Standards Vs. Patents – How to Manage the Coming Collision

by Jeffrey E. Young

Alston & Bird LLP

Editor’s note: In an in-depth article available at SGN Resources (see link at bottom), patent attorney Jeffrey Young explores the role patents are likely to play in Smart Grid standards making and implementation.  The following is a summary of the article.

Smart Grid standards are on the fast track. The Federal Energy Regulatory Commission (FERC), the National Institute of Standards and Technology (NIST), and a host of other players are coming together to seek the common good.

But if you think that private patent rights won’t have much impact on this effort, or that patents will be swept aside or deactivated, think again.  In fact, patent rights will create challenges to making the Smart Grid a reality.

Patents Will Cover Important Smart Grid Technologies

Smart Grid technologies have experienced significant patent activity over the last decade in areas such as the following:

·         Advanced metering

·         IT systems and hardware for distribution automation

·         Business methods for efficient selection of power sources

Patent owners include giants like Siemens, private players like GridPoint/V2 Green, nonprofits like ISO New England, consultants like Electric Power Group, as well as utilities, government laboratories, and individuals.

Standards for the Smart Grid

As FERC officials acknowledge, the Smart Grid will require new technologies.  Without widely adopted standards, entities will attempt to establish proprietary versions.

Many voices call for “open” standards for the Smart Grid.  But it’s important to distinguish between the necessary characteristic of universal availability and the much less important goal that all included technologies be royalty free.  Innovators need an expectation of a reasonable return to justify investments.

Patent owners may agree to royalty-free licensing of rights to secondary products to build acceptance of a main product. For example, a freely available grid connection technology might enlarge the grid and increase the overall market for various proprietary solutions sharing common connectivity to the larger grid.  An owner of one of those solutions who also owns the connector patent might well license that patent royalty free.  But if the owner of the patent mainly sells grid connectors, she is less likely to see a benefit to making a royalty-free license available to other connector vendors. In that case, the patent is protecting a key market.

Managing Patent Issues in the Standards Process 

Following its EISA mandate, NIST has established working groups to help with its standards development. These groups will include industry representatives with patents of their own.  To be successful, standards that come out of NIST needs to make innovations available to all. A standards process has the potential to accomplish this goal.

What are the keys to navigating proprietary rights issues? Here are four factors to consider:  

• Prepare for conflict. Proposals to the standards working groups will advocate proprietary technologies.  After all, owning patent rights on a standard can be very lucrative.  Anticipate that the working groups could become battlegrounds between competing technologies.
• Don’t rely on freebies. High royalties for patented technologies can discourage adoption. But relying only on royalty-free patents is no solution either. Doing so often results in a “dumbed down” standard.
• Require disclosure. Problems could arise if a standards working group is unaware that a technology is subject to patent rights before adopting it in a standard. The applicable patent policy needs to expressly require participants to disclose their relevant patent rights. 
• Reasonably reward patent holders. Companies with important patents need to be compensated with a reasonable royalty. Otherwise, the owner of a key technology may choose a private licensing program under which only a small number of licensees access the technology. Participants should be encouraged or required to accept reasonable and nondiscriminatory (RAND) licensing.

Federal Government’s Role

Finally, consider the role of the government. Short of an act of Congress, the U.S. Government has no power to declare Smart Grid patents unenforceable or royalty free. The U.S. Government does have the right to practice any U.S. patent, itself or through government contractors, in exchange for a royalty determined by a federal court.  Federal Government research laboratories often obtain patents on inventions of government employees.

Many Smart Grid inventors obtain the benefit of government funding for their development efforts.  Under the Bayh-Dole Act, generally a government contractor may elect to retain title to the patent, subject to a royalty-free license to the government and the possibility of “march in” rights in certain circumstances.  A government funded patent must include a specific acknowledgement.

Be Prepared

While monitoring or participating in the NIST standards-making process, companies should take steps to optimize their patent positions, protecting their inventions and avoiding infringement.  For its part, NIST should adhere to its goal of open standards, taking steps to include technologies open to all via royalty-bearing reasonable and nondiscriminatory (RAND) licensing.

   Email Jeffrey Young

   Full version of this article

   Patents in Clean Technology: Trends and Implications (video presentation)

   FERC Regulators Move Forward on Federal ‘Smart Grid’ Policy and Seek Comments

   NIST Smart Grid Interoperability Workshop Foundational Session (Nov. 2008) (PDF)

   Guidelines for Implementation of the ANSI Patent Policy (PDF)

   NIST Seminar: IPR and Standards (March 10, 2008) (PowerPoint)

   Utility Attempts to Patent Advanced Metering, Smart Grid News, Sept. 11, 2008

   Green patents score all-time high in 2008, IP Review

   EPCGlobal Intellectual Property Policy

   “Getting Into the Groove” (becoming the standard by which an entire industry bases its innovation can be a lucrative IP prize) IP Review, posted 27 January 2009