Dr. Claude E. Cooke Jr. and John J. Love, Burleson Cooke LLP, Houston
The oil and gas industry is a high-technology industry. Although this fact is not widely recognized by the general public, industry leaders know it. New technology in such a competitive industry it is protected primarily by patents. Trade secrets play a role, but only in limited circumstances, because a newfangled piece of equipment in the oilfield may not be a secret for very long.
Infringement
When you are walking down the aisles at an industry trade show and see a brochure or a demonstration of a piece of equipment or process, it likely will have some type of patent protection. Often there will be US patent applications, which may not yet be public, or issued US or foreign patents.
The patent protection after an application is filed and published, if the claims are later allowed, gives the patent owner the right to exclude others from making, using, selling, or offering to sell the patented device or method for 20 years from the date of filing of the application.
If you are an operator, you would directly infringe by using the equipment or method. You may also be liable for indirectly infringing by inducing or contributing to another party's infringement. A service company may directly infringe a patent by making, using, selling, or offering to sell, depending on the technology.
New technologies are normally offered through service companies, and patents available to a service company can affect an operator's outsourcing decision. An operator using the service or product provided by another can be at risk of patent infringement. The allocation of this risk may be addressed in master work service agreements, joint operating agreements or other documents used in oilfield operations.
If an allegation of patent infringement arises, such as when an operator gets a letter from a patent owner accusing it of infringing a patent by using a service or product, there are several responses to be taken. A good first step is to find out which claims of the patent are at issue. Then these claims must be interpreted and applied to the accused apparatus or method. An accused device or method must contain every element of the claim to infringe. If the accused contains every element of the claim and additional elements, it still infringes.
Validity
If it appears that the accused device or method may infringe, then the next issue is whether the patent claims are valid. This is often a more complex question to answer, because a patent claim may be invalid for several independent reasons. A common reason is that there existed a previous patent or publication before the filing date of the patent that disclosed or made obvious the patented technology and that was not considered by the patent examiner in allowing the patent.
Other reasons that the patent may be invalid are lack of enablement for a user to practice the technology, lack of disclosure of the best way to practice the technology and lack of candor with the patent office during the patent process. Another reason that a patent may be held invalid is that it does not claim patentable subject matter.
Evaluating patents
An operator or service company launching in a new direction involving a new apparatus or method is well advised to look ahead to determine its "freedom to operate." The world's patent files are available electronically, and it is amazing how much can be learned in a relatively short time about whether the new technology is apt to result in a "cease and desist letter" from a patent owner. Patents in other countries require evaluation by a patent attorney practicing in that country, since each country has its own patent laws.
Patents often are evaluated during acquisitions of companies owning patents or patent licenses. A buyer should not assume that a patent has any significant value. The patent may be clearly invalid, for reasons such as stated above, or the claims of the patent may be so narrow that infringement would be unlikely. If the claims of the patent are not prepared with an understanding of the technology, they may not adequately describe the technology. Patents acquire monetary value when they can prevent a potential maker, user or seller from entering a market or require a license from the patent owner.
Patent disputes
When patent infringement may be present, there are several options short of litigation. The parties involved may negotiate a license for the patent (if the patent owner will enter into a reasonable license). The accused infringer may change the apparatus or method to "invent around" the patent, or it may cease the business activities that are accused of infringement. If increasing the market share of the patent owner is a primary object of the patent, a license is usually not an option. A cross-license may be a good solution if the accused infringer has licensable technology that it is willing to share. If the claims of the subject patent are narrow, inventing around it may be a relatively easy solution.
An intermediate step for a potential defendant before litigation is to request a reexamination of a patent by the USPTO or to take similar actions in other patent offices to test claim validity and breadth. If patents or other documents can be found (including sales brochures or catalogs) that pre-date the patent and that were not considered by the patent examiner when the patent was allowed, a reexamination may result in narrowing or invalidating some or all claims of the patent.
Patent infringement litigation is the ultimate test of the strength and value of a patent. It is very expensive and time consuming. The claims of a patent-in-suit are often interpreted by a hearing for that purpose and experts on each side then opine about the facts related to infringement, validity and damages. If both infringement and patent validity are found by the Court, the damages for patent infringement are assessed in terms of a "reasonable royalty" or of "lost profits." Further damages may be assessed in cases of "willful infringement." An injunction may be issued by the Court to prevent further infringement in rare cases. The damage to business interests from patent litigation can be wide ranging.
The birthplace of US patents
The agency for issuing patents and registering trademarks in the United States is the US Patent and Trademark Office (USPTO). There is a large amount of information about patents on its website (www.uspto.gov) as well as links to foreign patent offices. More than 496,000 applications were received in the USPTO last year. There were 735,961 applications awaiting the first response from the patent office as of Oct. 1, 2009. In technologies more commonly used in the oil and gas industry, the average time between filing an application and receiving a first action from the PTO is about 18 months.
Opportunities
An individual with an idea for a better apparatus or method will usually want to patent the idea to claim it and prove its value, even if the patent is assigned to the employer and the inventor receives little or no financial compensation for the patent. If the employer chooses not to pay for the patent application, it may release the idea to the individual. Benefits from a patent other than royalties and increased sales may include functioning as a defensive barrier (ensuring that no one else has the patent), as a bargaining chip for cross-licensing and for reputation enhancement.
Watch for news from the US Supreme Court
One of the most important patent cases to be decided in recent years with respect to what types of inventions are patentable (Bilski v. Kappos) has been argued to the Supreme Court. A decision is expected to be handed down in the first half of 2010. The Court will decide whether a method used to manage the consumption risk costs of a commodity at a fixed price is patentable subject matter. The Court may generally define what the requirements are for any process or method invention to be patent-eligible. If you are affected by patents on business methods or methods not directly associated with a particular apparatus, you should watch for this decision and determine its effects on your business. The validity of existing patents, no matter when they were issued, could be put into question.
The future of US patents
There is pending legislation in Congress to modify the patent system in several respects. These include methodology for determining damages, venue for filing a lawsuit, and changing to a first-to-file system. The most heated debate by far is on the topic of damages. Many have the view that the proposals on damages, if adopted, would decrease the value of patents.
The authors believe that a strong patent system is essential to continued development of the technology that has been critical in supplying the world's energy needs. Investors cannot support development of new technology if it cannot be protected to produce a return on their investment. To put it simply, the strength of the oil and gas industry relies upon the strength and legal protection of its technology.
DISCLAIMER: Nothing in this article should be considered legal advice. Consult a patent attorney before applying any of the statements.
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