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Don’t let your idea become someone else’s profits

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The issue of intellectual property rights should be a boardroom issue for any power company. Michele Foradori of the IPR Alliance and Patrick Clerens of EPPSA highlight how reaping the benefits of innovation requires protection.

European technology leadership in the global economy is based on European companies’ capacity to be competitive through innovation. Innovation, and its protection through intellectual property rights (IPR), represents the keystone for European industries to compete with low-cost countries.

Despite the valuable efforts undertaken by the European Commission (EC) and several Member States in the field of intellectual property, recent statistics and the increasing number of litigations involving IP theft show the necessity for a substantial improvement in the current IPR framework. This need has recently been felt by the power industry sector, which is calling for broader, faster and more effective IPR protection.

IPR are strictly related to economic investments. To be more precise, IP rights are to all intents and purposes tangible economic investments (as demonstrated by international regulations governing investment agreements). As such, they need to be stimulated by a solid legal framework, which is properly enforced.

Since IPR are an investment, the company affected by infringement will be weakened. Immediate effects typically include lower sales volumes, reduced income and loss of profit. More importantly, IPR guarantees long-term revenues ” uncertainties tied to IPR infringement risk mean that fewer financial resources will be available for R&D. Counterfeiting also hampers the capacity of manufacturers to invest in establishing and promoting their brands in the marketplace.

IPR infringement is a risk to all business sectors. As stated by Benoit Godart, Europol liaison officer to Interpol: “There are no longer any exceptions, as all industrial sectors and products are affected by counterfeiting.” IP thefts are no longer confined to consumer products such as pharmaceutical products, clothing and household appliances, which today represent only the tip of the iceberg.

This is clearly evident in the power industry sector, where assets consist essentially of technical knowledge crucial to meet the 21st century energy challenges and the European power suppliers’ innovations generate large interest worldwide. Therefore they have to constantly deal with IPR infringements by foreign companies based in emerging countries, mainly in Asia. Abusing the European Union (EU) single market while circumventing EU and international regulations and tax systems, these companies aim at generating high profits by seizing substantial market share from EU companies.

As demonstrated by EPPSA, the European Power Plant Supplier Association, the issues related to IP theft in the power industry are severely affecting some of its members and are not just limited to profit loss in foreign markets, but also within EU borders. In this context, litigations faced by two EPPSA members are striking examples.

The first litigation case involved an Italian SME. This company owned a patent for a dry bottom ash handling system and, through a licence agreement, allowed a China state-owned company access to this unique technology. The Chinese company acted without concealment and even showed during a Chinese conference an allegedly counterfeited copy of the SME’s designs, claiming them as theirs. The lawsuit at the Middle Court of Beijing for patent infringement, however, was lost by the Italian SME. The court deemed its technology a “non-original idea” and therefore not patentable, even if it was clearly shown that it was an original invention. Aside from the issue of weak IPR protection in emerging countries, this last consideration also raises several concerns over the quality of Asian countries’ patent granting processes.

The second litigation case involved a leading European OEM. After signing a licence agreement with a Chinese company to give it access to a “wet desulphurisation” technology to be sold only in the Chinese market, the European OEM began a litigation against the Chinese company in the Singapore International Arbitration Court because the Chinese company allegedly transferred the licence to its subsidiary and therefore did not respect the terms of the agreement. The arbitration court ruled in favour of the European OEM, ordering the Chinese firm to pay reparation and forbidding it from using this technology outside China. In spite of this ruling, the Chinese company was able to penetrate, with the copied technology, the European market in two public procurements co-financed by the EC: one in Bulgaria and the other in Romania.

The Chinese company won the contracts so the European OEM filed a complaint at the European Anti-Fraud Office (OLAF) and at the EC against the decision. These complaints led to the cancellation of the EU Financial support (co-funding) of the project and, in the second case, to the cancellation of the initial public tender. In the new public tender, the Chinese company disappeared but was replaced by another that won the award with a tender 25 per cent lower than the other participants and, allegedly, invalid references. Finally, the European OEM managed to also block this company and was awarded the contract, although having incurred a considerable loss of money and opportunities.

Detention by customs of articles suspected of infringing IPR
Detention by customs of articles suspected of infringing IPR
Source: EC

Regarding the first case, the situation is worse: the erection of the flue gas cleaning system continues, regardless of the EC and OLAF position.

It is interesting to see that patent infringements can generate problems in many ways and in multiple locations. The first case led to a complete loss of the Chinese market and to an illicit proliferation of protected IP in other markets. In the second case, the facts are more alarming as the condemned counterfeiter has been able to penetrate the EU market and participate in EU public tenders, supported by public and private funds.

Complete loss of market, endangerment of other markets, including the EU, and unfair competition are the main and rather worrying outcomes of this case. Notwithstanding jurisdiction and licensing issues, the message carried by these examples is the following: even acknowledging the considerable improvements achieved to support European industry on IPR issues, it is essential to take other steps to efficiently protect European technology suppliers. In this sense the European OEM and Chinese cases represent a sort of litmus test for the power industry sector ” not to mention a cautionary tale for many other sectors.

The lack of a centralised system for IPR, and patents in particular, is detrimental to EU competitiveness (in Europe patents cost roughly ten times more than in the US, meaning that R&D activities are discouraged). Harmonising the EU framework on IP would surely decrease patent costs, patent litigation costs and would also provide better access to justice for EU patent owners, particularly SMEs.

To answer this call for an improved legal and political framework for IPR, EPPSA and its members decided to push for the creation of a dedicated lobby group charged with influencing European decision-makers by recommending proposals to protect IP & IPR. The outcome of this initiative is IPR Alliance, an association that brings together different services to provide extensive and qualitative support to European decision-makers in improving the IP & IPR protection in the EU and beyond.

What is striking about the alliance is its structure and alternative methodology. Bringing together industry stakeholders, renowned IP academic institute Steinbeis-Transfer-Institute for IPR and a network of IP lawyers and IP expert I3PM, IPR Alliance will offer multiple services to its members and the EU and national institutions, starting with pinpointing and defining problems based on the needs of stakeholders. These problems will be analysed by the Steinbeis-Transfer-Institute for IPR and submitted to a first reality check by I3PM. The outcomes will be disseminated to IPR Alliance members, EU institutions, Member States and international platforms.

The first meeting of the IPR Alliance takes place on 11 December 2012 at Adolphe Lacomblé 59/8, in Brussels, 10.30 am to 16.30 pm. All interested parties are welcome. For more information on the IPR Alliance, please contact: info@ipralliance.eu

Patrick Clerens à‚  Michele Foradori is a policy officer at the IPR Alliance and Patrick Clerens is secetary-general of EPPSA. à‚  Michele Foradori
Patrick Clerens,
Michele Foradori,
IPR Alliance