When Morrison & Foerster's veteran intellectual property law partner Thomas Ciotti sat down at the MoFo energy group's annual partners meeting in late October, it raised some eyebrows. "Everyone was eyeballing me, probably wondering if I got lost or something," Ciotti recalls. Then the discussion turned to the most important agenda item--alternative energy--and suddenly Ciotti was on familiar ground. His eight-lawyer green-tech IP group, which counsels venture capitalists investing in renewable energy and environmental technology, has more alternative energy clients than the firm's 50-lawyer energy practice.
The meeting was "a real eye-opener," says Ciotti, who formed the green-tech IP practice in early 2006. "Not many lawyers have gotten into this yet." And judging from what he has seen so far, he says, there's potential for explosive growth in the field. "My group went from zero clients to more than half a dozen in less than a year," he says.
Ciotti isn't the only patent attorney seeing green these days. Silicon Valley is experiencing a boom in the number of green-tech start-ups, companies that are developing environmentally friendly technology and products ranging from solar panels to energy-efficient fluorescent bulbs to bioengineered molecules that excrete biofuel. VC firms nationwide poured $2.9 billion into so-called clean technology investments last year alone, up from $1.6 billion in 2005, according to the Cleantech Venture Network, a group that monitors venture capital investments in environmentally friendly technologies. Though that figure represents only a fraction of the $25.75 billion that VCs plowed into start-ups in 2006, Cleantech expects investment in the sector to reach $8.7 billion by 2009. Silicon Valley is one of the hot spots: Clean-tech investment there went from $34 million in the first quarter of 2006 to $290 million in the third quarter, according to a report issued by Joint Ventures: Silicon Valley Network, a research organization in San Jose. At least a third of the more than 500 clean-tech financing deals that Cleantech tracked in 2005 and 2006 involved a Valley company. (Florida, New York, and Massachusetts ranked close behind California in the number of 2006 deals.)
"People are referring to it as Boom 2.0," says San FranciscoÐbased Knobbe Martens Olson & Bear patent attorney Dale Hunt. The Los Angeles IP firm has so far signed up a dozen new clients since formally launching its clean-tech practice a year ago. "This industry has just blossomed in the last two years," he adds.
"There's a lot of money flowing into clean tech, and companies are really aggressively pursuing their IP objectives," says Foley & Lardner patent attorney Stephen Maebius. "In many of these companies, the IP budget is bigger than their corporate budget."
Several law firms with close ties to the VC community and strong IP practices have jumped onto the green energy bandwagon, building practice groups that target the clean-tech sector. In addition to Morrison & Foerster and Knobbe Martens, firms such as Cooley Godward Kronish, Foley & Lardner, Heller Ehrman, Latham & Watkins, and Morgan, Lewis & Bockius are now catering to companies and venture firms that have moved into the clean-tech sector.
Many of the green-tech start-ups are still very early-stage, meaning no one has brought actual products to market. And that's why attorneys are in high demand: Most of the companies are luring investors with their patented technology. The IP work being generated by clean-tech clients is not the typical patent application filing that is now considered commodity work, but high-end and big-budget projects, such as IP strategic counseling and comprehensive IP due diligence work, according to several attorneys. "There's a lot of money at stake in these investments, and it's a fast-moving industry, so you really have to have your IP story well figured out and stronger than can be," Hunt says. Start-ups and investor groups are also hiring patent attorneys to help vet and negotiate financing deals.
California's clean techÐfriendly policies have accelerated the growth of the sector in Silicon Valley. In the last few years, the state has become the leader in state-sponsored clean energy incentive programs. California is the only state that requires public utilities to generate 20 percent of their electricity from renewable resources by 2010. It has adopted an incentive program designed to put solar panels on 1 million roofs in the next ten years and passed climate-change legislation that calls for a 25 percent reduction in greenhouse gas emissions by 2020. And more recently, California became the first state to adopt strict carbon emissions laws that will slash the carbon content of all passenger vehicle fuels sold in the state by 10 percent by the year 2020.
"California is the most attractive place right now for doing clean-tech projects and doing deals, and we're anticipating that there are going to be more and more companies that are going to move or form here," says IP attorney Alison Freeman-Gleason, cochair of Heller Ehrman's energy and clean-tech practice. Heller Ehrman was a green energy pioneer, forming its energy and clean-tech group in 2002, several years before the other firms interviewed for this story. Since then, the firm has had a steady flow of IP licensing work related to the clean-tech sector. While Heller declined to provide billings for its clean-tech clients, at least half of the group's more than 30 attorneys spend a "significant portion of their time" on clean-tech work, according to Freeman-Gleason.
"I'm not sure if the IP transaction work is going to be as big as biotech, but we're hoping that it will continue to pick up, and that big oil, gas, and chemical companies will go out and license or acquire new technologies the way big pharmaceutical companies have done in the biotech area," Freeman-Gleason says. The amount of work the firm is doing in the area has spiked in the last two years, she says. Heller Ehrman currently has more than 40 clean-tech clients working on solar, fuel cells, energy storage, biofuels, clean coal, wind, wave energy, advanced materials, and so-called smart grid technology, an intersection of information technology and energy distribution.
To be sure, there are some in the Valley fearful that they are witnessing another overheated boom. The popularity of green technology has historically depended on the price of oil--which at press time had fallen from its 2006 high of $77 per barrel to about $58 per barrel. Skeptics say the allure of the sector will likely wane if oil prices stay down. But most attorneys believe clean tech is here to stay. "Even if the price of oil drops, this industry will keep growing," Freeman-Gleason says. "There is a global demand for energy, and there is a market for clean energy. Consumers are pushing for it, and investors see that."
Ciotti first saw the opportunity in green energy two years ago, after VC firms hired him for several IP due diligence assignments on clean-tech companies. He thought it would be a great idea to create an IP practice group that would help VC firms investing in green technology to evaluate the patent portfolios of target companies. Early last year, Ciotti and IP associate Mark Schmidt cofounded Morrison & Foerster's Green Tech Practice group, even registering Green Tech as a trademark for exclusive use in legal services.
Today, the group works with a half-dozen VC firms investing in clean-tech deals around the country. Vetting deals for leading Silicon Valley VC firm Kleiner, Perkins, Caufield & Byers, which has reportedly invested $200 million of its new $600 million investment fund in at least nine green-energy start-ups, has allowed the group to establish contact with promising start-ups early on at various stages of their business. Through referrals from its VC contacts, Ciotti's group has done work directly for several clean-tech companies.
Amyris Biotechnologies, for example, was referred to the group by VC client Khosla Ventures, the green-tech VC firm founded by Vinod Khosla, the former Kleiner Perkins partner and cofounder of Sun Microsystems Inc. Amyris, which received $20 million in VC funding last year, has licensed technology from the University of California, Berkeley, and has plans to bioengineer yeast cells to consume sugar and excrete biofuels that can be used in cars. The company, which has 41 employees, has turned to Ciotti's group on various IP matters, including patent prosecution, portfolio management, IP strategic counseling, and licensing.
Other firms, like Foley & Lardner, which plans to formally launch a clean-tech practice this year, have gained entry into the field through existing clients. The firm says that there are currently more than a dozen attorneys representing clean-tech clients firmwide. Maebius, head of Foley's nanotech practice group, says many nanotech companies, including some of the firm's clients, are now aggressively expanding into the clean-tech space, attracted by the sudden influx of venture money. "It's been a real challenge for nanotech companies to find applications for their technology, and I think people are hopeful that the clean-tech market will breathe new life into the nanotech industry," says Maebius.
One such client is Cambrios Technologies Corp., based in Mountain View, California, which came to Foley in 2002 as a university spin-off founded by two scientists from Massachusetts Institute of Technology and University of California in Santa Barbara. When the company first started, it didn't really have a commercial product in mind until it decided to market its technology--which develops biological materials to make inorganic products that are environmentally friendly--for use in manufacturing electronic products. Maebius initially helped the company realign its patents and build the portfolio to more accurately cover the business objectives of the company. Over time the work expanded into a more comprehensive patent portfolio analysis, which includes ensuring that the company is free from any threats of patent infringement from other parties in the space. Cambrios raised $12 million in venture money in 2005.
As most of the firm's tiny green-tech clients mature and start marketing products, Maebius anticipates more work to come. "As soon as products come along, it is inevitable that people are going to try to attack or exploit a perceived weakness in another company's patent portfolio, and litigation might happen," Maebius says. "We hope we are well positioned to get the patent litigation business from most of our start-up clients." (So far, lawyers say, there is no significant patent litigation in this area.)
ut even at this early stage, the demand for sophisticated IP counseling among clean-tech clients is enough to keep dozens of patent attorneys busy. A recent clean-tech patenting trend study conducted by ipCapital Group, Inc., an IP consulting firm based in Williston, Vermont, found that in the biofuel area alone there are at least 849 patents and pending applications in the United States, Europe, and Japan. The 849 biofuel patents are divided among 285 companies, and only 35 companies own more than five patents. That presents a serious challenge for any company trying to map out a patent strategy in the sector and turns IP due diligence work into a big billing bonanza for patent attorneys with clients willing to pay for a complete patent portfolio assessment. The budgets for each due diligence project depend on the complexity of the technology, the number of patents, and the amount of financing. Each deal typically adds up to between $10,000 and $100,000 in billings in a matter of weeks, according to several IP attorneys.
Because most of the technology in the space has been developed in universities and research institutions, there is also a high demand for technology transfer and licensing experts. And clients need patent attorneys who can explain the technology and the scope of the license to potential investors. Knobbe's Hunt, for example, has been helping a number of start-ups present their patent strategy plan to investors. "I don't give legal advice," he says. "I just talk about what the company's technology covers, its patent portfolio, and how they match up with third party patents."
Foley's client Innovalight Inc., a Santa Clara, CaliforniaÐbased start-up that is developing silicon nanoparticles to make solar panels, is a perfect example of a clean-tech start-up that is aggressively building and expanding its patent portfolio. The company, which was originally incubated at the University of Texas and the University of Minnesota in 2002, has found a way to manufacture solar panels made of paper-thin materials that capture more of the sun's radiation. It would not disclose the number of its patents, but CEO Conrad Burke says that Innovalight has been increasing its patent holding "very aggressively" since its founding. He says that his company has grown its patent portfolio organically and also through licensing other technologies.
"IP is critical in our business, and there is a patent land grab in the clean-tech space right now," Burke says. "That's why we hired an established tier-one IP firm to help us grow and manage our portfolio." The company recently hired its first in-house patent attorney. "At this stage, we really need a dedicated IP person internally," Burke says.
Some firms are looking beyond the Valley. Craig Opperman's clean-tech practice at Morgan, Lewis's Palo Alto office has more of an international flavor than a local one. One of Opperman's three clean-tech clients, New York VC firm Green Partners LLC, focuses mostly on investments in countries that, unlike the United States, have signed onto the Kyoto Protocol, the United NationsÐbacked treaty that assigns signatory nations mandatory targets for reducing greenhouse gas emissions. Many of the Kyoto signatories, he says, have already put regulations in place that have helped clean-tech companies get off the ground.
Opperman's work with Green Partners includes technology and patent portfolio analysis of target companies, which basically means looking at foreign alternative energy companies and their technologies to make sure that they are appropriately protected in the country where they operate. (Many of the deals he's worked on are not public, and he declined to name the companies involved.) Aside from vetting investment deals, Opperman also counsels some of the companies funded by Green Partners on patent filing strategy: which innovations and technologies to protect and where to file patent applications.
"The clean-tech industry is definitely not Silicon ValleyÐcentric," Opperman says. "You see companies doing alternative energy in Texas and the East Coast, and a lot of the companies with great technologies are coming out of Europe. This is a big lunch, and a lot of people are eating it."
But not every law firm can get into the clean-tech practice, Opperman says. For the most part, clean-tech companies are looking at firms with a combination of strong corporate and venture financing practice, an established energy and regulatory group, and a deep bench of IP experts with multiple disciplines.
"Alternative energy spans numerous technologies and industries," Opperman says. "And there are only a few law firms that can offer these clients a full package." Companies planning to develop and manufacture fuel cell batteries or gasoline additives will need environmental lawyers to navigate state and federal environmental regulations. Clean-tech start-ups wishing to partner with or license their technologies to utilities or large energy producers can benefit from consulting lawyers who represent big energy companies.
This need is precisely why Heller Ehrman has organized its energy and clean-tech group as a multidisciplinary practice, Freeman-Gleason says. The group is currently staffed with attorneys from the firm's energy, emerging company, and IP practice areas. Morgan Lewis has yet to formally organize a clean-tech practice, but Opperman says the firm treats clean-tech clients much like its emerging companies and high-tech client base, offering a full range of venture financing, tax, energy, and IP law counseling services.
Back at MoFo, Ciotti sees the cross-selling opportunities too but for now is concentrating on trying to build a reputation for the firm as the leading IP expert in the clean-tech field. "There's really nobody focused in this area, and there's nobody who has developed a reputation yet for doing green-tech work. This is a great opportunity," he says. In the Valley, he wants to be the Green Giant.
