Bloomberg News

Future of Lighting Plays Out in Iowa Town, Global Courts

May 02, 2012

Pocahontas, Iowa, population about 1,700, is on the cutting edge of a tech revolution. It replaced all 280 of its street lamps with semiconductors that convert electricity into light.

The old yellowish lamps now shine a brighter white and use about half the electricity, which should let the $190,000 investment pay off within four years, City Administrator Robert Donahoo said in an interview.

“The citizens love them,” he said.

Pocahontas is on the vanguard of a transformation in lighting as incandescent bulbs, fluorescent tubes, high-pressure sodium lights, and even the backlighting of some television sets are gradually replaced by light-emitting diodes. Phone and computer screens, Audi AG’s “eyebrow” headlights, and traffic signals all use LEDs.

It’s become a gold rush for LED makers. It has also spawned patent lawsuits around the globe over inventions that make lights brighter and more economical. In the U.S., patent- infringement suits involving LED technology have been filed in Connecticut over custom headlights, in Florida over marine lighting, and in North Carolina over motorcycle accessories.

Transforming Business Model

“LEDs are transforming the whole business model for lighting from one that’s based on replacement to one that’s based on installation,” said Eric Bloom, a London-based senior analyst for Pike Research specializing in smart building technologies.

Because LED lighting can last for 30 years, “getting in at the get-go is absolutely crucial for the lighting market of the future,” he said.

The largest battle pits Siemens AG (SIE)’s Osram unit against Korean electronics makers LG Electronics Inc. (066570) and Samsung Electronics Co. Each is trying to block the other from bringing their LEDs into the U.S. through four trials in Washington that began April 26. Lawsuits also are pending in Germany, Korea, Japan and China.

The contested technology among the three also includes LEDs that are used in televisions to create the light for liquid crystal displays. They reduce power consumption, improve longevity and enable TVs to be as thin as a tablet computer.

‘Lot of Money’

“These are new markets, new products and a lot of money is on the line,” said David Radulescu, a patent lawyer with Quinn Emanuel in New York who has represented LED companies for more than a decade. “Companies want to protect their investments and their market.”

Another case, at the U.S. International Trade Commission, was filed by Litepanels Inc., a California-based unit of British broadcast-equipment maker Vitec Group Inc. that made the lighting for the press briefing rooms at the White House and Pentagon. It’s trying to keep Chinese competitors out of the U.S. market.

“As the popularity and goodwill associated with Litepanels-branded lighting systems has grown, so too has the number of foreign and U.S.-based operations that try to capitalize on Litepanels’ investments,” the company, which won a 2009 Emmy award for engineering, said in the ITC complaint. A trial is scheduled for June in Washington.

The market for traditional home lighting, currently about $12 billion a year, is projected to fall to about $5 billion as LED lights can last for decades. They’re expected to replace incandescent bulbs, which are being phased out in most developed countries, and compact fluorescent bulbs that have environmental concerns, Bloom said.

Edison’s Extinction

Royal Philips NV, Osram’s larger competitor, has projected that LEDs will expand to about 45 percent of the lighting market by 2015. GE, whose founder Thomas Edison invented the first mass-marketed incandescent bulb, forecasted in December that LEDs will represent about 70 to 80 percent of the general lighting market by 2020.

Siemens, Europe’s biggest engineering company, is planning to spin off Osram, which had sales of 5.03 billion euros in the year through Sept. 30, so the unit can better expand in the LED market. Munich-based Siemens is expecting the LED market to increase to 9.8 billion euros ($13 billion) by 2013 and the total lighting market to rise 44 percent by 2016.

“Companies are spending a busload of money on R&D and manufacturing, trying to drive costs down, and marketing,” said Chris Nye, vice president of sales and marketing at Leotek, the Milpitas, California-based unit of Lite-On Technology Corp. (2301) that made Pocahontas’s streetlights. “Everybody is betting on LEDs. There’s a perception that if you’re not in this now, you’re probably too late.”

83 Percent Less

Osram’s patents asserted against LG and Samsung include ways to make the LEDs less susceptible to extreme temperatures that can degrade the quality of light, the structure of the semiconductors, and ways to enhance the light emission. LG and Samsung have each accused Osram of infringing patents that cover ways to make the fabrication process more efficient and the LEDs more reliable.

Improving the quality and efficiency of LED manufacturing is important because the biggest impediment to widespread use has been cost. Philips introduced a LED light to challenge the energy of the 60-watt bulb, hoping consumers will pay the $60 cost because it uses 83 percent less electricity and will last three decades.

Pocahontas, which has a $5.5 million annual budget, was able to afford the upfront cost of new streetlights only because it received $81,000 in U.S. funding under President Barack Obama’s 2009 economic-stimulus plan.

Recouping Investment

Donahoo said that, between the lower electricity and labor costs, the town will recoup its share of the cost in four years. It’s working on replacing the fluorescent lighting in its maintenance garage.

“Our community is pretty progressive and most of Iowa in general has bought into the idea that energy efficiency is good,” Donahoo said.

LEDs, which are a type of semiconductor, have a rule of thumb called Haitz’s Law for becoming exponentially more efficient and affordable over time.

“It’s going to be something that’s going to change our lives in many ways that are unforeseeable and limited only by the human imagination,” said Frank Luchak of Duane Morris in Cherry Hill, who represents companies that own LED technology. The litigation “really is indicia that the LED industry has come of age because now there’s a lot to fight about.”

To contact the reporter on this story: Susan Decker in Washington at sdecker1@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net


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