Houston is known as the “Energy Capital of the World.”[i] The city is home to the headquarters of more than 500 oil and gas exploration and production firms and countless manufacturing 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 Trademark Office records show that over 4,000 patents were issued in 2018 to inventors living in the Houston area (that is, where at least one person from the greater Houston area was named as an inventor). A significant percentage of those patents related to the energy sector. According to records published by the Intellectual 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 was Halliburton Energy Services, Inc., followed by Schlumberger Technology Corporation and ExxonMobil Corporation.[iii] Other patent recipients of note include Saudi Arabian Oil Co. (which has its U.S. headquarters in Houston)[iv] and Weatherford Technology Holdings, LLC.[v]
A number of patents are also issued each year to companies having employees in the Houston area that are not specifically energy companies. These include chemical companies, refining companies and computer companies.[vi] In addition, 32 patents were issued to the University of Houston, and 26 patents were received by William Marsh Rice University last year.
Preparing and filing these patent applications is done by registered patent attorneys. These are attorneys who not only have a technical background but who have also taken and passed a special bar examination offered by the Department of Commerce.[vii] A registered patent attorney is permitted to prepare and file patent applications for clients in any state.[viii] Patent Office records show that there are around 1,000 registered patent attorneys having an office in the Houston area. A few of these, including the author, are also degreed petroleum engineers.
Tech Incubators Specific to Energy
To encourage and foster innovation in the energy industry, a variety of local incubators have been established. These include Shell Technology Ventures (STV), Chevron Technology Ventures (CTV), ABB Technology Ventures, ConocoPhillips Technology Ventures, Equinor Technology Ventures and BP Ventures. These entities were created to develop beneficial technology, to help start-up companies grow and, in some cases, to have access to capital.
STV was originally formed with the mission to create new businesses from technology that came out of Shell Oil Company. In 1998, STV was “broadened to maximize value from the global commercial exploitation of Shell E&P technologie.”[ix] Today, STV offers technical and business assistance to start-ups and small enterprises that wish to commercialize technology related to both oil and gas and alternative fuels, including renewable energy.
CTV offers a portfolio of seed and early stage venture capital for technology companies.[x] CTV seeks to integrate emerging technologies into its oil and gas production and distribution operations. CTV has identified six areas of technology including water management, production enhancement, emerging materials, power systems, information technology and subsurface business.
The local patent bar plays an important role in helping to protect energy-related technology by assisting companies, inventors and these incubators.
Challenges and Opportunities
A downside to being the energy capital of the world is that Houston’s economy tends to rise and fall with the price of oil. According to the U.S. Energy Information Administration, West Texas Intermediate (WTI) annual average oil prices have fluctuated over the last 10 years between a low of $43/bbl in 2016 and $98/bbl in 2013.[xi] That is a tremendous swing. 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 slowly progressed to its current price (October 14, 2019) of $55/bbl. This is still a relatively low price, especially considering that the “break-even point” for many fields is at or just above $30/bbl.
The lower and highly unstable price of oil pushes production companies and operators to reduce costs and to improve capital efficiencies. Unfortunately, lower prices can sometimes mean that core research and development expenditures are reduced, meaning fewer inventions and fewer patent applications. That remains a challenge that is unique to the Houston patent bar.
The future remains bright for Houston though. The U.S. lifted its ban on exporting oil in 2015. In December of 2015, the U.S. exported its first oil cargo in 40 years. Within two years the U.S. was exporting more than 1 million barrels per day (B/D), much of it being sweet crude produced in the Permian Basin of West Texas and Eastern New Mexico. The U.S. has now overtaken Saudi Arabia as the world’s largest exporter. The International Energy Agency (IEA) has reported that crude oil exports are now at 3 million B/D, with much of the oil and gas being carried by tankers embarking from the Gulf Coast.
Perhaps the greatest challenge to patent attorneys, not only in Houston but throughout the country, is a pair of 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, or composition of matter, or any useful improvement thereof, may obtain a patent therefor. . .”[xiii] Historically, Section 101 has been interpreted broadly, allowing inventors to obtain patents for any technical improvements with the exception of laws of nature, natural phenomena, and mere mathematical formulae.[xiv] However, with the Alice and Mayo decisions the Supreme Court has further excluded from the realm of patentable subject matter so-called “abstract ideas.”[xv]
Broadly speaking, an abstract idea refers to mental processes, methods of organizing human activity, and “basic tools of scientific and technological work.”[xvi] From the author’s perspective, a patent application directed to a process that could be done using a pencil and a piece of paper, even if such would take infinitely longer than if done using a “general purpose computer” is going to cause the inventor problems. Classic examples include actuarial tables, determining insurance rates, managing escrow transactions and calculating stock values at the end of a trading day. These are considered “fundamental economic principles.”[xvii]
The Court has stated that such processes may nevertheless be patentable if they are integrated into a practical application.[xviii] However, this second step of analysis has proven to be difficult to apply and has resulted in significant uncertainty in patent law . The author has seen inventions related to pumping units and downhole tools rejected as being mere “abstract ideas” even though the purpose was to produce something very tangible – hydrocarbon fluids. In the author’s view, the Alice / Mayo decisions have resulted in the demise of hundreds (if not thousands) of properly issued patents and the rejection of valuable inventions at the application stage.
Planning for the Future
Laudably, PTO Director Andrei Iancu is making an effort to restore predictability to “patent eligibility” through his “2019 Revised Patent Subject Matter Eligibility Guidance.”[xix][KR1] [AA2] In essence, Director Iancu is attempting to fill a void intentionally left by both the Supreme Court and the Federal Circuit by providing guidelines for examination. One commentator has stated:
It has been frustrating — to say the least — that courts have refused to define the term abstract idea despite that being the critical term in the Supreme Court’s extra-statutory patent eligibility test. Without a definition for the term abstract idea rulings have been nothing short of subjective; some would even say arbitrary and capricious.[xx]
While the Supreme Court may see wisdom in allowing the Federal Circuit, the district courts and the patent examiners to make an abstract idea analysis on a case-by-case basis, the patent bar has been left with a series of judicial decisions that are at best difficult 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 Become the 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 Annual Listing (2019), https://ipo.org/wp-content/uploads/2019/07/2018-Top-300-Final.pdf Also of note, General Electric Co. is listed as the fourth largest recipient of U.S. patents in 2018. General Electric is the owner of the service company branded as Baker Hughes, (referred to in 2018 as “Baker Hughes, a GE Company”).
[vi] Note that the Houston area has nine refineries producing over 2.3 million barrels of crude oil every day. See Worldwide Power Prods., supra note 2.
[vii] U.S. Patent & Trademark Office, Becoming a Patent 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] See Alice Corp. Pty. Ltd. v. CLS Bank Int’l,573 U.S. 208, 134 S. Ct. 2347, 2354 (2014), and Mayo Collaborative 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. Prometheus Labs., Inc., 566 U.S. 66 (2012)).
[xvi] Mayo, 566 U.S. at 71 (“Phenomena of nature, though just discovered, mental processes, and abstract intellectual concepts are not patentable, as they are the basic tools of scientific and technological work” (quoting Gottschalk v. Benson, 409 U.S. 63, 67 (1972)).
[xvii] See comments of Director Iancu at the New our Intellectual Property Law Association 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] Mark Marrello, A Plea to All IP Stakeholders: Support Director Iancu’s Efforts to Restore the Value of U.S. Patents, IP Watchdog, Mar. 5, 2019, https://www.ipwatchdog.com/2019/03/05/a-plea-to-all-ip-stakeholders-support-director-iancus-101-guidance/id=106976/.