Houston is known as the“Energy Capital of the World.”[i] The city is home to theheadquarters of more than 500 oil and gas exploration and production firms and countlessmanufacturing and engineering firms that provide support.[ii] Behind all of that “energy”is a lot of technology, much of which is protected through the efforts of patent attorneys.
U.S. Patent and TrademarkOffice records show that over 4,000 patents were issued in 2018 to inventorsliving in the Houston area (that is, where at least one person from the greaterHouston area was named as an inventor). A significant percentage of thosepatents related to the energy sector. According to records published by theIntellectual Property Owners Association, Houston-based oil and gas companies (including oilfield services companies) were issued over 2,300 patents in 2018. The largest patent recipient wasHalliburton Energy Services, Inc., followed by Schlumberger TechnologyCorporation and ExxonMobil Corporation.[iii] Other patent recipientsof note include Saudi Arabian Oil Co. (which has its U.S. headquarters inHouston)[iv] and WeatherfordTechnology Holdings, LLC.[v]
A number of patents are also issued each year tocompanies having employees in the Houston area that are not specifically energycompanies. These include chemical companies, refining companiesand computer companies.[vi] In addition, 32 patentswere issued to the University of Houston, and 26 patents were received byWilliam Marsh Rice University last year.
Preparing and filingthese patent applications is done by registered patent attorneys. These areattorneys who not only have a technical background but who have also taken andpassed a special bar examination offered by the Department of Commerce.[vii] A registered patentattorney is permitted to prepare and file patent applications for clients inany state.[viii] Patent Office recordsshow that there are around 1,000 registered patent attorneys having an officein the Houston area. A few of these, including the author, are also degreedpetroleum engineers.
Tech Incubators Specific to Energy
To encourage and fosterinnovation in the energy industry, a variety of local incubators have beenestablished. These include Shell Technology Ventures (STV), Chevron Technology Ventures (CTV), ABBTechnology Ventures, ConocoPhillips Technology Ventures, Equinor TechnologyVentures and BP Ventures. These entities were created to develop beneficialtechnology, to help start-up companies grow and, in some cases, to have accessto capital.
STV was originally formedwith the mission to create new businesses from technology that came out ofShell Oil Company. In 1998, STV was “broadened to maximize value from theglobal commercial exploitation of Shell E&P technologie.”[ix] Today, STV offerstechnical and business assistance to start-ups and small enterprises that wishto commercialize technology related to both oil and gas and alternative fuels,including renewable energy.
CTV offers a portfolio ofseed and early stage venture capital for technology companies.[x] CTV seeks to integrateemerging technologies into its oil and gas production and distributionoperations. CTV has identified six areas of technology including watermanagement, production enhancement, emerging materials, power systems,information technology and subsurface business.
The local patent barplays an important role in helping to protect energy-related technology byassisting companies, inventors and these incubators.
Challenges and Opportunities
A downside to being theenergy capital of the world is that Houston’s economy tends to rise and fallwith the price of oil. According to the U.S. Energy Information Administration,West Texas Intermediate (WTI) annual average oil prices have fluctuated overthe last 10 years between a low of $43/bbl in 2016 and $98/bbl in 2013.[xi] That is a tremendousswing. The price was $76/bbl (WTI spot price) at the beginning of October 2018(one year ago), fell 40% to $45/bbl at the first of 2019, but has slowlyprogressed to its current price (October 14, 2019) of $55/bbl. This is still arelatively low price, especially considering that the “break-even point” formany fields is at or just above $30/bbl.
The lower and highlyunstable price of oil pushes production companies and operators to reduce costsand to improve capital efficiencies. Unfortunately, lower prices can sometimesmean that core research and development expenditures are reduced, meaning fewerinventions and fewer patent applications. That remains a challenge that isunique to the Houston patent bar.
The future remains brightfor Houston though. The U.S. lifted its ban on exporting oil in 2015. InDecember of 2015, the U.S. exported its first oil cargo in 40 years. Within twoyears the U.S. was exporting more than 1 million barrels per day (B/D), much ofit being sweet crude produced in the Permian Basin of West Texas and EasternNew Mexico. The U.S. has now overtaken Saudi Arabia as the world’s largestexporter. The International Energy Agency (IEA) has reported that crude oilexports are now at 3 million B/D, with much of the oil and gas being carried bytankers embarking from the Gulf Coast.
Perhaps the greatest challengeto patent attorneys, not only in Houston but throughout the country, is a pairof unfortunate decisions issued by the U.S. Supreme Court.[xii] Section 101 of the Patent Act provides that“[w]hoever invents or discovers any useful process, machine, manufacture, orcomposition of matter, or any useful improvement thereof, may obtain a patent therefor.. .”[xiii] Historically, Section101 has been interpreted broadly, allowing inventors to obtain patents for anytechnical improvements with the exception of laws of nature, natural phenomena, and meremathematical formulae.[xiv] However, with the Aliceand Mayo decisions the Supreme Court has further excluded from the realmof patentable subject matter so-called “abstract ideas.”[xv]
Broadly speaking, anabstract idea refers to mental processes, methods of organizing human activity,and “basic tools of scientific and technological work.”[xvi] From the author’sperspective, a patent application directed to a process that could be doneusing a pencil and a piece of paper, even if such would take infinitely longerthan if done using a “general purpose computer” is going to cause the inventorproblems. Classic examples include actuarial tables, determining insurancerates, managing escrow transactions and calculating stock values at the end ofa trading day. These are considered“fundamental economic principles.”[xvii]
The Court has stated thatsuch processes may nevertheless be patentable if they are integrated into apractical application.[xviii] However, this secondstep of analysis has proven to be difficult to apply and has resulted insignificant uncertainty in patent law . The author has seen inventions relatedto pumping units and downhole tools rejected as being mere “abstract ideas”even though the purpose was to produce something very tangible – hydrocarbonfluids. In the author’s view, the Alice / Mayo decisions haveresulted in the demise of hundreds (if not thousands) of properly issuedpatents and the rejection of valuable inventions at the application stage.
Planningfor the Future
Laudably, PTO DirectorAndrei Iancu is making an effort to restore predictability to “patenteligibility” through his “2019 Revised Patent Subject Matter EligibilityGuidance.”[xix][KR1] [AA2] Inessence, Director Iancu is attempting to fill a void intentionally left by boththe Supreme Court and the Federal Circuit by providing guidelines forexamination. One commentator has stated:
It has beenfrustrating — to say the least — that courts have refused to define the term abstractidea despite that being the critical term in the Supreme Court’sextra-statutory patent eligibility test. Without a definition for the term abstractidea rulings have been nothing short of subjective; some would even sayarbitrary and capricious.[xx]
While the Supreme Courtmay see wisdom in allowing the Federal Circuit, the district courts and thepatent examiners to make an abstract idea analysis on a case-by-case basis, thepatent bar has been left with a series of judicial decisions that are at bestdifficult to harmonize and at worst impossible to apply..
Peter Brewer is a registered patent attorney with Thrive IP®. He holds a degree in petroleum engineering from Texas A&M University and a law degree from South Texas College of Law. He is also a former Briefing Attorney with the Texas Supreme Court. Peter represents companies in patent and trademark matters across the oil patch – from North Dakota to Texas and from California to Louisiana. Learn more about Peter Brewer, Esq. here.
[i][i]John Nova Lomax, The Evolution of the Energy Capital of the World, Tex. Monthly, Feb. 14, 2017, https://www.texasmonthly.com/energy/evolution-energy-capital-world/.
[ii] Worldwide Power Prods., Why Did Houston Becomethe Energy Capital of the World?, https://www.wpowerproducts.com/news/why-did-houston-become-energy-capital-of-the-world/(last visited Nov. 4, 2019).
[iv] Saudi Aramco web page, https://www.saudiaramco.com/en/who-we-are/overview/global-presence
[v] IPO,Top 300 Organizations Granted U.S. Patents in 2018: 36th AnnualListing (2019), https://ipo.org/wp-content/uploads/2019/07/2018-Top-300-Final.pdf Also of note, General Electric Co. is listedas the fourth largest recipient of U.S. patents in 2018. General Electric is the owner of the servicecompany branded as Baker Hughes, (referred to in 2018 as “Baker Hughes, a GECompany”).
[vi]Note that the Houston area has nine refineries producing over 2.3 millionbarrels of crude oil every day. See WorldwidePower Prods., supra note 2.
[vii] U.S. Patent & Trademark Office, Becoming aPatent Practitioner, https://www.uspto.gov/learning-and-resources/patent-and-trademark-practitioners/becoming-patent-practitioner (last visited Nov. 4, 2019).
[viii]Sperry v. Florida, 373 U.S. 379 (1963).
[ix] Shell, About Shell Ventures, https://www.shell.com/energy-and-innovation/new-energies/shell-ventures/about.html#vanity-aHR0cHM6Ly93d3cuc2hlbGwuY29tL2VuZXJneS1hbmQtaW5ub3ZhdGlvbi9pbm5vdmF0aW5nLXRvZ2V0aGVyL3NoZWxsLXZlbnR1cmVzL2Fib3V0Lmh0bWw (last visited Nov. 4, 2019).
[x] Chevron, Chevron Technology Ventures, https://www.chevron.com/technology/technology-ventures(last visited Nov. 4, 2019).
[xi] M.Garside, West Texas Intermediate Annual Average Oil Price 1976-2019, Statistica, Oct. 21, 2019, https://www.statista.com/statistics/266659/west-texas-intermediate-oil-prices/.
[xii] SeeAlice Corp. Pty. Ltd. v. CLS Bank Int’l,573 U.S. 208, 134 S. Ct. 2347, 2354 (2014), and MayoCollaborative Servs. v. Prometheus Labs., Inc.,566 U.S. 66, 71(2012).
[xiii] 35 U.S.C. §101
[xv] Alice Corp. Pty. Ltd. v. CLS Bank Int’l,573 U.S. 208, 217-18 (2014) (citing Mayo Collaborative Servs. v. PrometheusLabs., Inc., 566 U.S. 66 (2012)).
[xvi] Mayo, 566 U.S. at 71 (“Phenomena ofnature, though just discovered, mental processes, and abstract intellectualconcepts are not patentable, as they are the basic tools of scientific andtechnological work” (quoting Gottschalk v. Benson, 409 U.S. 63, 67 (1972)).
[xvii]See comments of Director Iancu at the New our Intellectual Property LawAssociation meeting, March 22, 2019, https://www.uspto.gov/about-us/news-updates/remarks-director-iancu-new-york-intellectual-property-law-association
[xviii]see Revised 101 Guidelines of the U.S. Patent and Trademark Office, p. 5, https://www.ipwatchdog.com/wp-content/uploads/2019/01/revised-101-guidance-2018-28282.pdf
[xix] MarkMarrello, A Plea to All IP Stakeholders: Support Director Iancu’s Efforts toRestore the Value of U.S. Patents, IPWatchdog, Mar. 5, 2019, https://www.ipwatchdog.com/2019/03/05/a-plea-to-all-ip-stakeholders-support-director-iancus-101-guidance/id=106976/.