
more expensive for competitors to compete;

• promoting product attributes such as environmental quality, health and safety, which
counterfeiters are often reluctant to compete on;

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• obligate contracted parties to enforce IP;

• selling IP rights, passing on infringement risks;

• retain key know-how in-house;

• communicate with supply chain members directly reducing the likelihood that infringing
products will enter the supply chain and facilitate early detection of infringing products;

• registering copyright, especially for new media and logo copyright.

It is also a good idea for employees and business partners complete an IP protection
agreement [R21]. Non-compete and confidentiality agreements signed by employees and
partners can be effective as China has trade secret laws that have been effectively used. As
IP is a relatively new idea in China, educating employees is important.

It is not uncommon to find that a local JV partner has entered into a JV purely to extract
IP from a foreign party for use in its own operations [R21]. Clearly, JV’s must be entered
into with open eyes, strong IP management strategies, and an agreement in place. Regular
searching of official patent and related databases, to check your partners are not
misappropriating technology, can be a first step in preventing this type of IP leakage.

Conclusion

The opportunities in China for energy technology enterprises, particularly those involved in
renewable energy technology, are immense. However, a careful consideration of IP strategy
is required, and strong IP protection is essential to effectively compete against the local
competition. The formal IP system and IP enforcement in China have greatly improved
over recent years and can now offer effective protection. Nevertheless, implementing IP
strategies that operate outside of the formal registered-rights systems is very wise.

Citations

R1 China’s edge in renewable energy, The New York Times

http://www.statesman.com/opinion/insight/chinas-edge-in-renewable-energy-217186.html

R2 Silicon Valley faces fierce global competition in cleantech, Mercury News

http://www.mercurynews.com/search/ci_14233459?IADID=Search-www.mercurynews.com-
www.mercurynews.com

R3 Green energy program drafted, China Daily, http://www.chinadaily.com.cn/bizchina/2010-

03/02/content_9523550.htm

R4 China’s Energy Priorities, Forbes Magazine http://www.forbes.com/2009/11/16/china-beijing-

renewable-energy-business-oxford-analytica.html

R5 China to Invest $14.6 Billion in Wind Power by 2010, Bloomberg

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aX7usNmOCAIE

R6 General Electric Cutting Wind Deals at Home, China, The Associated Press
http://abcnews.go.com/Business/wireStory?id=9543446

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R7 Green China: Friend or foe?, The Energy Collective
http://theenergycollective.com/TheEnergyCollective/56277

R8 Vestas grows wind presence in China, Cleantech Group http://cleantech.com/news/print/4089

R9 Siemens breaks ground in China’s wind market, Cleantech Group

http://cleantech.com/news/print/4501

R10 Tower of Power, Time in Partnership with CNN

http://www.time.com/time/magazine/article/0,9171,1931616,00.html

R11 China’s lead on alternatives is not as significant as it looks, Financial Times

http://blogs.ft.com/energy-source/2010/02/16/chinas-lead-on-alternatives-is-not-as-significant-as-it-
looks/

R12 The Real Story on Cleantech in China, Cleantech Group http://cleantech.com/news/5125/real-

story-cleantech-china

R13 Solar thermal plant will serve as a model for future enterprises, People’s Daily Online
http://english.people.com.cn/90001/90778/90860/6898837.html

R14 Kaizhong, H., “An Analysis of Determination of Level of Intellectual Property Protection in China”,
[2008] E.I.P.R. Issue 12 © 2008 Thomson Reuters (Legal) Limited and Contributors, pgs 515-520

R15 Changing to meet climate change, Xinhuanet http://news.xinhuanet.com/english/2009-

09/22/content_12094425.htm

R16 Yongjun, B., “An Analysis of Design Patent Applications for Auto Products in China”, China
Intellectual Property, Mar-Apr 2008 304, Issue 23, pgs 49-54

R17 Li, D., “Research & Innovation Decides IP Protection Strategy”, China Intellectual Property, May-
June 2009, Issue 30, pgs 30-31

R18 Ma, A., “Siemens: customized and regional IP strategies”, China Intellectual Property, Mar-Apr
2008 3-4, Issue 23, pgs 18-21

R19 Where to sue in China, Managing Intellectual Property, June 2009

R20 Cheung, H.T. and Prew, T., “China and Hong Kong – IP and manufacturing”, 08/08 Copyright
© 2008 by The Bureau of National Affairs, Inc. IPTP:IPA, pgs 29-31

R21 Murphy, M., “How to protect your IP rights in an investment or joint venture in China”, Journal of
Intellectual Property Law & Practice, 2009, Vol. 4, No. 3, March, pgs 213-219

R22 Redfearn, N., “Patent Pools in China”, Intellectual Asset Management September/October 2009,
pgs 102-105.

R23 Mason, E.L. and Cross, A.R., “The effect of national IP enforcement on the IP management
strategies of firms: the case of India and China, Int. J. Intellectual Property Management, Vol. 3, No. 3,
2009, pgs 195-221