Suspicious minds – defending intellectual property

Look at the papers and you'd be forgiven for thinking that the long-standing battle between Apple and Samsung was the only patent war worth talking about. Smartphones and Silicon Valley might have captured the public's attention, but outside the tech giants, it isn't all motherhood and apple pie.

In the upstream oil and gas sector, big technological shifts are happening. When oil and gas was easy to extract and explore, less innovation took place. But with standard hydrocarbon reservoirs dwindling and traditional sources of fuel becoming harder and harder to extract, the industry is investing millions in new technology.

World Expro has covered many of these trends in its time, exploring new developments in enhanced oil recovery, from improvements in seismic imaging and hydraulic fracturing (fracking) to the latest digital oilfield software.

But there's still a long way to go. Take Alberta's oil sands for example. As things stand, only a fraction of the available resource is actually recoverable, given the limitations to existing technology. Out of the estimated 1.7 trillion barrels of oil in the sand, just 170 billion can be produced. And the same is true for the shale beds and remote deep-sea spots that will, over time, become much greater spaces of profitable accumulation.

Of course, all this technological innovation takes time. The oil and gas industry has notoriously long gestation periods, with particularly large investment risks. It currently takes between 14 and 21 years for a product to become commercial viable - almost twice the length of time it takes in the pharmaceutical sector.

That means that the latest breakthrough - whether it's fracking, wired drill pipes or innovation in digital oilfields - needs protecting. Intellectual property has become central to success.

Get protecting

Look at the market and it's hard to think of a single oil and gas major that doesn't have its own library of patents. ExxonMobil has over 10,000; Shell more than 20,000. According to Bloomberg, in 2012, Schlumberger, Halliburton and Baker Hughes secured 1,257 patents between them; Halliburton's stock rose by 80%, Schlumberger added 353 new patents to its roster while Baker Hughes pipped it with 368.

Staff movement within the energy industry means legal protection is essential. Keeping a technological discovery a trade secret isn't easy when employees regularly move from one company to the next.

"The intellectual property vehicle of choice for service companies is more likely to be patent protection rather than trade secret protection," said Mark Sajewycz, a partner at Norton Rose Fulbright, in a piece for Mondaq. "This is because it is more difficult to control information flow and maintain trade secrecy when technology is exploited on the behalf of multiple customers and at multiple properties."

Securing exclusive rights has become essential to financial success. But it's not just competitive advantage that energy companies are looking to protect. Excluding rivals from the gains of new technology is central to intellectual property - but having a strong patent portfolio can mean a new revenue stream altogether. According to Bloomberg, ExxonMobil has recently doubled its revenue from licensing its technology to others.

As well as developing their own technology, many oil and gas majors are looking to acquire intellectual property from tech start-ups. Alongside Black River Asset Management, Shell's technology ventures fund now owns Prometheus Energy, one of the top LNG suppliers in North America.

And, late last year, Chevron Technology Ventures announced the launch of its $90-million venture capital arm Chevron Technology Ventures Fund V to invest in early-to-mid-stage companies and limited partnership funds. "We are using venture capital as a conduit for early adoption of emerging technologies and to build a pipeline of innovation for Chevron," said Barbara Burger, president of Chevron Technology Venture, in a company statement.

The patent wars

Unsurprisingly, this surge in innovation and patenting has been matched by a jump in infringement and litigation. In 2012, WesternGeco was awarded $106 million from ION Geophysical in a case fought over marine seismic streamer technology. In the same year, Halliburton secured $35 million in a law suit against Weatherford International over a wellbore tool.

Things were equally contentious last year with Packers Plus Energy Services - the company recognised for inventing the first genuinely reliable system for multistage fracking - suing a competitor for infringing its patent. And that followed another high-profile battle between Pason Systems and National Oilwell Varco in a case worth $115.8 million. Speaking on Bloomberg, Dean Becker, CEO of ICAP Patent Brokerage, called it "the beginning of a tsunami to come".

Joint ventures are part of the problem. They're an established part of the oil and gas industry - less risky than a full operational merger and easier to end when the time comes. But, in terms of intellectual property, things can be difficult. Suspicion over IP theft and confusion over projects can seriously sour a partnership and end up in the courts.

Enemies within

Securing a patent isn't the only thing that needs doing in the current climate, and computer technology is also being deployed to minimise the threat of cybercrime. The 2009 Night Dragon cyberattacks had a big impact on the energy industry. Five major oil and gas companies were compromised on that occasion, with reams of highly sensitive financial, technical and personal information stolen.

A year earlier, another aggressive malware virus had targeted ExxonMobil executives for sensitive, proprietary information on new oilfields. In a report on the cyberattacks, researchers from McAfee warned that many of these nefarious attacks were stemming from nation states.

And it's not just external entities that can compromise intellectual property. Employees or contractors from within a company pose an equally large threat. Studies by the FBI indicate that as many as 75% of intellectual property crimes are perpetrated by often trustworthy insiders.

In April last year, Glenn J Soileau was found guilty by a US district magistrate judge of stealing information from the computers of his previous employers - Applied Electronic Systems and Sondex - for the benefit of his new one.

Even with the most robust security features, this kind of case is hard to combat. Almost all networks allow some kind of data movement by external hard drives.

But things can be done. Ensuring new employees have a strong understanding of a group's policy around intellectual property and confidentiality is a start. Those individuals with access to more sensitive parts of the business should also be identified as higher risk and monitored accordingly.

The complexity of these issues is unlikely to dissipate. As the oil and gas industry continues to innovate to meet the problems of population growth and resource depletion, litigation levels will inevitably rise.

But intellectual property is more than just a headache. Most oil and gas companies have recognised the opportunity of monetising and leveraging their patent portfolios for financial and competitive advantage. Whether it's the new smartphone war or not, there's plenty to think about.