Whether it involves conventional or unconventional resources, participants in the oil and gas value chain are innovating to overcome technological challenges and improve competitiveness. Constantly, more efficient methodologies or tools are being developed (i) for extracting ever-depleting conventional resources, or (ii) to challenge conventional wisdom and potentially replace existing oil sands extraction approaches, or, (iii) after recovery, to more efficiently process and upgrade heavy hydrocarbons. Ingrained within this culture of innovation is the oil and gas ecosystem, which combines a spirit of entrepreneurship and a "get-it-done attitude" with the opportunity to participate in a booming energy economy. The existence of a legal framework, to govern intellectual property rights, is widely recognized and appreciated in the oil and gas space. However, because the relatively non-intuitive regulatory schemes relating to creation and ownership of intellectual property rights, commercialization opportunities can easily be missed in a fast-paced entrepreneurial environment built on personal relationships and fierce but friendly deal-making.
It may be useful to share a few anecdotal experiences that highlight some of the pitfalls which may befall an oil and gas technology company, and cause the discounting, or even the loss, of available intellectual property, and suggest ways at circumnavigating these.
Field testing of unproven technology
There are at least two key issues which every oil and gas technology business should be mindful of when field testing unproven technology: (i) consequences of public disclosure; and (ii) ownership of improvements which derive from the testing.
Public disclosure of technology immediately extinguishes patent protection in most commercially significant jurisdictions (e.g. Europe, Japan, China). In a very small number of other jurisdictions, the extinguishment does not happen immediately, but you are provided a one year grace period in order to make the patent filing (e.g. Canada, United States).
In order to mitigate any loss of patent rights, field testing should be conducted under secrecy. This means that all persons who may potentially become privy to the technology should be required to sign non-disclosure agreements ("NDA"s) prior to having the technology disclosed to them. Especially with oil and gas service companies, such field testing often occurs at a customer site over an extended period of time. Requiring the customer (and any on-site contractors) to sign a NDA may be awkward. A NDA may be received with less anxiety by others if the confidentiality term (and, therefore, the confidentiality obligation) is kept to a minimum, to cover the period of testing plus a reasonable amount of time afterwards to prepare and file a patent application. If a NDA is impractical (such as for other contractors at the customer's site), it may be worthwhile in securing the technology, and rendering it relatively unaccessible to third parties while the technology is not being supervised.
As an additional concern, field testing at a third party site, using assets and/or know how of the third party, may inspire the third party to claim some interest in any developments arising out of the testing. To mitigate against future disputes, ownership over any intellectual property arising out of the testing, and rights to use the further developed technology, should be defined within a commercial agreement between the parties. If there is no such definition, and intellectual property is created, intellectual property ownership, and rights to use and further commercialize the developed technology, may be plagued with uncertainty, thereby introducing risks into business operations.
New employees/contractors infecting the workplace and new technology with trade secret information from previous employers/customers
This issue is particularly relevant, given the pace of workforce mobility within the oil and gas space. Practically speaking, it is nearly impossible to find a new employee whose thought processes are completely free from information derived from previous employers. At least some of this information is likely to be a trade secret of the previous employer. If a new employee uses such trade secrets at his or her new job, and incorporates such trade secrets in new technology, the new employer is exposed to liability, even if the new employer is unaware of this surreptitious use. To mitigate this, care should be taken during the hiring process to investigate whether any confidentiality obligations are owed to the previous employer, and whether the candidate was provided access to trade secrets. Once hired, the importance of respecting confidentiality obligations owed to a previous employer should be stressed. As well, it may be wise to limit employee involvement in developing technologies that do not squarely compete with those of a previous employer.
The unintended collaboration
Businesses in the oil and gas industry often consider creating collaborative relationships, and leveraging each others' skills and experience. Before formalizing the relationship, interested parties typically meet with each other to discuss the potential collaboration. During such meeting, business opportunities are discussed. Inevitably, while exploring synergies, each party reveals what value they could bring to the relationship and to advancing the business opportunity. In a free-flowing discussion, technology may be discussed, ideas exchanged, and concepts developed, possibly resulting in invention. This creates a complex dilemma. Most likely, such discussions are informally impressed with confidentiality and non-use obligations, so each party cannot use any confidential information revealed by the other party during the discussion. Ideally, such parties should sign a NDA, to reduce the confidentiality and non-use obligations into writing.
At one level, if invention results from the meeting, ownership of such invention may never be clear, as it is difficult to parse individual contributions leading up to the "a-ha!" moment. If it is unclear who owns, it is then unclear who has a right to use, and also whether there are any limits or conditions on such right to use. Compounding this are the confidentiality and non-use obligations that may be imposed by a governing non-disclosure agreement. As a practical matter, this may inhibit either party from unilaterally proceeding with commercialization of the discussed inventive concept. Such a stalemate may redistribute bargaining positions and force an agreement under different terms than the parties would have otherwise agreed. Alternatively, the business opportunity may get dropped, and never see the light of day. To mitigate against this outcome, such preliminary discussions should be at a fairly high level, light on technical detail, and exclude any non-public information relating to the technology challenges which are to be tackled by the potential collaboration.
Ownership of technology created by employees or service providers
Businesses should expect that any work product created by employees or service providers is owned by the business. After all, such employees, or service providers, are compensated for their efforts by the business.
Employees are generally tuned to the understanding that intellectual property ownership resides with their employer. Also, upon leaving employment, they are less likely to go rogue and directly compete with an employer. So, even if an employee was under the mistaken impression that they somehow possessed some kind of organic right to a technology developed at an employer's workplace, the employee will face naturally competitive barriers to commercializing the technology. Most likely, the employee does not possess the financial means to commercialize the technology on their own, and will need to convince third parties to provide the necessary financing while, in parallel, explaining the legitimacy of his or her organic rights.
Nevertheless, intellectual property risks with employees should be addressed at the outset of the employment relationship. Intellectual property ownership and non-disclosure obligations can be readily dealt with in an employment agreement. Aside from its relevance for defining legal consequences, such agreements set the tone for employees, and underline the employer's right and entitlement to exclusively exploit technology developed at the workplace.
Service providers are more of a concern. Service providers usually have multiple customers, and may naturally assume that whatever technology has been developed for one customer could be used for the benefit of other customers. Further, unlike employees, established service providers are already well positioned to protect and commercialize such developed technology. This is why it is very important to define intellectual property ownership and technology use rights at the outset of the relationship, so that the parties' expectations are in alignment, and future uncertainty, risks and disputes are less likely to arise and divert attention from more useful pursuits.
The fragile nature of trade secret protection, and why patent protection may be the better option
Oil and gas technology companies are often faced with the choice of protecting technology using patents or trade secrets. It is impossible to use both forms of protection. This is because patent applications eventually become published, resulting in public disclosure of the technology and vitiating any trade secret protection.
Trade secret protection only continues to provide value so long as secrecy about the subject information is maintained. Once the information becomes public, whether inadvertently, through malicious intent, or through independent development, others will have access to this information and will be free to leverage it for their own commercial purposes. This means that competitive advantages previously provided by the trade secret protection may become permanently extinguished.
Protecting technology as a trade secret is not without risk. Generally, however, this is less of a concern for larger operating companies, than for service companies and smaller technology start-ups.
Operating companies are relatively less interested in exploiting any developed technology though third party licensing, and are, therefore, less likely to share technology with third parties and thereby increase the risk of loss of trade secret protection. On the other hand, service companies are in the business of exploiting or sharing technology with multiple customers, thereby creating multiple opportunities for a loss of trade secret protection. Start-ups, in the business of developing and licensing technology to multiple parties, and possibly looking for third party collaboration, are also, for these reasons, unlikely to be successful in protecting trade secrets.
Impressed upon all of this is the fact that, generally, significant opportunities are available in the oil and gas space, and multiple competitors are being attracted to develop the same or similar technologies in order to satisfy a market need. In such environment, if one party develops technology, it may be risky to choose trade secret protection as an intellectual property protection vehicle, as it is fairly likely that one or more competitors will independently develop the same technology and thereby erase the advantage of market exclusivity. If any one such competitor chooses to publicize the technology, the situation becomes further exacerbated, as the technology becomes accessible to any member of the public. Even worse, if the competitor patents the technology, a prior inventor of the technology, who has chosen to protect the technology as a trade secret, becomes exposed to patent infringement liability in many jurisdictions, even though they may enjoy "prior inventor" status.
Relatively high employee mobility in this space also contributes to risks associated with choosing and maintaining trade secret protection. Trade secret information may travel with departing employees, and become accessible at the new place of employment, thereby compromising its protected status.
In summary, although a potential option as an intellectual property protection vehicle, trade secret protection is fraught with risk, and, patent protection, in most cases, is, usually, the better option for oil and gas companies. The bias towards the patent protection option is even greater for oil and gas service companies and start-ups. This is because, by virtue of the nature of their business, it is more difficult for them to keep secrets.
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