NNPC’S $60 Billion Crude lifting Contracts: What the Local Companies Should Know (As it appeared in THISDAY NEWSPAPER’S THISDAY LAWYER 10/7/2012 at page 11. )


Chronicles of Innovation II.

How Intellectual Property Rights “Fathered” the Oil Field Service Industry.

Introduction

It is commendable that the Federal Government through the Nigerian National Petroleum Corporation decided to award nearly half of the 2012/2013 crude oil lifting contracts worth approximately $60 billion (sixty billion Dollars) to Nigerian companies.

This writer congratulates the successful Nigerian Companies and hopes that the increased cash flow will give these companies the needed leverage to grow and evolve into full-fledged International Oil Companies.

During exploration, extraction and even transportation of same, value is added to the unrefined oil and gas by technology, and other business practices that help process the extracts into useful and valuable consumer products.

Innovation, technology and business processes (Intellectual Property Assets) become valuable assets to a business organization, when they are registered and competitors prevented from accessing and using proprietary innovation for free.

Owners of such Intellectual Property Assets may actively commercialise their assets by licensing them to companies willing to use these Intellectual Property Assets in exchange for a license fee. Such businesses often enjoy competitive advantages over their competitors, by virtue of increased revenue flow.

Please find below the legal regime for the protection of Intellectual Property Rights in Nigeria.

Copy Right Act, Cap. C 28 Laws of the Federation of Nigeria 2004

Patents and Designs Act, Cap P2, Laws of the Federation of Nigeria 2004; and

Trade Marks Act, Cap. T13 laws of the Federation of Nigeria 2004

The need for Innovation/Intellectual Property Commercialization

At the very minimum however these Nigerian companies need to pay a little more attention to research, development and the resulting innovation that increases profitability which should be protected by Intellectual Property possibly Patents, Trade Secrets etc.

Mechanisms for Protecting Oil & Gas Technologies

Patent protection is the traditional choice but sometimes such technologies or business models can be kept confidential, then Trade secret protection becomes an option.

The Way Forward…

What is the nature of the company controlling the technology? Can access to the technology be controlled? Will our company benefit or be harmed by the disclosure of information when a patent application is filed? Does our company believe that the invention is sufficiently novel and non-obvious? Does our company have the funds to maintain a patent portfolio? Can the invention in question be reverse engineered?

Oil and Gas Patents

A patent is a document issued, upon application by a government office (or a regional office acting for several countries), which describes an invention and creates a legal situation in which the patented invention can normally only be exploited (manufactured, used, sold, imported) with the authorization of the owner of the patent.

Patents cover cutting-edge equipment and technologies used in exploration, production, refinement and manufacturing. It covers robotic oil well fire fighting cranes, drilling bits, oil rigs, oil pipeline cleaning scraper pigs; heavy lift ships carrying oil platforms, hydraulic fracturing fluids etc. 

Patent Protection “fathered” the Oil Field Service Industry.

The logistics required to locate, extract, process and transfer crude oil or gas can possibly make some companies think twice about even venturing into oil and gas production in the first place.

Oil Field Service Companies offer products and services geared at lowering costs, reducing risk or improving productivity during exploration activities thereby improving the operating environment for operating companies.

So kudos to companies like Schlumberger Limited, Halliburton, Saipem, Transocean Ltd, Baker Hughes, Fluor, Weatherford International, BJ Services Company, Petrofac, China Oilfield Services Ltd and IBM.

It goes without saying that companies in the oil field service industry, would probably not have been formed and would not continue to exist today without protection of its Intellectual Property!

Commodity Sellers vs. Proprietary Industry…

If the products of Oil Field Service companies were not protected by patents, they would have been priced as a “commodity”.

If their products had been priced as a “commodity”, they may not have been developed and made available to the industry.

The thing is that Intellectual Property Rights are enforceable against the whole world while Contractual Rights are enforceable against only the parties that enter into contract with you!

Trade secrets

A “trade secret” is defined as any product, operating formula, pattern, device or other compilation of information which is used in a business, which gets its economic value from being kept secret, and gives the business a competitive advantage.

The upstream oil and gas industry depends heavily on trade secret protection. Large amounts of exploration data, design data and some production data are confidential and protected as trade secrets.

Trade Secrets arise without engaging any administrative process, they operate by denying competitors information that is necessary to access and use the technology.

Duration of Trade Secret protection

The duration of trade secret protection is in a way potentially, perpetual, as the protection continues as long as you can keep your trade secret, secret.

Paradigms of Trade secrets protection

Shades of Trade Secret protection

A school of thought states that ideas are ten naira a dozen; so they share their innovations by just executing better and getting to the market place in lightning speed, the second school treat their innovation as proprietary, and use available legal means to protect it: e.g., nondisclosure agreement; and generally limit access to information.

The right approach will be a mix of two of the options outlined above in conjunction with patent protection.

 

Threats to Trade Secret Protection

Regulatory Approval

For regulatory approval to be given for an Oil and Gas project there must be some form of disclosure which possibly erases the efficacy of trade secret protection.

In reality compliance with such regulations are sometimes illusory, companies spend millions of dollars to create new innovations and are very reluctant to disclose them even to regulatory bodies, this is particularly evident in our technology transfer experience, as seen in the inefficacy of Nigeria’s technology transfer clauses.

Employee Mobility

Where employee mobility is on the high side trade secret protection is no longer a viable option for the protection of intellectual property for the oil company.

Publication

Once the trade secret information becomes public, the trade secret, and its inherent value, becomes to a large extent permanently extinguished.

 

Patent protection cannot remedy Trade Secret disclosures…

Where trade secret protection is lost, it is permanent, and patent protection cannot remedy such a loss as the innovation would already be in public domain.

 

 

Oil Field Service Companies- Patents

Oilfield service companies’ deal with numerous customers which increases the risk of information about their technology being leaked into the public domain regardless of control mechanisms like confidentiality or non-disclosure agreements binding employees and even contractors! Technologies developed by oilfield service companies, are usually protected by patents.

Operating companies- Patents and Trade Secret Protection

Minor processes and innovations developed in-house at operating companies usually use trade secret protection, possibly because customers are not exposed to underlying technology used to produce a finished product.

Valuable innovations that have broader application beyond a singular operation may be better protected by patents

Commercialisation of Patents and Trade Secret

Patents are public documents which disclose information about the invention (technology) in exchange for state protection, which is the exact opposite of trade secret protection. However, commercialisation of patents and trade secret is a desirable option, thus trade secrets are licensed along with patent rights, in what is called a “hybrid” license.

 

Conclusion

Thus for our Oil and Gas companies to grow, they are going to have to take their innovation and resulting Intellectual Property like patents and trade secrets seriously, because that is what gave birth to the Oil Field Service Industry in the first place and that is what keeps them in business, the right to exclude others from exploiting their products (by sale, manufacture, use and importation) without their authorization (the owner of the patent) and this is usually granted in exchange for hefty license fees and other charges!

Olufola Wusu Esq.

Copyright © 2012

Counsel with Megathos Law Practice

Okay that was a mouthful…

So let’s get started…Does Oil and Gas really need Intellectual Property?

Your thoughts anyone?

Legal Disclaimer

by Olufola Wusu Esq

(1) No advice

This note contains general information about [law and legal practice]. The information is not advice, and should not be treated as such.

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2 Comments

Filed under Oil and Gas

2 responses to “NNPC’S $60 Billion Crude lifting Contracts: What the Local Companies Should Know (As it appeared in THISDAY NEWSPAPER’S THISDAY LAWYER 10/7/2012 at page 11. )

  1. Commodity Sellers vs. Proprietary Industry…
    If the products of Oil Field Service companies were not protected by patents, they would have been priced as a “commodity”.
    If their products had been priced as a “commodity”, they may not have been developed and made available to the industry.
    The thing is that Intellectual Property Rights are enforceable against the whole world while Contractual Rights are enforceable against only the parties that enter into contract with you!

    Folks do you agree?

    What are your thoughts?

  2. Malin

    I read it but I have a question.
    Are you saying innovation drives profit?

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