The importance of a corporate IP Strategy in the Oil and Gas industry
In November 2018 Australia overtook Qatar as the world’s largest exporter of liquefied natural gas (LNG) as projects worth billions of dollars came on-line and production ramped up.
The bulk of Australia’s LNG projects are offshore operations that include the North West Shelf project, Pluto, Ithchys and Gorgon LNG projects, Chevron’s Wheatstone LNG hub, and Shell’s Prelude Floating LNG (FLNG) project. Several of these are ground-breaking projects; either in terms of scale or technological innovation.
Many aspects of the technology employed in these projects are protected by patents or forms of intellectual property (IP) rights. A recent study by Griffith Hack of the Australian Patent Office records, identified nearly 8000 active oil and gas patents for inventions in the field of drilling and refining alone. It is a sophisticated and complex landscape giving rise to significant opportunities and risks; particularly if businesses fail to implement an appropriate IP Strategy.
“The oil and gas industry presents a number of unique issues for navigating through the IP ecosystem, from how to avoid inadvertent infringement to how to exploit your own IP for maximum benefit. Managing IP in a sector that relies on some of the world’s most complex plants, equipment and processes, is an ongoing challenge.”
Irrespective of your position in the value chain (from exploration through to consumer delivery), developing and following an IP Strategy will help de-risk your operation. It can also create leverage with third party suppliers or joint venture (JV) partners, and create additional sources of revenue.
Freedom to operate
Freedom to operate (FTO) is the foundation of any sound IP strategy. Without this, companies and contractors risk infringement actions and the associated costs of litigation; not to mention substantial distraction from your core business. During early planning stages, analysing the IP landscape in areas of significance is critical in avoiding unforeseen disruption and impediments to profit.
Determining relevant IP early ensures there is time to address issues including challenging its validity, negotiating agreements with IP owners and acquiring the IP or its owner.
Building an IP portfolio
Formulation of an internal management plan to document and assess the commercial and/or strategic relevance of IP developed in-house, enables thoughtful and systematic building of a business relevant IP portfolio. Making modifications or improvements to existing machines or processes to achieve a business imperative (i.e. to deal with specific conditions or to improve yield and margin) often involves the creation of IP in some form. This may be protected by confidentiality agreements, or by statutory rights such as patents. Alternately your business may be best served by publishing the IP and making it available for all to use.
Regularly reviewing a company’s IP portfolio ensures alignment with the overall corporate strategy and can help avoid the costs associated with pursuing IP that may no longer be critical.
Building your IP portfolio creates opportunities for leveraging the IP in many ways. For example, your company has an idea on how to improve the performance of a piece of equipment provided by a supplier. You have applied for IP rights in relation to how you could implement the idea, but do not have the capability to determine the technical and/or commercial feasibility of the equipment. The associated IP could be shared with a supplier which has the appropriate technical skills and infrastructure needed to assess feasibility and mature the idea towards a procurable by piece of equipment. This may be captured in an agreement where your company is provided with preferential pricing for the equipment and the supplier is allowed for example (by way of license) to supply to other third parties.
Turning IP into Revenue
Your IP portfolio can also directly generate revenue via licensing agreements. The agreements can relate to the use of IP in the same field as your business, or in different fields where you do not operate nor intend to operate. For example, a new system for insulating pipes in an LNG production plant may have application in and value to, operators of chemical processing or food production plants.
Typical stages in developing a licensing model include:
- fully understanding your company’s objectives
- fully understanding your licensee’s objectives
- defining the value proposition from the customer’s prospective
- consideration of various revenue models
- royalty rate benchmarking
- having regard to tax, IP and other regulatory requirements both national and international
IP as a part of Corporate Strategy
Company directors have a duty to act with care and diligence in a company’s best interests; including protecting corporate assets, minimising risk and maximising return. Corporate assets include tangible and intangible assets like IP. While intangible assets often appear on a company’s balance sheet, the value creation and active management of those assets can be ad hoc, leaving IP undervalued and underutilised. Implementation of an active IP strategy integrated into your business’s corporate strategy can unleash real commercial value and ensure IP risk management obligations are satisfied.