An effective IP strategy is key to protect your investment in a project 8 min read
Hydrogen is swiftly gaining traction as an attractive proposition in the renewable energy sector due to advancements in technology.
That said, investment in hydrogen technology and projects requires strategic management of intellectual property (IP) risks and opportunities. Putting in place good IP governance at the outset will help avoid project setbacks and build a strong platform for future investment and innovation.
- Third party IP risks need to be considered and assessed as part of the framework of new hydrogen projects, particularly when developing or implementing new technology.
- IP arrangements with industry partners should be finalised before key developments in the projects begin.
- There are a variety of IP strategies available to protect innovation in hydrogen projects – it is essential you have the right procedures in place to capture these opportunities. The data indicates that Australian companies are securing fewer IP rights in Australia compared to foreign companies.
- The Australian Government is implementing a Patent Box and is considering extending a 17% concessional tax rate to patented low emissions technologies. This development could further encourage investment in hydrogen innovation in Australia, but industry input is required.
The hydrogen IP landscape
As with any project, understanding the commercial landscape is a key to success. This includes identifying and implementing strategies to navigate IP held by third parties. China, Japan and the US are currently leading the way in securing IP rights for innovations in hydrogen technology. Conversely, Australian companies have been on a downward trend since 2015. The snapshot of Australian and international patent filings relating to 'hydrogen storage' for the period 2018 to 2021, shown below, indicates the more active areas of development. Most of these patent filings are being applied for by foreign applicants.
Significant developments are occurring in the battery and energy storge areas for hydrogen. At a practical level, companies should be reviewing the procedures they have in place to manage and navigate IP risks (including eg, patent infringement, IP haemorrhage, etc) in this emerging technology area. To map out a sound strategy, companies need to understand the IP rights third parties own and gauge how these rights could potentially impact a project.
There are various strategies to manage IP risks and finding the right level of comfort is important. In a new field such as hydrogen production and storage, understanding the nature of the risk in the commercial landscape can be just as vital. This allows you to put in place suitable strategies to manage and mitigate the risk, particularly when contractors may not be able to fulfil indemnities. This becomes even more important in large-scale hydrogen projects, given their monetary value. Understanding the IP landscape for hydrogen in Australia (and overseas), potentially through a freedom to operate clearance search, can be a pathway to avoid unnecessary roadblocks in a project and allow a business to identify further opportunities. This process may also provide further commercial awareness and ease investor concerns, which can benefit current and future projects.
Like many resources projects, hydrogen projects are often large in scale and are therefore suited to joint ventures. It is particularly important to address IP considerations in joint ventures at the outset, eg IP ownership rights and licensing arrangements. Given the increasing level of interest and pace of development in the hydrogen industry, it is essential that IP arrangements are not overlooked based on the goodwill of initial relationships. Much of the value of such projects will often lie in the underlying IP, particularly due to the wide range of applications any innovation in this area may have. As part of any joint venture the parties should consider how IP will be owned, protected and, if required, licensed to manage risks and reap the rewards of the investment.
As with all new projects, particularly where multiple parties are coming together to invest in new technology, it is important to have the right procedures and policies in place at the outset to:
- identify new IP;
- determine how the IP should be protected; and
- set out the ongoing responsibilities of each party.
While this appears relatively easy in theory, it can be difficult to implement given the pace of some projects, or a failure to consider the importance of IP to the future success of the project. In our observation, finalising a suitable form of IP protection can often be an afterthought with insufficient budget allocated to suitably protect or leverage the IP. This may explain the downward trend of Australian patent owners in the hydrogen space since 2015.
An effective IP strategy is key to protect your investment in a project. Contractual protection will be a major part of this, but the likely size and importance of projects in the hydrogen space warrants consideration of other forms of protection, including registering IP.
Patent protection should be considered for hydrogen projects where new innovations are being made. This will be particularly valuable where the innovation relates to a method of storing or transporting the hydrogen, which will be relevant to many different projects and industries. Patent protection needs to be aligned with the long-term commercial plans of the project (or any future projects). Having processes in place to identify and protect new innovation is therefore key. It allows a business to secure an asset, which can be a key part in, for instance, attracting investors and gaining a commercial advantage over competitors in the future. In joint ventures, careful consideration will also need to be paid to the ownership of patents. Whilst joint ownership may seem equitable, this can present logistical or commercial hurdles when commercialising or enforcing the IP.
An alternative option for protecting innovations is through trade secrets. Trade secrets are protected as confidential information. Whether information can constitute a 'trade secret' will depend on the level of secrecy surrounding the information, the value of the information and the amount of money and effort invested in developing the information (including how easily the information can be independently developed or reverse-engineered by a third party). If companies are taking advantage of trade secrets, they need to ensure they have robust IP policies and protocols in place to ensure such information is documented and protected and kept confidential.
A benefit of trade secrets is that there is no time limit (as opposed to the 20-year term provided by patents) – the trade secret will continue to be protected as long as it remains confidential. A downside of this is that the parties will be restricted in the ways they can develop the IP – ie it can only be developed and shared with the market in a manner that keeps the IP secret. This may restrict the ability of a project to expand beyond the initial scope envisaged. Of course, the biggest risk from relying on trade secrets is retaining secrecy: if the IP is disclosed (whether inadvertently or otherwise), protection is lost. Effectively restraining employees or contractors from disclosing trade secrets, particularly as they move between employers, adds another layer of complexity and potential risk of disclosure. Given the rapidly changing landscape in which hydrogen projects exist around the world, this may make trade secrets impractical and not conducive to maximising the return on an investment.
Patent Box as a means to encourage investment
As outlined in our 'hydrogen technologies timeline', there have been various initiatives to encourage the development of hydrogen technology in Australia. These initiatives are a great way to develop the industry and encourage innovation. The current IP landscape suggests Australian companies have further opportunity to capture and secure IP rights as part of these initiatives, particularly as part of a long-term plan for hydrogen in Australia and on the world stage.
As part of the Government's introduction of a 'Patent Box', it is seeking input on extending this concessional tax rate scheme to low emission technologies (see here for further detail on the Patent Box announcement). Around the world the number of patent filings for hydrogen-related inventions has been on a steady rise in recent years. Potentially extending the Patent Box to low emission technologies in hydrogen projects will incentivise Australian companies to protect their IP, for a long-term gain, whilst they take advantage of a lower tax rate that forms a key part of a commercial plan. The Government is calling for industry input to ensure the right incentives are in place to allow hydrogen to become a key multi-billion dollar industry for Australia.
- Be aware of the potential IP risks and put in place measures to identify and navigate such risks to avoid setbacks.
- Implement an IP strategy at the outset of your hydrogen project to ensure investment in innovation is protected appropriately.
- Consider how a Patent Box and concessional tax rates to patented low emissions technologies could affect you and your industry. Get involved to advocate your position as part of the ongoing consultation process.
- Contact one of our team below should you have any questions regarding IP risk management, protection and incentives in hydrogen projects.