With the technological advances and resultant surge in oil and gas production in the last few years, it is not surprising that the number of patents issued to energy companies has increased substantially. In 2012 alone, the world’s three largest oilfield service providers (Schlumberger, Halliburton and Baker Hughes) secured a combined total of over 1,000 patents, more than double the number they received just a decade ago.1 Approximately 250 of those patents mention “hydraulic fracturing,” but the patents also cover other technologies, including drill bits, an array of downhole tools, and instrumentation and software.2 In that year, the energy industry spent $7.2 billion on R&D in the United States.3
The growth of R&D budgets and the corresponding increase in the number of patents issued to energy companies will almost inevitably result in a rise in patent disputes between competitors in the energy sector. Some suggest the energy sector could be the site of the next “smartphone wars.”
Patent suits between competitors pose substantial risks for both the patentee and the accused infringer. Competitors can seek lost profits and are much more likely to seek and obtain injunctions than NPEs. On the other side, an energy company that legitimately wants to protect its own IP will almost inevitably face infringement counterclaims, with all the attendant risks and costs of being a defendant.
These are not new issues for the energy industry. For many years the major oil companies have negotiated cross licenses and complex use agreements, reserving litigation as the last resort for resolving their disputes. But with the increase in the number of patents being issued, the enhanced value of the technology and the expanding number of stakeholders in the market, can the status quo be maintained? Or are we entering an age of energy patent wars?
Some major energy players have attempted to proactively navigate these challenges by entering into agreements that are intended to provide a fast and efficient framework for resolving future disputes. These agreements provide procedures for an amicable resolution of disputes at a business level, followed by mediation, and then arbitration if a compromise cannot be reached.
These types of agreements can broadly provide for resolution of past and future patent disputes or can be more narrowly focused on avoiding litigation through business negotiations and mediation with respect to particular patent portfolios, fields of use, products or market segments. Whether broadly drawn or narrowly tailored, this approach maximizes flexibility if disputes cannot be resolved, but requires the parties to act reasonably and in good faith (and to be perceived as doing so).
If litigation cannot be prospectively avoided by agreement, it is possible to increase the efficiency and enhance the predictability of the process. Procedural agreements regarding, for example, forum selection clauses, injunction waiting periods and limited discovery scope for certain sizes or types of disputes can be used.
Finally, the best defense is often a good offense. Having a national or global patent acquisition and enforcement strategy in place is a prudent practice for most energy companies in the current environment. Indeed, if an energy industry patent war is inevitable, having a multi-front battle plan and a set of identified countermeasures in place can prove to be critical to victory. Guidelines and best practices developed from experience in global patent litigation in the energy and other sectors will be discussed in a future edition of this publication.
1 https://www.bloomberglaw.com/patent_search (last visited Aug. 22, 2104).
3 See Battelle, 2014 Global R&D Funding Forecast at 28 (Dec. 2013).