Jury awards royalties after verdict in GE vs SGRE court battle: Verdict has implications for Vineyard Wind 1 project
Jurors in the US District Court in Boston, Massachusetts, have found that General Electric (GE) must pay an unprecedented and high royalty fee of $30,000 per megawatt when its new Haliade-X wind turbine uses technology covered in Siemen Gamesa Renewable Energy’s (SGRE) so-called ’413 patent.
US patent no 9,279,413 – the ’413 – is for an offshore direct-drive turbine’s structural support mechanism, and the physical and structural arrangement of the main shaft bearings. This allows the turbine to be larger and/or handle increased loads and thus produce more energy, according to SGRE’s amended complaint, filed with the court in July 2021.
The Haliade-X, with a 12-14MW capacity, is GE’s flagship offshore turbine.
Philip Totaro, founder and CEO of market research and consulting firm IntelStor, said that wind turbine licensing agreements are usually more in the region of $21-25,000/MW rather than Friday’s award of $30,000/MW.
Jurors, however, decided that GE’s infringement of ’413 was not wilful, and that SGRE had not proven that it has lost profits.
In this case, the “royalty” is a one-time fee likely payable within 90 days of a turbine’s commissioning.
The verdict regarding the ’413 patent was one of two patents covered in the 12-person jury’s split verdict, issued the afternoon of 17 June in Boston.
The jurors found the US conglomerate did not infringe SGRE’s ’776 technology, and also that this patent is invalid.
US patent no 8,575,776 – the ’776 – is a broad and generic patent for an improved stator, which helps to improve the turbine’s operation, cooling and maintenance. The resulting rigid structure can withstand all forces during operation, says SGRE’s amended complaint.
“The invalidity is noteworthy but not totally conclusive,” said Totaro.
It does set a legal precedent, he continued, but one that could be challenged in subsequent trials with the introduction of new evidence, or with SGRE making a better argument in a subsequent trial. He noted that the jurors were likely not technical people, a fact that would be noted were the US Patent and Trademark Office to review ’776.
GE and SGRE can each appeal either part of the split verdict. In the US, jurors often award high royalties or other financial sums that are later lowered on appeal.
The case continues
A hearing to be held on 21 July at which the judge will address the issue of whether SGRE is obliged to license the infringed technology to GE.
But Totaro predicted: “Once something has gone to trial, if you win the trial, a licence in that patent becomes compulsory. SGRE can’t just refuse to license now just to screw GE up and intentionally try to trigger the liquidated damages” when the project is commissioned.
The ’413 part of the verdict has raised questions about the $3-billion 800MW Vineyard Wind 1 project, under construction off Massachusetts and America’s first commercial-scale offshore wind farm. It is due to be commissioned in 2023. Owner and developer Vineyard Wind has contracted GE to supply 62 Haliade-X 13-MW turbines, yet to be installed.
Vineyard Wind is a joint venture of Avangrid and Copenhagen Infrastructure Partners. It could not be reached for comment ahead of publication.
Totaro continued: “Will this change [Vineyard Wind’s] minds on sourcing from GE moving forward?”
In the same offshore region off Massachusetts, Vineyard Wind is planning the 1496MW Vineyard Wind South (phase 2) – already in permitting – while Avangrid is planning the 804MW Park City Wind (Vineyard Wind South phase 1) , in early development. Turbines have not been selected.
Technology infringing the ’413 patent – which was issued in March 2016 – would have been used in the 30MW Block Island project off Rhode island, which consists of five GE 6MW Haliade 150 turbines and came online in late 2016, said Totaro.
Profit and loss
Totaro noted that the $30,000/MW royalty could add up for GE for Vineyard Wind 1. “That’s $24 million that comes off GE’s gross margin. That’s a lot of money for one project.”
He said that GE’s turbine supply contract for Vineyard Wind 1 would likely have been about $1.2-1.4 billion. Asked if a $30,000 fee is not relatively small when amortised over the life of a 30-year project, Tortaro said that it is still a cost GE will want to pass on to customers by raising turbine prices.
“On a 13MW turbine, the royalty alone is $390,000. That’s plenty extra if you’re talking about a typical turbine sale price of $17-21 million without the roaylty,” he continued.
Asked about the liability for Avangrid and CIP, he said: “GE should be contractually obligated to cover intellectual property (IP) royalties themselves, but I guess the bigger question is, how secure are you sourcing from GE if you are CIP/Avangrid knowing [GE has] such a large financial liability?”
Vestas does not use the technology in either of the SGRE patents at issue, so could benefit in a purely commercial sense, if project developers want a safer buy right now by avoiding technology tied up in an intellectual property dispute, said Totaro.
‘An expense OEMs don’t need’
Totaro calculated that the $30,000/MW fee could amount to $225 million if GE captures one third of the market share of the 25-27GW of offshore wind projects so far approved by the US Burau of Ocean Energy Management (BOEM). GE, SGRE and Vestas are the top turbine manufacturers in the US onshore market, and each is vying for the US’s fast-growing offshore sector.
“OEMs are talking about thin or negative margins nowadays – [the ’413 royalty fee is] an expense that a company does not need,” he said. “These are the commercial implications beyond the patent damages themselves. If this situation starts costing GE sales, that is billions more than the millions in IP royalties, so it will hurt them.”
GE could reconfigure its turbine to “work around” the ’413 patent, but that would have a cost such as R&D.
But Totaro said: “What we typically refer to as a ‘design around’ to a competitor’s patent would not be trivial in this case. The SGRE patent deals with the fundamental physical architecture of the wind turbine, and to boot, a design that GE used as the basis of the Haliade-X. To change it now could cost them more in R&D cost than the royalty payment to SGRE, to be honest.”
In a statement, SGRE noted the favourable ruling on the ’413 patent. “Fair and legal competition is vital to the success of the renewable energy industry, both in the United States and around the world,” said Steve Dayney, head of offshore North America for SGRE. “Siemens Gamesa welcomes the jury’s verdict on our patent.”
Asked if it would appeal the verdict for the other patent, an SGRE spokesman told Windpower Monthly: “We are considering our options.”
A GE Renewable Energy spokesman said: “Today’s verdict found one of the patents was invalid and we did not infringe. We are reviewing our legal options related to the other patent and remain committed to the US offshore wind market.”
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