This article was originally published in Law360 on May 9, 2024, and is republished here with permission.
When thinking of archetypal unicorns in the technology sector, carbon capture is rarely top of mind.
However, a December report by McKinsey & Co. stated that global investment in carbon capture technologies is predicted to reach between $100 billion and $400 billion by 2030,[1] and in early April, a highly commercialized carbon capture collaboration between Exxon Mobil and FuelCell Energy was valued as a trillion-dollar opportunity.
Because carbon capture technologies are multidisciplinary in nature, collaborations between companies developing these technologies are often auspicious. However, if such collaborations are to be successful for all parties involved, those parties must navigate a complex web of intellectual property issues that are best resolved at the outset of the parties’ relationship.
What Is Carbon Capture?
Carbon capture is a burgeoning technology that promises cleaner air and efficient use of carbon byproducts.
Carbon capture facilities are designed to capture carbon dioxide and remove it from the atmosphere, at which point the CO2 is either stored in the ground — known as carbon capture and sequestration — or is otherwise utilized, known as carbon capture and utilization, such as by using a catalytic process to combine the CO2 with hydrogen to produce carbon nanofiber and water.
Although carbon capture technologies have existed in a rudimentary form since the early 2000s, they have been gaining greater recognition and capturing investors’ attention over the last several years due to increased global interest in reducing atmospheric carbon emissions.
The U.S. government has expanded its proffered incentives to encourage companies to invest in carbon capture technologies through both tax credits and annual appropriations. For example, the Infrastructure Investment and Jobs Act, or IIJA, provided $8.2 billion in advance appropriations for federal carbon capture programs.
In large part, investor interest has been driven by the increased need for companies to offset their carbon emissions to comply with applicable laws, the financial incentive associated with earning and selling carbon credits to other companies, and the economic returns associated with carbon utilization — all of which have resulted in high valuations for carbon capture companies.
Because carbon capture research is often cross-disciplinary and involves several different market and scientific sectors — e.g., renewable energy, oil and gas, materials science and environmental engineering, among others — companies often collaborate to innovate new carbon capture technologies and improve their ability to commercialize the technology effectively and efficiently.
However, these collaborations often pose a variety of IP issues that may create obstacles for the companies involved. To mitigate conflicts and maximize the value of carbon capture technologies developed through collaboration, companies should consider proactively addressing and resolving any IP issues that may arise — including ownership of the technology — at the inception of the companies’ relationship.
IP Considerations
Given the massive government investment into carbon capture technologies under the IIJA, the need for a coherent IP strategy is more important than ever for companies currently operating or planning to operate in this clean technology space.
If companies plan to jointly own the IP produced as a result of a carbon capture collaboration, they should consider writing down their expected rights and responsibilities in a contract, such as a joint development or co-development agreement. Any such contract could delineate the parties’ respective ownership rights, duties and development obligations as part of the collaboration.
If the parties fail to clearly state such rights and obligations, they may end up with unanticipated IP ownership — or no ownership at all — under applicable IP laws, which may result in future disputes and costly litigation over the carbon capture technology.
To establish the companies’ respective ownership rights, the contract should include appropriate IP assignment provisions using present-tense language of assignment, and confirm that each company has suitable agreements in place with its employees who will be involved in the collaboration to ensure that such employees do not unintentionally retain any IP rights to the carbon capture technology.
This can be accomplished through a proprietary information and invention assignment agreement between the company and the employee.
The companies could also contractually agree upon several other ownership arrangements depending on what makes sense for the collaboration and the parties’ respective contributions to the technology.
For example, the parties may decide that the company providing the funds for the development of the new carbon capture technology will solely own the associated IP, but that the funding company will grant a perpetual, nonexclusive license to the developing company so that it can also make, use, sell and otherwise commercially exploit the technology. Further, if the companies plan to grant licenses to third parties as part of their commercialization strategy, the companies may want to consider defining their respective entitlement to royalties from such third-party licenses.
However, if the company developing the carbon capture technology is receiving federal funding, the IP issues at play may be more complex depending on the conditions under which the funding is provided.
The considerable amount of federal funding available to companies under the IIJA may result in disproportionate innovation in the clean technology and carbon capture space, meaning that it is particularly important for companies to properly secure their IP property rights.
Further, as many different companies begin to innovate in the same area, they will inevitably be racing to develop the best product. As a result, obtaining strong IP protections may be the difference between having a substantial competitive advantage in the marketplace and not being able to compete with other companies at all.
To mitigate the risk that the companies will become involved in a dispute related to IP owned by third parties, the companies may want to consider researching the landscape of already existing carbon capture technologies, particularly because this technology has been around since the 2000s.
Such research may involve a “freedom to operate” search, which involves legal analysis to determine whether a technology may incorporate — and potentially infringe on — another person’s IP, specifically, a third party’s patent claims. If such research reveals that the companies are at risk of infringing a third party’s IP rights as a result of developing and commercializing their carbon capture technology, the companies may want to consider approaching the third party about entering into a license agreement to avoid future high-priced disputes.
Clearly defining the companies’ ownership of the carbon capture technology is also likely to result in higher valuations. As part of the due diligence process, acquiring and investing entities carefully scrutinize whether the target company has clear title to its IP, and such IP is often the company’s most valuable asset.
If, as a result of contracting failures or otherwise, the target company does not have clear title to its IP, it may be forced to sell at a lower price. Accordingly, contractually defining each company’s ownership rights of the carbon capture IP at the beginning of the parties’ collaboration is key to avoiding disputes and driving as high of a market price as possible in the future.
Conclusion
Carbon capture technologies are rapidly evolving and are currently nestled within a high-growth sector in the market, especially due to the availability of federal funds for clean technology companies under the IIJA.
With the right approach to cultivating the IP associated with these technologies, both investors and companies can capitalize on the unique opportunity presented by carbon capture and potentially benefit both the environment and humanity in the process.
[1] Peter Mannion et al., Carbon removals: How to scale a new gigaton industry, McKinsey & Company, Dec. 4, 2023.
[View source.]
