United States: Fracking Fluid Dynamics: New Trade Secrets Movements

Last Updated: November 18 2016
Article by   Orrick

It is no secret that America's energy industry depends upon the trade secret status of its products, techniques, and procedures for much of its continued success. As oil prices remain volatile, trade secret and intellectual property protection continues to be a key component of ensuring profitability. But the law in this area may be evolving quicker than industry insiders would like.

In Pennsylvania, thanks to a recently decided case, it now may be more difficult for some energy companies to protect the trade secret status of some of their most valuable information. In Robinson Township v. Commonwealth, ___ A.3d ___, J-34A-B-2016 (Pa. 2016), the Pennsylvania Supreme Court struck down several remaining provisions of the state's controversial P.L. 87 legislation (better known as "Act 13"), holding them to be unconstitutional. Act 13 was the Pennsylvania General Assembly's short-lived and controversial attempt in 2012 to provide uniform laws and regulations governing oil and gas development in the Commonwealth.

The court in Robinson invalidated several provisions of Act 13 that allowed oil and gas companies to use eminent domain laws, exempted the private water supply for 3 million Pennsylvanians from required notification of oil spills, and prevented medical professionals from disclosing the chemical composition of hydraulic fracturing fluids that came in contact with patients. The latter provisions worked as a bulwark to protect the trade secret status of private oil and gas companies' proprietary fracturing fluid formulas.

Before Robinson, section 3222.1 of Act 13 allowed hydraulically fractured well service providers, vendors, or operators to avoid the legally mandatory disclosure of chemicals used in the operation of wells under the justification that the chemical compositions were "trade secret[s] or confidential proprietary information." Act 13 also required that, in order for health care professionals to obtain this information as part of the routine treatment of a patient, they must first execute a confidentiality agreement and a written statement that the information is needed for the purpose of medical diagnosis and treatment.

In Robinson, medical professionals argued that the difficulty and lack of access granted to doctors to fracturing fluid chemical composition information "will have a deleterious effect of hindering the long-term development of health policies and protocols to quickly identify illness, which would protect natural gas industry workers and members of communities in which drilling occurs." In opposition, proponents of the oil and gas industry argued that the protection of fracturing fluid trade secrets was necessary for the economic success and competitive advantages that individual oil and gas companies seek over one another. Ultimately, the court held that this section violated Article II, Section 32 of the Pennsylvania Constitution by granting "special treatment" to the oil and gas industry.

At least one news source has described the developments surrounding this case as "earth shattering."

But the question now stands, as one law school professor writes, "What happens to a physician now who wants trade secret information? He doesn't have to sign a waiver but does he have a right to anything?" At least one expert involved believes this issue is merely "illusory," while doctors elsewhere remain concerned. At present, the law in this area is anything but settled or uniform.

Previous Trade Secrets Watch posts have detailed the rapid advancements that have been made in the field of trade secret protection offered to oil and gas companies. In line with trends, Pennsylvania's offered protection of oil and gas companies' trade secrets appears to be in flux, as evidenced by Act 13's passage and much of its rapid demise with Robinson.

At the national level, the story is consistent with Pennsylvania's—in the sense that the law and its direction remains variable. The rules and regulations concerning trade secret disclosure and fracking in general vary widely from state to state. While Pennsylvania, in Act 13, provided for trade secret disclosure under certain circumstances, the Montana Oil and Gas Conservation Board recently rejected a petition that would require either disclosure of the chemical composition or a justification for withholding the information. On the other hand, Maryland will formally propose the "country's strictest regulations on hydraulic fracturing yet" in mid-November, including mandatory disclosure of the chemicals drillers use. In Virginia, the gas industry is fighting to delay implementation of new regulations to protect information about the chemicals used in hydraulic fracturing.

As states continue to adopt varying regulations, lawmakers, nonprofits, and other organizations continue to push for the passage of uniform hydraulic fracturing fluid composition disclosure statutes.

The effort to enact uniform regulations calls into question which level of government should adopt these regulations. Much of the action involving trade secret disclosure is happening at state and federal levels, but some sub-state entities are creating policies that influence the relevance of trade secret protection in their jurisdictions. Miami-Dade County in Florida, for example, has enacted a ban on fracking, in part due to the lack of disclosure required by the state. Also, in Wrightstown, Pennsylvania, the local Planning Commission considered, but declined to vote on, an ordinance that would allow fracking but set strict limits.

The waters remain murky for trade secret protection of portions of the energy industry. Trade secrets cases are being filed and decided at both state and federal levels, with many different statutory and regulatory schemes created at the federal, state, and local levels and bases of common law driving the area. Recent developments in Pennsylvania and beyond do not seem to offer any hope of a simpler, uniform solution balancing opposing sides' desires for disclosure and confidentiality of proprietary information in the near future.

Twitter: @TS_Watch

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