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05 December 2011
Identifying an appropriate IP vehicle
Patents versus trade secrets
Implications of regulatory approval for oil and gas projects
Oilfield service companies versus operating companies
Game-changing and other widely applicable technologies
Oil and gas technology licensing
Value in developing and protecting shale gas extraction technologies
Collaborative development of environmental technologies
The inherent value of the resources present in oil and gas reserves can only partially explain the value of the hydrocarbon product that derives from these reserves. During the exploration, extraction and processing of the hydrocarbon resource, value is added by technology which contributes to the conversion of the resource to a useable consumer product. Such technology, for example, may take the form of an advance in exploration technology, extraction technology or upgrading technology.
Such technology may become valuable to a business organisation if steps are taken to prevent competitors from accessing and using that technology. By doing so, the business organisation may enjoy advantages over its competitors, by virtue of the fact that it will be the only industry player able to use and exploit the technology. The exclusive rights to use and exploit technology are generally described by the term 'intellectual property'.
In this respect, technologies used in any oil and gas operation, and their associated IP rights, add value to business organisations. This is because such intellectual property provides rights to block competitors from making or using oil and gas technology upon which the intellectual property is based.
Identifying the appropriate IP vehicle to protect oil and gas technologies is not entirely straightforward. Patent protection is always an option. When such technologies can be kept confidential, trade secret protection becomes another option. The choice of IP vehicle depends on a number of factors, including:
Patents are derived from legislation and are jurisdictional in nature, in that separate applications for patent grant must be made in each jurisdiction where patent protection is intended to be secured. Patents are of limited duration, typically providing protection for a period of 20 years from filing of the patent application. Patents are granted for inventions found to be novel and non-obvious over prior art. Generally speaking, prior art consists of pre-existing technologies that are in the public domain.
Trade secrets, on the other hand, arise without involving any administrative process. Trade secrets operate by denying competitors information that is necessary to access and use the technology. In order for a trade secret to be operative, the owner of the trade secret must take steps to prevent dissemination of the trade secret information to the public. The duration of trade secret protection is potentially perpetual. However, once the trade secret information becomes public, and irrespective of how this happened, the trade secret and its inherent value become permanently extinguished.
Patents and trade secrets are incompatible. The innovator of the technology must, as a practical matter, choose between the two IP protection vehicles. This is because patents, by their nature, are public documents that disclose information about the invention-embodying technology, which is antithetical to the survival of any trade secret protection.
Choosing to protect an invention as a trade secret, as opposed to filing a patent application, may have other implications for the innovator. In some jurisdictions (including Canada), the innovator is vulnerable to becoming blocked from using its invention by a competitor that subsequently develops the same technology and secures patent protection. This is because the earlier innovator's technology – maintained as a trade secret and therefore non-public – does not function as prior art to block patenting efforts by the later innovator. The risk of the earlier innovator becoming blocked from using its technology is somewhat tempered by the fact that the later innovator can exercise its patent rights against the earlier innovator only with evidence of how the earlier innovator is using the technology – an exercise that may prove inherently difficult when the technology is being maintained secret. Nevertheless, the risk is there.
It may be impossible to protect technology as a trade secret when the technology is incorporated within an oil and gas project that is to be constructed. This is the case where the regulatory framework provides for a public approval process for such construction. Oil and gas projects in Alberta generally require approval from the Alberta Energy Resources Conservation Board. As part of the approval process, information about the project must be supplied by the proponent of the project, possibly resulting in public disclosure of new technologies. If such public disclosure would be triggered, trade secret protection is, as a practical consequence, unavailable for controlling competitive access to technology. At this point, the only decision to be made is whether the value of patent protection justifies its costs.
Technologies finding application in the oil and gas industry are being developed by both oilfield service companies and operating companies. For technologies developed by oilfield service companies, the bias is towards patent protection. This is because oilfield service companies typically deal with multiple customers, thereby providing multiple opportunities for information about the technology to leak into the public domain (notwithstanding best efforts to control communication through confidentiality or non-disclosure agreements). Once trade secret protection is lost, such loss is permanent and patent protection is unlikely to be available to resurrect the competitive advantages associated with the technology while the trade secret protection was still effective.
Operating companies are in a better position than oilfield service companies to control third-party access to technology, as their customers are generally never exposed to underlying technology used to produce a useable product. As such, trade secret protection remains a more viable option (unless the Energy Resources Conservation Board process extinguishes its availability). Even so, where employee mobility is high, the risk of loss of trade secret protection may increase to the point where trade secret protection is no longer a viable option for the company. Also, the involvement of consultants, universities or other third parties in the research and development process may make patent protection a more attractive option, as access to the technology becomes more widespread and controlling information flow becomes more difficult.
Generally, for minor process optimisations developed in-house at operating companies, the bias is towards trade secret protection. On the other hand, more valuable innovations, including those that have broader application beyond a singular operation, deserve more serious consideration for patent protection.
For a disruptive or game-changing technology, or where the technology potentially finds broad application in other oil and gas operations or in markets not typically serviced by the innovator, the bias is clearly towards patent protection. In such cases, efficient exploitation of such technology dictates licensing of the technology to third parties, thereby precluding adoption of the trade secret protection option, as explained above. Licensees are also more comfortable with technologies that are protected with patents, given the significant consequences that may result from loss of trade secret protection. This is especially so where multiple licensees are being relied upon to control access to the licensed technology in order to preserve trade secret protection.
Currently, there exists a significant opportunity for operating companies and service companies in Canada to pursue commercialisation of oil and gas technologies. Some of these technologies may find application outside of Canadian operations. For example, oil sands-related technologies may find application in projects developing heavy oil resources in other countries, owing to the similar extraction and processing challenges. Also, environmental technologies developed to mitigate the environmental impact of Canadian oil and gas operations may find increasing potential for adoption elsewhere, as industries are forced to comply with increasingly strict environmental regulations. In such cases, technology licensing may be an effective way to participate in the commercialisation of other resources and increase revenues by further leveraging oil and gas technologies. Petrobank's efforts at commercialising its toe to heel air injection process is one example of a company exploiting technology beyond the oil sands. Developed for in-situ extraction of bitumen from Alberta's oil sands, Petrobank is seeking to license this process technology to the heavy oil sector, globally.
Canada possesses significant shale gas reserves which, to date, have remained relatively untapped. Extensive exploitation of these resources in Canada (and elsewhere) has yet to commence. Development of a more mature 'fracking' or other extraction technology which is reliable and safe – and with which there is greater comfort in its environmental non-invasiveness – may act as catalyst, triggering more aggressive development of shale gas resources. Such development could be a game-changer, opening the door to extensive exploitation of shale gas reserves worldwide. With such development, and so long as the technology is sufficiently patent protected, the innovator is provided with the opportunity to participate in the exploitation of shale gas reserves, beyond that for which the technology was originally earmarked, through licensing of the patented technology. The economic benefits realised from this are potentially very significant.
Even when oil and gas technology is developed through collaboration among industry players, the opportunity exists for collaborators to increase their competitive advantage with regard to non-participating industry players by preventing such non-participants from gaining free access to the technology. Recently, the Oil Sands Leadership Initiative has been formed to "lead the oil sands industry in the responsible development of Alberta's bitumen resource by taking action to improve the environmental, social and economic performance of Alberta's oil sands". Although the responsibilities for technology development are being shared by members of the initiative, as are the rights to use the technology, this does not mean that IP rights cannot be structured so as to enable free access to the technology in the Alberta oil sands (eg, so that environmental impact across all Alberta oil sands operations is reduced), while requiring developers of foreign resources to pay a licensing fee in return for access to this technology. This would enable the collaborating innovators to recoup their investment in technology development and avoid being potentially competitively disadvantaged by free-riding non-participants.
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