Pioneering Green Innovation: An interview with General Electric

February 2012

The American conglomerate General Electric (GE), which traces its roots to one of the world’s most acclaimed inventors, Thomas Edison, is built on innovation. With a sizeable footprint in many markets, the company is driving new trends in innovation and breaking fresh ground in its approach to intellectual property (IP) management. WIPO Magazine sat down with Carl Horton, the company’s Chief Intellectual Property Counsel, to find out more about GE’s engagement with green innovation and why it considers that IP rights are a positive force in the development and deployment of these technologies.

The GE90-115B is the most powerful commercial
engine in service and is also designed to be more fuel
efficient than its closest competitor, resulting in lower
emissions and fuels costs.
(Photo: © 2012 General Electric Company)

Why is innovation important for GE?

GE was built on innovation, and we believe that investing in technology is what sets us apart from our competitors. It puts us in a position to help solve big global challenges and to deliver value to our customers. Innovation is the one thing that will make the solution affordable. In the long term, as these technologies become more affordable, governments make greater savings, freeing up additional funds for other development goals.

Does green innovation make good business sense?

Yes. As we have seen with our Ecomagination campaign launched in 2004, a company can be both a good corporate citizen and can generate profits. Under the initiative, we committed to:

  • boost investment in research and development (R&D) – to the tune of US$1.5 billion - to produce goods that have a clear eco benefit;
  • increase sales revenue from these products - by up to US$20 billion;
  • reduce our own emissions and energy usage; and
  • be transparent and keep our stakeholders informed about progress, because we believe accountability drives the right behavior.

What role for government in moving to a low-carbon economy?

The GE WattStation™, a sleek user-friendly and
eye-catching dispenser of electricity is a new way
to provide energy for electric vehicles (EVs).
(Photo: © 2012 General Electric Company)

Governments have a key role to play in facilitating the transition to a low-carbon economy. For example, the day a carbon tax is introduced, every business decision will be made with a company’s carbon footprint in mind. We strongly advocate a carbon tax and believe this will have the biggest single impact on business.

“Reverse innovation” is now an important part of GE’s business model. Can you explain what it is?

Over the past decade, GE has made a significant footprint in many countries. Reverse innovation occurs when we innovate in a developing market in response to a specific local need (e.g., an affordable health care or water purification product) before adapting and launching a product into larger and more mature markets. We had never imagined the scale of demand for products developed in this way. In responding to local needs, we have found that many people elsewhere were looking for similar products. Now we develop these products in the regions where the innovation occurred and then export them around the world. It is an interesting dynamic and one of the benefits of having a truly global footprint.

What implications does this have for managing your IP?

It has forced us to adopt a global IP infrastructure that matches the geographical spread of our business. Whereas in many companies IP personnel are headquarter-based, at GE our IP specialists are scattered over some 30 different countries. Because our IP footprint matches our business operations, we are able to leverage the innovation that takes place in particular regions and to tailor our IP strategy to prevailing local business conditions. This is more complicated and harder to manage, but we believe it is a more efficient model for managing our IP.

What changes would you like to see in the patent system?

With greater harmonization, we would all rapidly see massive efficiency gains. It just makes sense. If we have a proven product, we don’t make multiple versions for each separate market. The basic components work everywhere, and anything else just wouldn’t be cost-effective. It’s the same for the IP system. I see no reason why we would want to have multiple variations of the same system. Greater harmonization and standardization would mean lower costs and a faster system. Everyone benefits.

What are GE’s main IP challenges?

EVs have the potential to revolutionize transportation.
Widespread adoption requires a power grid of modern
charging stations that are accessible, quick and easy to
use. The GE WattStation™ is designed to help address
these challenges. For every 10,000 drivers that switch
to electric power, CO2 emissions would be reduced by
33,000 metric tons per year equivalent to the annual
CO2 emissions of 6,500 traditional cars.
(Photo: © 2012 General Electric Company)

Adequate enforcement is our number one challenge on the IP side. What is the point of investing millions of dollars in your IP portfolio and bringing a costly court action against a company you are fairly sure is infringing your rights with no guarantee of obtaining just compensation. We are hopeful that the recent patent reform in the United States will help alleviate some of the problems we face. The upside is the progress being made in the developing world. Before too long, companies in developing countries will be asking for the same things that we are. When that happens, the pace of change will accelerate.

Why is IP important for green innovation?

There are different kinds of green technology innovation. When it comes to incremental improvements - we will see minor advancements in combustion technology until the end of time - IP protection helps reward the company that invests the most, the fastest and has the smartest employees. There is a cost associated with that innovation, and IP gives some benefit and advantage to offset that cost.

When it comes to big breakthroughs, IP is essential. For example, we have been investing in hydrogen energy for over 10 years and spent millions of dollars knowing full well that we won’t find a solution for years. The first wave of patents on whatever we invent will never see the light of day; they are a “sunk” cost. But, without the promise of patent protection for real groundbreaking technologies, we probably never would have invested in the first place. We hope that the wealth of knowledge and expertise we accumulate will eventually lead to a breakthrough that we can effectively commercialize because we have the IP that protects it. If you take IP out of the game, companies will lock down. There will be less collaboration, and capital will be diverted to other sectors that offer a surer return on investment.

A 100 MW wind farm has the capacity to generate more
than 219,000 MWh of electricity per year, avoiding the
emission of over 72,000 metric tons of CO2 from
traditional EU grid sources. This is equivalent to the
annual CO2 emissions of over 36,000 cars.
(Photo: © 2012 General Electric Company)

Some commentators argue that IP is an obstacle to green innovation. I don’t see any evidence for that. Many green technologies such as those found in cars, jet engines, and gas and wind turbines, have been on the market for years. Most of the fundamental technologies have been off-patent for decades. That means there are multiple companies making the product, each competing to come up with the next incremental improvement. Just because company A holds a patent for a gas turbine doesn’t mean it can stop company B from developing their own gas turbine technology any more than company B can stop company A from making a wind turbine. In the green technology market, companies have to fight it out over price and performance. To maintain a competitive edge, they need to innovate more and faster. We protect that if we can with IP, but the bottom line is that what we are fighting over on the IP side is a very small percentage of the total cost of the product, which comes down to the price of materials and labor.

In general, the private sector drives around 70 percent of innovation around the world. In the area of green technology, this rises to 80 percent, which means that private companies fund 4 out of every 5 US dollars invested in R&D. Private companies are motivated by a return on investment. That is why IP is so essential to boosting investment in green technology.

What role does IP play in the deployment of technology?

The first thing a venture capitalist looks for in a start-up company is a viable or proven technology that is IP-protected. They want to know that when they spend US$50 million on getting it to market another company won’t be able to make a copycat version the next day. IP provides a significant incentive for companies like GE to invest in such start-ups and helps them commercialize their technologies. Too many start-up technologies perish, because they don’t have the resources to develop and bring a working product to market. IP helps bridge that gap.

Is GE adopting an open innovation model?

We are experimenting with open innovation (OI) and, to the extent possible, we are adopting it. But some technologies lend themselves more easily to an open collaboration model than others. In many of the sectors in which we innovate it is just not that easy to adopt. For example, there are a lot of smart people who can figure out how to design a better electrical infrastructure, but there aren’t so many with whom you can chat online about jet engines.

GE’s Energy Smart™ screw-in
compact fluorescent lamp (CFL)
bulbs have a longer life and use
less electricity than the
incandescent bulbs they replace,
resulting in lower CO2 emissions
on the power grid.
(Photo: © 2012
General Electric Company)

There is sometimes a misperception that OI is IP-free. This is absolutely not the case. IP facilitates open collaboration and is an important part of the equation. I think of IP as an actionable property right. It’s not something you buy and sit on. You buy it because you intend to take action, and by owning it you get a commercial return on it. Ultimately, it spurs the commercialization process.

What lessons has GE drawn from its green technology experience?

On the IP front, we have learned a number of lessons, including:

  • The importance of IP education. In the area of environmental technologies, for example, very few people know how the IP system works or have thought about its role in advancing the development and deployment of green technologies.
  • We have demonstrated empirically that IP is a positive and motivating force in the green technology space and that industry has an important and positive role to play in developing better products at more attractive prices. We have demonstrated that there is a better, cleaner and easier way to reach a solution.
  • We have also learned how frustrating it can be when you get stuck because of political considerations; it’s just tough. So much of the good we are seeking in the climate change debate calls for a political solution.

When will low carbon become a reality?

I think there are two possible scenarios. First, it will come about when the technology overtakes the politics and gets us to a point where people see that, with the right investment, we can commit to a low-carbon approach without breaking the bank, and that it is the right thing to do. Alternatively, it will come about when there is irrefutable proof that climate change is a reality. At that point, people will have to buy into it and the politics will take care of itself. Either way, I am confident that, with time, we will get to where we need to be.

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