Scaling Green Innovation: New IP Challenges in the Sustainability Transition

• The urgency of the climate crisis drives unprecedented need for diffusion and scaling of sustainability innovation across industries and geographies
• Orchestration and governance of business ecosystems are emerging as critical strategic topics for navigating the sustainability transition
• IP managers must recognise potential impact on technology sharing and business ecosystem strategy, and address any capability gaps

This article was first published by IAM

Over the last decades, it has become abundantly clear that the interconnected crises of climate change, ecosystem degradation and biodiversity loss constitute the defining challenge of our time. The recently released synthesis of the IPCCs sixth assessment report highlighted, once again, the urgency of action.

Transitioning to a sustainable economy cannot be treated as a laudable ambition but must be recognised as an imminent transformational need. While many would agree that political progress in the most recent COP2x climate summits has been underwhelming overall, the increasing momentum of private-sector commitment to change has emerged as the main positive story. More than one-third of the world’s largest companies are now committed to net zero by 2050, and 65% of respondents in the 2022 BCG Global Innovation Survey list climate and sustainability among their company’s top three priorities. Still, actual progress is slow. According to the World Economic Forum’s net zero industry tracker, few if any industries are currently anywhere near where they need to be to reach the Paris agreement target of net-zero by 2050. It is increasingly evident that meeting sustainability pledges will require fundamental changes to the ways in which companies operate and industries are structured. It is equally clear that the societal need for rapid diffusion and scaling of innovation across industries and geographies is now arguably higher than at any previous point in history.

Consequently, the sustainability transition introduces a new set of challenges for IP managers. Firstly, it challenges exclusivity-focused IP strategies, when such strategies risk being in direct opposition to sustainability objectives. Instead, a new imperative emerges for IP managers to actively support both business and sustainability objectives through novel collaboration- and dissemination-focused IP plays.

Second, the sustainability transition is likely to be disruptive to traditional industry value chains. We can expect to see an increasing prevalence of orchestrated ‘business ecosystems’, leveraging digital technologies and data to coordinate both inter-and intra-industry capabilities for the purpose of providing integrated and sustainable customer propositions. For IP managers, participation in such business ecosystems increases the importance of being able to operate across multiple IP modes to build and leverage control positions.

The circular economy paradigm provides a good starting-point for illustrating how traditional exclusivity-focused IP strategies risk opposing sustainability objectives. The circular economy embodies the idea of a departure from the current linear economy (typically modelled as take-make-use-dispose), by pursuing minimum waste at all stages of a product’s lifecycle. Key circularity principles focus on ensuring that existing materials and products are maintained, recycled, repaired and re-used for as long as possible.

Company interest in circularity is typically driven in part by sustainability goals, and in part by an interest in the business of repairing and refurbishing used products as reconstructing products can be both more profitable and more sustainable than making new ones. Achieving full circularity requires a holistic view of the entire supply chain, and collaboration and joint innovation between the various actors within it. No single actor can achieve full circularity on their own. IP strategies which prevent such collaboration are therefore associated with risk of inhibiting either the scale and/or the timing of circularity implementation.

Consider the case of technology for vehicle disassembly. An upcoming EU Directive on end-of-life vehicles mandates that car manufacturers must ensure at least 85% of their cars' weight is recyclable or reusable. This has put circularity principles high on car OEMs’ sustainability agendas. Major automotive companies have created proprietary processes and tools for disassembly and recycling based on their in-house expertise. However, the full sustainability impact of these innovations will probably only be realised if manufacturers are willing to license their disassembly-related intellectual property to external third parties. Although some manufacturers operate their own recycling centres, these facilities can only process a small portion of the cars sold worldwide due to the logistical challenges of recovering geographically dispersed used vehicles.

This situation creates an opportunity for intellectual property managers to support the expansion of tools and services to local businesses specialising in reuse, refurbishment, repair, and recycling. Without this collaboration, achieving circularity in the automotive industry will likely remain an unfulfilled aspiration.

The US offshore wind power industry provides an illustrative example of how exclusivity-focused IP strategies risk having a negative impact on growth and development of more sustainable industry alternatives. In this sector, the largest Western wind turbine manufacturers have engaged in decades-long IP conflicts, going back to the initial developments around innovative variable speed rotor technologies. Over the last decade Vestas, Siemens and GE have engaged in numerous patent disputes, and industry analysts have speculated that these conflicts have exacerbated the inherent challenges of the nascent wind power market – a dearth of suppliers, unrealised economies of scale, and long, uncertain approval processes.

A concrete example can be seen in the 2022 case of Siemens Gamesa Renewable Energy v General Electric relating to wind turbine rotor hub load management technology. In this case the court found that GE had infringed the Siemens IP in question, and Siemens was granted an injunction preventing GE from practicing the invention in the United States, as Siemens could not be adequately compensated if GE were to remain active on the market. However, the court simultaneously provided a carve-out for GE’s ongoing 800 MW wind turbine project Vineyard 1. This was not done because this project was not found to infringe,
but because of the overriding public interest in not interfering with the large-scale investment in wind power infrastructure. As the court pointed out, “the world is currently facing a rapidly developing climate crisis [and] delaying largescale wind energy projects can impact efforts to combat [the climate crisis].” It has also been argued that conflicts and delays in the permitting process have been contributing factors to why the major Western industry players engaged in the conflicts have struggled to find stable profitability when compared to emerging Chinese competitors.

As an example of a contrasting approach, consider the story of how business-driven IP management pioneer Royal Philips leveraged its IP position to actively stimulate development of the LED urban lighting market in the late 00’s. Philips IP function, Philips Intellectual Property & Standards (IP&S), was actively involved in the consumer electronics giant’s big bet on LED lighting technology, which by 2010 had resulted in Philips holding an estimated 70% of all patents on LED applications. Among these was an innovation of particularly high potential from both a business and sustainability perspective: a new warm white light technology for residential urban lighting, branded the COSMOPOLIS urban lighting system. The COSMOPOLIS system required 30-70% less energy compared to conventional urban lighting systems at the time, enabling significant potential energy savings and cost reductions for cities all over the world.

However, despite the apparently superior value proposition, Philips struggled with market penetration. Concluding that the primary barrier was customer hesitation to select single-supplier solutions, Philips revised its initial exclusivity-focused strategy. It approached its competitor Sylvania, and reached an agreement on a licence to the basic COSMOPOLIS technology. This move succeeded in unlocking the market, and as a result the COSMOPOLIS was a category-killing product for many years. Through intimate understanding of the business, and a willingness to think creatively around IP use, Philips IP&S was able to strengthen Philips’ business position while simultaneously making a significant positive sustainability impact.

In many sectors, achieving operations that drive sustainability is likely to require a combination of converging advanced technologies and system-level transformational change. Though companies can certainly achieve some success by developing more sustainable products and services on their own, more comprehensive sustainability objectives will in many cases require a fundamental rethink of business boundaries and industry operations. In response we’re starting to see the emergence of sustainability-focused ‘business ecosystems’, which come with a new set of challenges for IP managers.

A ‘business ecosystem’ is here defined as a group of largely independent economic players that coordinate to create products or services that together constitute a coherent solution. Typically built on digital platforms for data collection and sharing, with formalised governance and participation criteria, most ecosystems are driven by one or a few ecosystem orchestrators, stimulating and coordinating innovation activities of ‘complementor firms’ toward common goals. For an orchestrator, the fundamental ecosystem challenges are to a) coordinate external partners towards a shared goal without having full hierarchical power or control, while b) mitigating the main risks that different contributors fear in ecosystem participation. Put differently, orchestrators must both ensure that participation in the ecosystem is economically attractive for all contributors, and that the short- and long-term risks of participation are perceived as reasonable.

For IP managers, this creates a need to partner with business leadership, technologists and strategists on matters regarding ecosystem architecture and governance, as well as developing the capability to create and leverage data access-, contract-, and IP-based control positions in support of the ecosystem strategy.

Typical issues include:

• determining what layers of the ecosystem should be open respectively closed to the value claims and contributions of partners;
• what layers of the ecosystem should be proprietary to the orchestrator;
• what control positions can be leveraged to ensure the layers remain open / closed; and
• how to regulate access to and ownership of data and property rights in a transparent manner.

As an example, consider the way John Deere has built up a business ecosystem to position itself at the centre of the agricultural transformation towards ‘precision agriculture’ (also known as precision farming or precision ag). Precision agriculture is an umbrella term for the use of data and digital technologies – such as auto-steer, machine section control, fleet analytics and precision irrigation – to increase yields and profitability while lowering the traditional inputs needed (land, water, fertiliser, herbicides and insecticides). It is commonly viewed as the sustainable way forward in agriculture, as it results in reduced waste and minimal environmental loading, while simultaneously improving farmer profitability through increased yield, decreased downtime and reduced costs.

The core of the transformation has been the creation, promotion and orchestration of an open platform that manages data flows across the full ecosystem: between machines (from both John Deere and its competitors), farmers, seed and fertiliser suppliers, software developers, specialised service providers and even insurance companies. Ecosystem interactions have been designed to solve farmers’ immediate issues—such as farm productivity, yield, and profit per acre—while also addressing the broader challenges of agriculture as an industry and society at large.

To balance control over its position in the new business ecosystem with the need for openness and incentives for participation, John Deere has made creative use of a multitude of control mechanisms. Patents and other intellectual property rights afford control over key technologies such as precision planting. Platform agreements regulate user behaviour on the platform as well as how data can be collected and shared by customers and complementors with access to the platform. Technical APIs are provided with fine-grained access controls to ensure sensitive data is used only by permitted parties. Throughout John Deere’s transformation journey, IP management has successfully evolved to support the changing business needs.

Tomorrow’s business will be sustainable, and the transformation to sustainable business will inevitably be highly disruptive. The winners will be the companies who combine strategic foresight with tactical agility and flexibility across all aspects of their operations. This very much includes IP management, where traditional exclusivity-focused strategies and ways of working risk becoming impediments to the necessary change.

Corporate abilities to collaborate and share technology and IP across the value chain, including with competitors, and to govern and orchestrate business ecosystems effectively will be key. In response, IP managers must:

• Partner with sustainability office to jointly identify ways current IP strategies and practices may impede realisation of set sustainability objectives, as well as how IP may support increasingly demanding sustainability reporting requirements.
• Partner with business leadership, technologists and strategists to explore how IP can best support the transition to sustainable business, including matters regarding business ecosystem architecture and governance.
• Strengthen the multi-modal capability to create and leverage data access-, contract-and IP-based control positions for strategic impact on the sustainability transition.

The imperative for change has never been greater.