Solar panels are becoming a big differentiator in the residential solar market, which is why a lawsuit against SolarCity could be important. Image source: SunPower.

Not only is SolarCity (SCTY.DL) delayed by more than a year in launching its own brand of solar panel, but it's now facing litigation from SunPower (SPWR 5.60%), which says it stole technology to create a high-efficiency panel.

The dispute comes from the sale of Cogenra Solar, a panel manufacturer SunPower acquired last year in an effort to move into low-cost solar panels. Cogenra and former investor Khosla Ventures are alleging that SolarCity stole technology to make shingled solar panels while it was considering acquiring the company itself. And if proven correct, this could slow SolarCity's solar panel plans.  

The new panel technology in solar

Shingling technology Cogenra developed uses standard solar wafers and stacks them tightly together, packing more energy producing surface area into a panel. In theory, it will create a solar panel that's more efficient than a traditional solar panel design at only marginally higher cost. That's why SunPower was interested in it and why SolarCity looked into the technology as well.  

What's being alleged is that SolarCity used its peak into Cogenra's technology during the due diligence phase of an acquisition to boost its own shingling technology. SolarCity says the allegations are false, but this could come down to documentation of when SolarCity started testing this technology and how close it is to Cogenra's intellectual property.

At the end of the day, this may only be a tactic to slow SolarCity's move into shingling technology. CEO Tom Werner has said that SunPower is quickly scaling its own P-Series technology, based on Cogenra's technology, to get out in front of competitors. But he thinks others will eventually develop ways to make their own shingled solar panels, partly because it's nearly impossible to close off all ways a competitor can copy your technology. In practice, there's almost always a way around even the best patent portfolio and we don't yet know exactly how Cogenra is saying SolarCity copied its technology.

How this impacts SolarCity today

I don't expect this lawsuit to be a huge financial win for SunPower or a devastating blow long term for SolarCity, but the long-term implications may not matter. Investors should be more worried about the short term. 

SolarCity is in the midst of being acquired by Tesla Motors (TSLA -1.38%) and is completing a 1 GW module manufacturing plant in Buffalo, New York. If the technology Tesla thinks it is acquiring is at risk of violating Cogenra's technology or if the Buffalo plant is building equipment for processes it won't be able to use, the deal could be delayed or put into question.

High-efficiency solar panels are a key to Elon Musk's vision of a clean energy future and it's central to SolarCity's projections as well. And nearly every solar panel manufacturer is pushing up the efficiency curve, so SolarCity has to as well.

Even if SolarCity prevails against Cogenra's claims, a delay in launching higher-efficiency solar panels or a delay in the Tesla acquisition could incrementally be bad news. For a company in desperate need of product differentiation and Tesla's bigger balance sheet, it's a distraction SolarCity doesn't need today.