Nobel Prize Scientist Not Enough for Bankrupt Solar Company

Konarka Technologies, Inc., a leading developer of thin-film solar panels, has filed for bankruptcy protection under chapter 7 of the Federal bankruptcy laws. Under chapter 7 proceedings, the company’s operations cease and a trustee is tasked with liquidating the company’s assets for the benefit of creditors.

Howard Berke, chairman, president and CEO of Konarka, said, “Konarka has been unable to obtain additional financing, and given its current financial condition, it is unable to continue operations. This is a tragedy for Konarka’s shareholders and employees and for the development of alternative energy in the United States.”

While this is certainly bad news for shareholders, employees and creditors, it is an all to common occurrence for alternative energy companies. Yes, the allure of renewable energy is irresistible, but the technology is just not where it needs to be yet in order to make renewable energy a mainstream alternative to more cheaper, conventional forms of energy.  Even exciting science and a strong patent position is not enough to hold back the economic realities of the marketplace.

The Science and Patents

Konarka was founded by Mr. Berke and by Dr. Alan Heeger.  Dr. Heeger won the 2000 Nobel Prize in Chemistry along with Alan G. MacDiarmid and Hideki Shirakawa for the discovery and development of conductive polymers.  Prior to the work of Dr. Heeger and his fellow Nobel Laureates it was accepted that plastics, unlike metals, do not conduct electricity.  As the result of their pioneering discovery it was learned that plastics can, after certain modifications, be made electrically conductive. For a polymer to be able to conduct electric current it must consist alternately of single and double bonds between the carbon atoms. It must also be “doped”, which means that electrons are removed (through oxidation) or introduced (through reduction). These “holes” or extra electrons can move along the molecule – it becomes electrically conductive.

The scientific work that lead to Dr. Heeger becoming a Nobel Laureate was not the foundation for Konarka.  Konarka Technologies was founded as a spin-off from UMASS Lowell and based on the groundbreaking research of Dr. Sukant Tripathy, a material scientist and professor at UMASS Lowell.  Dr. Tripathy’s team initially developed advanced photovoltaic technology for use by the military under the coordination and support of the U.S. Army’s Natick, Massachusetts Laboratory.  Dr. Tripathy’s team discovered a way to process photovoltaic materials at relatively low temperatures, which enabled the use of low-cost polymers as the top and bottom surfaces of the photovoltaic cell, as well as enabling high speed manufacturing.

According to the company website, the heart of Konarka’s technology is a photo-reactive polymer material invented by Dr. Heeger.  This material can be printed or coated inexpensively onto flexible substrates using roll-to-roll manufacturing, similar to the way newspaper is printed on large rolls of paper.  Despite this claim I have been unable to locate an issued U.S. patent or published U.S. patent application on which Dr. Heeger is listed as an inventor and Konarka is listed as an assignee. Notwithstanding, this roll-to-roll manufacturing process discussed on the company website was recently issued as a patent – U.S. Patent No. 8,129,616.

The ‘616 patent, which issued on March 6, 2012, is titled “Roll to roll manufacturing of organic solar modules,” and discloses how an organic component can be produced in a process designed entirely as a roll-to-roll process. The advantage of the continuous production method is that the active regions of the active semiconductor layer are not exposed to unprotected solvents and/or solvent vapors at any time during the production process. This makes it possible to produce a high-quality organic component. Previously known methods entailed the consecutive application of one active organic layer after another, which is not suitable for mass production and would frequently lead to inferior-quality components.

Among the Company’s assets are over hundreds of owned and licensed patents and patent applications in the field of solar energy and a state-of-the-art manufacturing plant in New Bedford, Massachusetts. The company website touts that the company holds over 350 patents/applications. A very basic search for U.S. patents assigned to Konarka found 58 issued U.S. Patents, with the last patent being issued to Konarka being granted just three weeks ago on May 15, 2012 for organic photovoltaic cells. See U.S. Patent No. 8,178,779.

Is this a Patent Acquisition Opportunity?

Mr. Berke notes that several large international companies had previously expressed interest in financing or acquiring the company. He further noted that, given the worldwide interest in the company, including from the Chinese government, the company had not entirely given up hope that a rescue financing or acquisition would emerge in the bankruptcy. Under Chapter 7 proceedings, however, any such transactions are evaluated by a trustee and not by the company itself.

We have seen some very large patent acquisitions lately, and one way that patents can be purchased in bulk and at a discount is during bankruptcy.  But does that hold true for all patents?  Many see large valuations of patent portfolios and assume this is a golden time for patents and all patents are enjoying the surge.  All patents are not created equally though, and even solid patent portfolios based on exciting technologies do not ensure large selling prices.

“A shift to strategic buyers at the upper end of the market is driving patent valuations to unprecedented highs,” says Ron Laurie, co-founder of Inflexion Point Strategy, LLC, which the first intellectual property investment bank advising technology companies and institutional investors.  Laurie will be speaking at the upcoming PLI hot topic briefing on the subject of companies buying patents by the pound.  He explained to me that there is a perfect storm currently brewing in the patent acquisition market.  More specifically, Laurie explained: “The combination of large strategic buyers with significant infringement exposure, weak defensive patent positions and lots of cash — think Google and Facebook — combined with industry pioneers that have fallen on hard times and are under intense shareholder pressure to monetize large portfolios — think Nortel, Kodak, AOL, RIM, Nokia — has produced the large valuations seen.”

Indeed, we have seen a growing number of high value patent acquisitions where numerous patents are being acquired.  Laurie explains this as a “there’s has to be a pony in there somewhere” mentality.  But will this translate into a buying frenzy for trouble alternative energy companies who have patent portfolios but the inability to raise further capital, such as Konarka?

Just because a company has a patent portfolio and interesting technology does not mean that the portfolio, or the company behind the portfolio, will be able to tap into the “perfect storm” we are seeing in certain high-tech industries.  “I’m not seeing how the Konarka situation exemplifies the ‘Perfect Storm Effect’ at the upper end of the current patent market,” Laurie says.  “On the demand side, the multi-billion dollar portfolio valuations in the mobile device and social media markets are being driven by huge, and ever expanding, consumer demand, and large gross margins neither of which factors would seem to apply to solar.”

Indeed Laurie pointed out that, for example, Apple’s gross margins are reported to be around 70% for phones and tablets.  The alternative energy industry, solar in particular, is currently a losing proposition from a business perspective despite the justifiable interest in seeking renewable energy solutions.