18/02/2019
In recent years the oil and gas industry has been experiencing a number of challenges, particularly price volatility. The price of a barrel of oil has fluctuated over the last decade with Brent Crude Oil ranging from as little as $30 per barrel to $100+. Morgan Stanley and JP Morgan have both dropped their predictions for the average price per barrel in 2019 by around $10 per barrel. Lower and volatile prices have come at the same time as depletion of reserves that are relatively cheap and easy to extract from. New reserves continue to be discovered, but these are often in harsh terrain or are so-called “unconventional oil” such as oil sands which, until recently, were often considered prohibitively expensive to extract from. Environmental concerns provide further challenges.
Historically, success in the oil and gas industry was a result of careful management of risk and capital. However, remaining profitable in such a challenging energy market is becoming increasingly difficult and the focus has shifted to innovation in order to stay ahead of competitors and to maximise profits. This was demonstrated in a recent survey of IP professionals in the oil and gas industry carried out by the organisers of the Oil & Gas IP Summit, to be held in London on the 26 and 27 February 2019. When asked the question “Do you believe the board of your company see the value in intellectual property as an asset?” 82% of respondents said yes.
The oil and gas industry values, and is placing a greater emphasis on IP. But how should these valued IP assets be protected?
Trade Secrets or Patents?
Typically, a company will need to protect its IP to maximise the value of that IP. In the case of technical innovation, a company can choose between two mutually exclusive paths. Should the IP be kept as a trade secret or would patent protection be more suitable?
An advantage of trade secrets over patents is that a well-kept secret could, theoretically, last forever. In contrast, patents provide protection for a limited period of time. Patent applications are published and in order for a patent to be granted it must disclose the invention sufficiently for a person to be able to perform it.
Coca Cola’s secret formula, developed in 1891, is often cited as an example of the benefit of a long-lasting trade secret. Had the Coca-Cola Company applied to patent the formula in 1891 that patent would long since have expired and the formula would be publicly available. In choosing secrecy the Coca-Cola formula is still protected to this day.
However, protecting IP as a trade secret has its risks. If the secret leaks into the public domain, whether intentionally or not, protection is lost.
In the oil and gas industry, keeping secrets can be difficult. The workforce is highly mobile with employees moving frequently between different companies. Even if an ex-employee has the intention of maintaining the confidence of their previous employer, some information leakage is inevitable. Furthermore, there is a necessity for technology sharing and collaboration between companies. This is particularly true for service providers who will have many points of contact with numerous third parties. This means that maintaining secrecy is often impractical or impossible for oil and gas companies.
Even if a company does manage to keeps its IP a secret, this does not stop other companies from independently creating the same invention or reverse engineering the solution.
The risk of independent creation in the oil and gas industry is relatively high. The nature of the industry means that competing companies will often be faced with a similar set of problems. For example, improving the efficiency of fracking or extracting deep-sea oil. It is therefore not surprising that competitors sometimes arrive at the same solutions to those problems. Furthermore, oil and gas companies will often closely watch any developments in the capabilities of their competitors. If it is possible to reverse engineer an invention, then a competitor probably will.
Patents do not suffer from these problems. Once the application for a patent for an invention has been made, the owner of the IP is free to disclose it to the rest of the world. A granted patent gives the patent owner a monopoly over the invention in the jurisdiction for which the patent has been granted. This monopoly can protect against independent creation and reverse engineering.
Furthermore, patents are a form of property and so are an asset which can be sold or licenced to other companies. This means companies can monetize their IP even if they are not implementing it themselves. It also enables IP sharing between companies, important for collaboration, while providing clarity about IP ownership. For example, companies can assign or licence patented technology to a joint venture. Careful management of a patent portfolio during the lifetime of a joint venture means that the participating companies can benefit from each other’s IP (and so profit from projects they would otherwise not be able to complete) without worrying about loss of ownership of their own IP.
So an IP strategy focusing on patenting has clear benefits in the oil and gas industry.
Halliburton
Halliburton serves as a good example of the shift in the oil and gas industry towards patenting.
Halliburton and Schlumberger are the largest US service providers in North America. Historically, Schlumberger dominated the international markets while Haliburton focussed on North America. However, as the energy market has become more competitive the two giants are increasingly encroaching on each other and the battle between the two is heating up.
Halliburton seems to be using patents as a competitive tool. Back in 2013 Halliburton lagged behind Schlumberger in terms of granted patents, receiving about 150 fewer granted patents. However, after a period of sustained growth Halliburton has now overtaken Schlumberger and in 2017 received 738 granted patents, 304 more than its rival and a growth of 35% compared to the previous year (see here and here). As well as increasing its quantity of patents, Halliburton seems willing to go on the offensive and made news last year when it attacked the validity of a number of Schlumberger’s patents at the USPTO.
Clearly, Halliburton considers IP and patenting important to its commercial future. This is perhaps an indication of how a greater emphasis is being placed on IP in the oil and gas industry generally in response to a challenging market.
Here at Reddie & Grose LLP we have a dedicated oil and gas team. If you would like more information or advice as to protection strategies for your IP please contact us. Our team will be present at the Oil & Gas IP Summit on the 26 and 27 February 2019.
This article is for general information only. Its content is not a statement of the law on any subject and does not constitute advice. Please contact Reddie & Grose LLP for advice before taking any action in reliance on it.
