Gone with the wind Print E-mail
March 2011 Business

How a German turbine manufacturer lost his company and his patents in India – By Christoph Hein

The wind turbines of the German manufacturer Enercon turn just the same in Rajasthan in northwestern India as they do deep in the Southeast in Tamil Nadu. What appears to be a triumph of German engineering in a rapidly growing emerging market, is actually something quite different: the looting of a Western company that has been pushed out of the Indian market.

The case of Enercon shows how dangerous it can be for SMEs to venture into difficult markets such as China, Indonesia or India. “It is obvious that the Indian side intends to cement Enercon’s de facto expropriation in India,” said Hans-Dieter Kettwig, managing director of Enercon GmbH. “We now consider our involvement in India to be a mistake. The investments are written off, we were cheated on many levels, robbed and our employees were threatened.”

The Germans ventured into South Asia with great enthusiasm in 1994. Their partner, the Mumbai-based textile entrepreneur Yogesh Mehra, promised the Germans that they would quickly capture the market quickly with a joint venture – Enercon India Limited (EIL). Mehra became the managing director, and Enercon founder Aloys Wobben became chairman of the board of EIL. In legal terms, the Germans still hold 56 percent of EIL.

Things changed when a dispute broke out in 2005 – the Indians wanted to go public and have more aggressive growth. The Germans stepped on the brakes, favoring sustainability and safety. Partners became enemies. The two sides in Aurich and Bombay have been fighting ever since.

Enercon employees from Germany were interrogated by the Indian police, prompting the German consulate to intervene. Since 2006, the auditor Deloitte hasn’t submitted any audited accounts to the EIL owner. Why Deloitte does not reject the mandate under these circumstances remains a mystery to the Germans.

Mehra sued for the release of the Germans’ globally protected patents. And India’s IPAB patent court in Chennai declared 12 Enercon patents as void. The judges found “lack of inventive step” and “lack of originality” in relation to patent applications recognized by US, European and Japanese courts.

The loss of patent rights in India means anyone can now use the unprotected technology from Germany. Enercon core technologies such as generators, inverters and the control unit could fall into the hands of competitors. Poor quality and dangerous goods could be distributed as technology Made in Germany.

“The verdict is an alarming precedent for high-technology providers,” said Enercon legal advisor Stefan Knottnerus-Meyer. “EIL not only produces and installs copied wind turbines in India, but also sells them under Enercon’s hijacked brand.” In addition, the Germans also unmasked an industrial spy employed at the company’s plant in Magdeburg. He was charged and convicted.

Since 2005, Enercon has not been informed about its subsidiary EIL’s board meetings or their agenda, and could not send representatives, although Kettwig remains a member of EIL’s four-person board. In the absence of the German members in 2007, the incomplete board issued Mehra full power of attorney for all business activities without the Germans ever being informed:  “For five years we have received no dividends from EIL and no insight into and control over the course of business.”

An isolated case? Hardly. After all, the US now has a staff member at its embassy in New Delhi whose sole responsibility is to deal with patent infringements. Pharmaceutical companies in particular have made the painful experience that a patent in India may be worth less than usual.

There has been a patent law in India since 2005. But Stephan Gerlich, India representative of Germany’s Bayer AG, is skeptical about its impact. “Its implementation still needs work,” he says. “We are aware that this can take another 10 or even 15 years.”

Bayer is fighting its way through the appeal courts over its patent rights to the cancer drug Nexavar 
in India – so far without success, although one judgment is still pending. However, the Indians are coming under pressure. Roger Bate, a researcher with the American Enterprise Institute, recently discovered that most counterfeit versions of drugs made by Indian companies actually come from China. They are sold globally, falsely packaged as products from Indian manufacturers.

Despite the growing problems in India today, most entrepreneurs think of China when it comes to intellectual property theft. Cars and saws, dowels and tablets, Lego and Louis Vuitton are all counterfeited there. The head of a large automotive supplier estimates that at least 60 percent of the traded parts there are rip-offs. To detect counterfeit Adidas sneakers, you have to cut them open admitted a company representative.

Embassies and chambers of commerce repeatedly warn the Chinese to abide by international agreements. Every now and then, they are successful. In 2009, the commercial vehicle manufacturer MAN prevailed in the fight against product piracy in China. A court in Beijing sentenced the Chinese manufacturer Zhongwei Passenger Bus to pay 20 million yuan ($3 million) in damages. The Chinese had copied an entire bus by Neoplan.

Whether China or India, most companies remain silent when it comes to their own problems. Eginhard Vietz, founder of the Pipeline Equipment Vietz GmbH in Hanover, withdrew from China at the height of the euphoria. He became a victim of industrial espionage. “Everyone else who has built machines in China has had the same experience. But nobody dares to talk about it openly,” said Vietz criticizing the reluctance of his colleagues. That’s why Enercon has now broken the silence: “We want to draw attention to the lack of any real patent protection in India. We want to warn others,” said Kettwig.

 
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