Tech-Driven Energy Deals Require Focus on IP and Data Rights

As the energy sector rapidly evolves, technology-driven collaborations have become critical to foster innovation and drive the energy transition toward global, sustainable solutions.

These transactions, often between large, established energy companies and smaller, disruptive tech startups, can take various forms, including joint ventures, strategic development projects, and licensing agreements. However, negotiating these transactions requires careful consideration of several factors to ensure mutual benefit and success.

Long-Term Agreement

The journey to bring disruptive energy technologies to market can be long and fraught with challenges and uncertainty, from initial research and development to demonstration of technological feasibility, and ultimately, to commercial scale deployment.

Given the significant investments and contingencies at each stage, parties might be tempted to negotiate terms phase by phase, but that can be a critical mistake.

The relative leverage between partners can dramatically shift as collaboration progresses—and once the project is underway, the parties may not be able to pause it for further negotiations. For instance, the owner of an unproven technology may have less leverage at first than after the technology is validated. Alternatively, an established energy company may gain leverage over the course of the relationship if its competitors adopt or invest in competing technologies and leave the technology owner with fewer potential alternative partners.

To manage these risks, it’s crucial for the mutual benefit and protection of both parties that they memorialize at an early stage comprehensive terms to govern the partnership’s long-term relationship—especially those governing commercialization—even if this requires additional negotiation of multiple scenarios years into the future.

Partner Stability

When licensing technology from established companies, you can often rely on an indemnity to ensure the licensor bears any material risk that its technology infringes third-party intellectual property rights.

However, when licensing technology from early stage or pre-revenue companies, their credit risk can undercut the assurance offered by an indemnity. A licensee in this case should consider conducting appropriate due diligence on the licensed technology to independently assess the potential risk exposure.

The risk of an early-stage partner’s bankruptcy also may raise significant concerns. If a project owner invests in building major facilities with dependencies on the partner supplying key inputs or materials such as proprietary compounds or equipment, a supplier bankruptcy could threaten future production.

This challenging issue may be addressed by a combination of due diligence and bespoke, nonstandard contractual terms such as appropriate escrow arrangements or sale-leaseback structures.

IP Ownership/Protection

When technology is expected to be developed through a strategic partnership, determining who holds rights to future innovations is often a complex, but critical task.

In the negotiations, the parties must address questions such as:

• What new IP should be owned by which party, or jointly owned by both parties?
• What rights should the non-owning party have to use the other’s IP?
• What obligations should the owning party have to the non-owning party?

These are often difficult questions, and they can contain pitfalls in applicable IP laws that require experienced counsel to navigate.

The parties should make thoughtful decisions about their collective strategy to protect newly developed technologies, such as by allocating their respective responsibilities and obligations—including potential coordination of efforts—around filing, maintenance, defense, and enforcement of patents.

The parties may have differing views on the scope of patent protection to be sought or whether certain technology should be protected as a trade secret. Early agreement on the allocation of rights and responsibilities for IP protection is vital to minimizing conflicts and ensuring effective enforcement of IP rights against third parties.

Government Funding

Government funding often plays a significant role in supporting energy transition initiatives. For example, the Clean Investment Monitor estimates $78 billion in US federal investment in clean energy and transportation since the Inflation Reduction Act was enacted. Such funding may come with specific requirements and legal implications for IP rights.

Applicants must meticulously navigate these stipulations to avoid unintended consequences. For example, the recipient of a grant may wish to clarify pre-existing IP rights and negotiate exclusions from certain funding requirements.

The impact of a partner’s existing government grants on the partnership may warrant thorough due diligence, and effective coordination regarding future government interactions is prudent.

Data Rights

Data generated from research and development and project development can be a critical asset, but it generally isn’t well-protected by traditional forms of IP. Data can’t be patented and enjoys copyright protection only in certain cases and to a limited extent.

Negotiating comprehensive contractual rights and obligations for the data brought to a collaboration or generated by the collaboration is often imperative. This includes defining the parties’ respective use and disclosure rights and establishing a framework governing disclosure to, and use by, any third-party recipients.

Technology-driven collaborations between established energy companies and innovative tech startups are already key mechanisms for the global transition to sustainable energy sources, and their importance is expected to grow as green technologies evolve.

These transactions, regardless of their legal form, require careful planning and negotiation with a long-term vision to ensure success. Key considerations include establishing a multi-phase long-term structure, assessing and managing risks related to transaction partners, clearly defining IP ownership and protection, navigating government funding implications, and securing data rights.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Arlene Arin Hahn is partner and global head and Burr Eckstut is partner in White & Case’s technology transactions practice.

Any views expressed in this publication are strictly those of the authors and should not be attributed in any way to White & Case LLP.

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