Climate Law Blog

By Julia Ciardullo
Fellow

On April 19, 2012, Mexico’s Senate unanimously passed the Ley General de Cambio Climático, or the General Law on Climate Change.  The bill, which previously passed The Chamber of Deputies, the lower house of Congress, by a vote of 128-10, includes a requirement that Mexico reduce its carbon dioxide emissions by 30 percent below business-as-usual levels by 2020 and by 50 percent below 2000 levels by 2050.

In addition, the bill mandates that 35 percent of the country’s electricity come from renewable sources by 2024; requires mandatory emissions reporting by the country’s largest polluters; establishes a top-level commission to oversee implementation of the law, lead environmental research, and report on emissions levels; provides for the development of a carbon emissions trading scheme; and establishes a fund to collect resources for climate change mitigation and adaptation measures.

The bill comes at a time when international efforts to develop a successor to the Kyoto Protocol have stalled.  In the absence of a strong international agreement to reduce greenhouse gas emissions, individual countries have taken action domestically to mitigate the impacts of climate change.  For example, Australia and South Korea each recently approved a carbon emissions trading scheme.  According to an article published by Nature, Mexico has “made one of the boldest commitments of any nation to limit climate change.”  Mexico is the first developing country to pass a bill making carbon dioxide targets legally binding.

Experts have expressed concerns about Mexico’s ability to implement the law.  Funding for certain measures is based on international financing from the UNFCCC and the Green Climate Fund, which seek support from wealthier countries for climate change initiatives in developing countries.  Nonetheless, several analyses, including one from the World Bank, indicate that Mexico already has many cost-effective emissions reduction opportunities throughout its economy.  For instance, Mexico’s government estimates that the country has the potential to generate 71 gigawatts of wind power — 40 percent more than its current generating capacity from all energy sources, including coal and hydropower.

President Felipe Calderón, who has been an advocate for international action to reduce greenhouse gasses and mitigate climate change, is expected to sign the bill into law.

By Michael Gerrard
Director, Center for Climate Change Law

Yesterday Edvard Munch’s 1895 painting The Scream sold for a record $119.9 million at auction. The painting is famous — not so its potential link to climate change.

Mount Krakatoa in Indonesia erupted in 1883. It was one of the largest volcanic explosions in recorded history and it reddened the skies around the world. Munch is known to have been struck and been rendered melancholy by the appearance of these skies. The sky in The Scream has been likened to what followed Krakatoa, and some have theorized — and others disputed — that Munch painted the sky that way in recollection of what he had seen after Krakatoa.

The matter that Krakatoa dumped into the atmosphere blocked out so much sunlight that global temperatures dropped more than one degree Celsius for more than a year. Today, as the earth warms because of uncontrolled greenhouse gases, serious thought is being given to intentionally dumping sulfate aerosols into the upper atmosphere — perhaps using a fleet of 747s — to replicate the Krakatoa effect. The skies then would more likely be white than red, but it would still make many people scream.

By Julia Ciardullo
Fellow

This is the third and final blog that discusses some of the most notable recent legal developments in the field of intellectual property law and green technology.  In two prior posts, we discussed (1) the expiration of the USPTO’s Green Technology Pilot Program and the enactment of the America Invents Act and (2) the latest developments in a series of pending patent infringement cases between GE and Mitsubishi over wind turbine technologies.

In addition to the high-profile battle between GE and Mitsubishi, there are a number of other pending litigations concerning wind, solar, biofuels, hybrid vehicles, smart thermostats, HVACs, tankless water heaters, LEDs, and other green technologies.  This post highlights the most notable cases, particularly those involving large US companies and/or major technologies.

1.      Solar Panel Mounting Systems Litigations

On October 22, 2009, Westinghouse Solar (“Westinghouse”) and its exclusive licensee, Andalay Solar (“Andalay”), filed suit against Zep Solar Inc. (“Zep”), Global Resource Option Inc. and High Sun Technology Inc. in the Northern District of California alleging infringement of its US patents on modular solar panel mounting systems with integrated racking, wiring and grounding for commercial and residential applications.  (Case No. 09-cv-05040).  Westinghouse has several related patent applications pending internationally as well, including in China.  The case is currently stayed pending an International Trade Commission investigation (No. 337-TA-811) initiated by Westinghouse on October 3, 2011 accusing Zep of importing infringing solar panel units from China, and accusing Canadian Solar Inc. of importing infringing units into the US.

In August 2011, Zep and its Chinese licensee/manufacturer, Changzhou Trina Solar Energy Co. Ltd., brought suit in the Northern District of California seeking declaratory judgment of non-infringement of another of Westinghouse’s patents, accusing Westinghouse of trying to scare off Zep’s Chinese business partners.  (Case No. 11-cv-03800).  That case is currently stayed pending further review of one of Westinghouse’s patents by the USPTO.

On December 20, 2011, Zep sued Westinghouse, Andalay, Lightway Green New Energy Co., Brightway Global LLC, Morrison Supply Company LLC, Sky Solar Solutions LLC, and Alternative Power & Electric in the Northern District of California for infringement of its own patent covering modular solar panel mounting systems.  (Case No. 11-cv-06493).  This case is still in the pleadings stage.

2.     EI du Pont de Nemours & Co. v. Heraeus Holding GmbH et al.

In September 2011, DuPont sued German precious metal company Heraeus Holding GmbH (“Heraeus”) in the District of Delaware for allegedly infringing its patent for a conductive paste used to make solar cells.  (Case No. 1:11-cv-00773).  Heraeus has filed motions seeking dismissal for lack of jurisdiction and failure to state a claim.  Decisions are pending on the motions.

3.     Gevo, Inc. v. Butamax Advanced Biofuels LLC

On January 14, 2011, Butamax Advanced Biofuels LLC (“Butamax”), a BP/DuPont joint venture, sued Colorado biofuels startup Gevo, Inc. (“Gevo”) in the District of Delaware for infringement of biofuel patents relating to isobutanol, an advanced biofuel that has some significant advantages over ethanol, including an energy content closer to that of gasoline and the capacity to create higher blend concentrations with gasoline.  (Case No. 11-cv-00054).  Gevo counterclaimed for infringement of its own patents, and after discovery and depositions, Butamax filed a motion to dismiss Gevo’s counterclaims.  This motion is now pending, as is Butamax’s motion for a preliminary injunction.

On January 24, 2011, Gevo was awarded another isobutanol patent by the USPTO and promptly sued Butamax in the District of Delaware.  (Case No. 12-cv-00070).  That case is now in the pleadings stage.  Commentators have noted that the Gevo/Butamax dispute is the first biofuel patent litigation involving an oil major.[1]

4.     Honeywell Int’l Inc. v. Nest Labs, Inc. and Best Buy Co., Inc.

On February 6, 2012, Honeywell International Inc. (“Honeywell”) sued Palo Alto tech startup Nest Labs, Inc. (“Nest Labs”) and their distributor Best Buy Co., Inc. (“Best Buy”) in the District of Minnesota for infringement of seven patents relating to intuitive, user-friendly, digital thermostat systems.  (Case No. 12-cv-00299).  The case is currently in the pleadings stage.  Nest Lab’s “Learning Thermostat” asks users questions about temperature preferences, remembers user temperature settings, automatically adjusts temperature based on prior inputs, estimates the time it will take to warm or heat the building to a target temperature, and can be controlled from a remote device (i.e., a smart phone).  See www.nest.com for a video demonstration.  Commentators have expressed their belief that the list of patents Honeywell accuses Nest of infringing on include a set of functions and features that appear to be in fairly widespread use in the industry and could therefore stifle competition in the smart thermostat market.[2]

5.     American Superconductor Corp. v. Sinovel Wind Group Co.

In September 2011, Massachusetts-based wind turbine technology licensor American Superconductor Corp. (“AMSC”) filed a series of lawsuits (three civil suits and one arbitration case) in China seeking more than US$1.2 billion in damages against their former Chinese customer, Sinovel Wind Group Co. (“Sinovel”), the second largest wind turbine manufacturer in the world.  In July 2011, an AMSC employee was arrested in Austria and pled guilty to selling proprietary AMSC wind turbine software code to Sinovel.  AMSC alleges that Sinovel conspired to steal AMSC trade secrets in violation of their license agreement, and that Sinovel subsequently cancelled millions of dollars worth of orders for parts and software as a result of manufacturing the equipment themselves.  AMSC also alleges copyright infringement, seeking damages and a cease and desist order on infringing intellectual property.  The first hearing in this series of cases was scheduled for January 9, 2012 before the Beijing Arbitration Commission.  AMSC press releases indicate that they do not necessarily expect a fair hearing in the local Chinese courts, but that they hope for a better result in the Beijing appeals court.

Four students at Columbia Law School’s Environmental Law Clinic, Julia Christian, Andrew Kirchner, Derek Nelson and Jessica Wentz, have prepared an annotated bibliography compiling recent scholarship on the interaction between global livestock production and climate change.  The bibliography identifies resources that provide a general overview of the subject; addresses scholarship relating to the demand, consumption and production of livestock products, including quantitative projections of current and future production, as well as qualitative assessments of the conditions which cause demand growth in this sector; reviews current estimates of GHG emissions from livestock production and assessments of the methodologies used to obtain those estimates; discusses the potential impacts of climate change on the livestock system, how livestock systems may adapt to these impacts, and the implications for future production; and reviews policy recommendations from scholars and international organizations for mitigating emissions from livestock production.  The bibliography can be found here.

By Danielle Sugarman

Fellow

On March 15, 2012, the Supreme Court of Mississippi handed down its decision in Sierra Club v. Mississippi Public Service Commission and Mississippi Power Company, Inc.  In a 9-0 vote, the Court reversed a 2010 Mississippi Public Service Commission decision permitting Mississippi Power Company to construct a $2.4 billion dollar coal plant in Kemper County, Mississippi. 

The 582-megawatt power plant was first proposed in December of 2006 by Mississippi Power Company, a subsidiary of Southern Company. The plant was to burn locally mined lignite coal (or “brown coal”) and was to employ a novel type of Integrated Combined Cycle Gasification (IGCC) technology called “TRIG,” which had never before been used on a commercial scale.[1]  Mississippi Power further proposed to capture the carbon dioxide associated with burning the gasified lignite and proposed to sell it to oil companies who would then sequester it in unidentified geologic formations.  At the time, the project was among nine “clean coal” development projects to earn Department of Energy backing and Mississippi Power was awarded more than $680 million in federal grants and tax incentives, including $270 million from the U.S. Department of Energy’s clean coal power initiative.

In 2009, Mississippi Power filed its formal Petition with the Mississippi Public Service Commission (the Commission) seeking approval to construct the Kemper plant. Mississippi Power argued that the construction of the plant was needed to meet the area’s capacity needs and was thus required to serve “the present or future public convenience and necessity.”  Mississippi Power contended that if the plant was not approved quickly, it would lose the federal subsidies that would make the plant viable.  Mississippi Power also argued that the risk of rising natural gas prices outweighed the risks posed by the capital investment required to build the Kemper plant. 

As it was originally conceived, the Kemper plant was estimated to cost $1.1 billion.  However, by the time Mississippi Power applied in 2009 the estimated cost of the plant rose to $2.4 billion making the Kemper facility the most expensive plant ever proposed in Mississippi.  Over the next year, the cost of the project rose again to $2.7 billion.   Mississippi Power requested that the Commission and the state government approve Construction Work in Progress Financing (CWIP), which would allow the utility to charge customers rate increases to cover the construction expenses before the plant began to produce electricity rather than after. Read more »

After years as a political prisoner, Mohamed Nasheed was elected President of the Republic of the Maldives in 2008 in the first democratic election in that Indian Ocean nation’s history. Trained as a marine scientist, President Nasheed emerged as one of the leading voices of small island nations threatened by sea level rise and climate change. He was forced out of office in February 2012 in what may have been a coup orchestrated by the repressive forces he defeated in 2008.

President Nasheed is coming to New York for the premier of a  film about him, THE ISLAND PRESIDENT, which will be showing in theaters across the country. He will give an address and answer questions at Columbia University on Thursday, March 29, 6:30 pm to 8:00 pm, in Low Library (116th Street between Broadway and Amsterdam). The event is open to the public without charge but advance registration is required. To register, follow the instructions located on our website.    

This event is hosted by Columbia Law School’s Center for Climate Change Law and is co-sponsored by The Earth Institute of Columbia University; the Environmental and International Environmental Law Committees of the New York City Bar Association; Yale Environmental Law Association; Yale Center for Environmental Law & Policy; and Bard MBA in Sustainability.

By Julia Ciardullo
Fellow

This is the second in a series of blogs that will discuss some of the most notable recent legal developments in the field of intellectual property law and green technology.  In a prior post, we discussed the expiration of the USPTO’s Green Technology Pilot Program and the enactment of the America Invents Act.  This post will discuss the latest developments in a series of pending patent infringement cases between General Electric Co. (“GE”) and Mitsubishi Heavy Industries, Ltd. (“MHI”) and its US subsidiaries (collectively, “Mitsubishi”) in what has shaped up to be a battle for control of the multi-billion dollar US wind turbine market.

International Trade Commission Investigation

On February 27, 2008, GE initiated an investigation with the International Trade Commission (“ITC”) (Investigation No. 337-TA-641), alleging that Mitsubishi’s variable speed wind turbines infringed three of GE’s patents.  On March 2, 2010, the ITC concluded that Mitsubishi was not in violation of Section 337 of the Tariff Act and declined to issue an injunction banning importation of Mitsubishi wind turbines.  GE appealed to the Court of Appeals for the Federal Circuit.  On February 29, 2012, the Federal Circuit affirmed the ITC’s determination that Mitsubishi was not in violation as to one of GE’s patents, but remanded to the ITC for a determination as to whether the second of GE’s patents was valid and infringed by Mitsubishi (the third patent had expired prior to the Federal Circuit’s decision), leaving open the possibility of a victory for GE before the ITC.  (Fed. Cir. Case No. 2010-1223).  The Federal Circuit decision can be found here.

District Court Litigations

Other wind turbine patent litigations between GE and MHI remain pending in several district courts around the US.  Most notably, on March 8, 2012, a jury in the Northern District of Texas awarded GE $170 million in damages based on alleged infringement by Mitsubishi of a GE patent relating to wind turbine electrical power regulation systems.  (Case No. 3:10-cv-00276, filed February 11, 2010).  The jury verdict can be found here.  The judge has not yet issued a final order in the case.

In an earlier case, GE filed suit in the Southern District of Texas alleging infringement by Mitsubishi of several GE patents on variable speed wind turbine control systems.  (Case No. 2:09-cv-00229, filed September 3, 2009).  The case is currently stayed pending final resolution of the ITC action.

MHI filed its own suit against GE in the Middle District of Florida alleging infringement of MHI’s patent on systems that control the pitch angle of wind turbine blades.  (Case No. 6:10-cv-00812, filed May 20, 2010).  Summary judgment arguments are currently being heard in the case.

MHI also filed an antitrust lawsuit against GE in the Western District of Arkansas alleging that GE’s variable speed wind turbine patents were fraudulently procured and that GE’s efforts to enforce them against MHI constitute an anticompetitive scheme that has cost MHI billions of dollars.  (Case No. 5:10-cv-05087, filed May 20, 2010).  On August 23, 2010, the court ordered a stay of the case until final resolution of GE’s pending infringement suits, explaining that GE victories in those cases would moot MHI’s antitrust claims.

A discussion of other major pending litigations concerning solar, biofuels and other green technology patents will be the subject of a future blog post.

By Julia Ciardullo
Fellow

There have been a number of interesting legal developments in recent months that highlight the importance of intellectual property law in the field of green technology.  This post is the first in a series of blogs that will summarize some of the most notable legal developments, starting with a discussion of government initiatives.  Future posts will discuss a number of major pending litigations whose decisions could have an impact on wind, solar, and other green technology patents.

Expiration of the USPTO’s Green Technology Pilot Program

On December 11, 2009, the US Patent and Trademark Office (“USPTO”) commenced its Green Technology Pilot Program (“Pilot Program”), which provides for accelerated examination of patent applications related to green technologies.  The USPTO typically takes 30 months to perform an initial examination of a filed patent application, and 40 months to render a final disposition.  Under the Pilot Program, however, an applicant is able to have an application reviewed within only a few months, and receive a final disposition within one year.  To be eligible for the Pilot Program, a patent application has to pertain to green technologies such as greenhouse gas reduction, environmental quality, energy conservation or development of renewable energy resources. 

The Pilot Program was originally set to expire on December 8, 2010, or the date that 3,000 applications had been granted special status under the program, whichever came first.  The response to the Pilot Program was initially sluggish, and the USPTO extended the program through December 31, 2011.  On December 15, 2011, the Pilot Program was further extended until March 30, 2012, or the date that 3,500 applications had been granted special status under the program.  On February 27, 2012, the USPTO announced that 3,500 applications had been granted special status and the Pilot Program was officially closed.

America Invents Act

On September 16, 2011, President Obama signed into law the Leahy-Smith America Invents Act (“AIA”), introducing the most significant changes to US patent law since 1952.  The AIA does not single out green technologies for special treatment, but it does fundamentally impact the way all technology companies will go about procuring patents.  Perhaps the most important provision of the AIA is its mandate that the US shift from a “first-to-invent” system to a “first-to-file” system by March 2013.  Most other countries have long operated under a first-to-file system, which awards priority among competing inventors to the one who files a patent application first, regardless of who may have first conceived of the invention.  Although this bright line rule will reduce the number of litigations concerning inventorship, it will undoubtedly spur a “race to the patent office” among technology companies who will likely file many more provisional patent applications (streamlined, low-cost submissions that allow an inventor one year to decide whether to pursue a complete nonprovisional application), a greater percentage of which may suffer defects as a result of having been rushed. 

Among many other changes to the patent laws, the AIA permits prioritized examination of patent applications: upon payment of $4,800 fee ($2,400 in the case of individuals and small entities), an applicant can receive a final determination on an application within one year of filing instead of the typical 40 months.  In the wake of the expiration of the Green Technology Pilot Program, green technology companies interested in prioritized examination of their patent applications will be able to take advantage of this procedure.

Columbia Law School’s Clean Energy Investment US-India Project aims to enable U.S. investors and solar and other renewable energy equipment manufacturers to access the Indian market. So far, investment in this expanding market has been limited by high transaction costs. Funded by a generous grant by the Sujana Group and with the assistance of experienced lawyers, bankers and industrial corporations in both the U.S. and India, the Project will draft contract templates to be used for the Project in order to better manage those transaction costs. As described below, comments and feedback are invited.

Benefits

Investment in Indian clean energy projects can potentially earn high returns for U.S. investors, lower greenhouse gas emissions and decrease production costs for Indian companies. The burgeoning Indian energy market is estimated at $1.1 trillion by McKinsey, with an estimated potential of reducing 2.8-3.6 billion tonnes of GHG, if it can access the needed finance. Of the $1.1 trillion, it is believed that $333 billion are financially attractive projects, with “positive IRR ratings” (in banker parlance).

Investment Structure Proposed

• Quasi-Project Finance Model:  The proposed model follows non-recourse finance, along the lines of standard project finance.  Lenders will work with an Indian Corporate Sponsor and form a Project Special Purpose Vehicle (“Project SPV”), for financing the captive or independent power project.
• The Project SPV:  The Lenders will finance the power project through the Project SPV. The Loan Agreement between the lenders and the Project SPV will govern the terms of the loan. This Project SPV will be owned by equity investors, including the Lenders, Corporate Sponsor and/or other private investors.
• Corporate Power Purchase Agreement (“Corporate PPA”):  The Project SPV will rely on one or more Power Purchase Agreements between the Project SPV and the Corporate Sponsor in order to provide contractual assurances that the power produced by the project will be purchased by the Corporate Sponsor, thereby generating cash flow to repay the loan.
• Government Power Purchase Agreement (“Government PPA”):  Some Corporate Sponsors may have already negotiated orders to supply power to the government.  Some state governments have started executing agreements to buy certain amount of power from renewable energy sources at higher prices than applicable for purchase from coal sources.  Such existing supply agreements with governments and demonstrable earnings may assist the financial viability of the project, subject to reviewing the legal terms in these Government PPAs.
• In addition to the Corporate PPA, it will be important for the Corporate Sponsor to demonstrate that the arrangements for a reliable engineering, procurement, construction contractor (to build the plant), operation and maintenance, grid connection (to the state electricity grids) etc. are in place. The grid connection will allow for a Plan B – the ability to sell to someone other than the Corporate Sponsor in case of excess supply or for any other reason and is hence, quite important from a lender’s risk perspective.

New Income Streams

• In addition to the income stream from the Corporate PPA, the Clean Energy Investment US-India Partnership Project will also enable the Lenders to include earnings from green income streams and tax allowances.
• Green Credits – Renewable and energy efficient plants in India can potentially register for and earn carbon credits under the United Nation Clean Development Mechanism (“UNCDM”) (created under the Kyoto Protocol). If for any reason the power project is not eligible to receive credits (by the UNCDM and related bodies), the project should still potentially earn credits under voluntary offset mechanisms or national regimes that the Indian Government has proposed. The Indian Government has proposed a Perform, Achieve, Trade (“PAT”) Scheme for installing more energy efficient technology, or Renewable Energy Certificates (“REC”) for renewable power plants.
• Moreover, the Indian Government also provides tax benefits for energy efficient and other green power plants, which could be utilized to finance the power project.
• Including multiple income streams and assets will reduce the lender’s risk and in turn, the Corporate Sponsor could benefit from better loan terms. Presently, we propose including these incomes as “Mandatory Prepayments”, whereby it is agreed that whenever income is realized from these sources,  that income will automatically be paid to the Project SPV and applied against the loans made by the lenders (and not retained by the Corporate Sponsor).

Agreements Needed

Thus, the Project will draft and make available for free download the suite of documents needed for a corporation to put up the power plant and obtain the loan necessary. This suite will include:

• Primary Loan or Credit Agreement
• Power Purchase Agreement
• EPC Agreement, O&M Agreement and Grid Connection Agreement
• Therefore, it may be possible to sell energy on the local grid to entities other than the Corporate Sponsor. A third source of potential revenue is through the sale of green energy credits in European markets under the United Nations’ Certified Emission Reductions, or the purchase of voluntary carbon offsets by corporations in the U.S., Japan, Europe, or Australia. Additional credits may be available under Indian regulations such as RECs (renewable energy credits) or PATs (perform, achieve, trade).

Questions That Arise

This results in many questions:

• Proposed SPV Location: Project SPVs are typically located in Mauritius, Cayman Islands, Cyprus to name just a few. In which jurisdiction, should the proposed SPV be located and why?
• Governing law: Parties prefer different choice of law to govern the agreement. In this case, should it be New York (which most US lenders prefer), India (where the Corporate Sponsor is located) or England (where the carbon credit market is most active and perhaps a viable compromise between New York and Indian law)? Note that some agreements (e.g., security agreements) will necessarly be governed by Indian law.

Our proposed investment structure is available at the Project Documents page.

Readers’ Comments & Feedback Will Make A Difference

• Recommendations from readers will be very helpful and contribute to the drafting of the final agreements that will be provided for download in connection with specific projects at no cost to the lenders, the Project SPV or the Corporate Sponsor.
• By reducing the impediment posed by high transaction costs, the Project aspires to facilitate the investment into one of the world’s largest green-house gas abatement opportunities. We welcome input and feedback from bankers, power project experts and government leaders familiar with this finance project.
• Please email any comments and suggestions to the Project Director, Aarthi Anand

On Thursday, March 1 from 6:30 – 8:30pm, the Columbia Law School Center for Climate Change Law will host a forum on the future of the Indian Point Nuclear Power Plant. The Indian Point Nuclear Power Plant is located in Westchester County, New York, thirty miles north of New York City. Its two units opened in 1974 and 1976, and their owners have applied to the Nuclear Regulatory Commission for relicensing for 20 years. Whether to relicense the plant has become a matter of considerable public controversy, raising issues of energy, environmental, and economic policy. This program will feature speakers with contrasting views on the fate of the facility and on the underlying policy and legal issues.

Click here for additional information about the event.

Click here to RSVP.