Fracking patents are on the rise, but is transparency?

Trade patent
Source: DollarPhotoClub

According to Thomson Reuters, 706 patent applications were filed for fracking technology in 2013, an increase of 28% from the 550 applications filed in 2012. While most patents were filed by U.S. companies, new arrivals on the fracking stage – China and Russia – were not far behind.

But does the increased number of patents mean that the industry is becoming more transparent?

The rise of shale patents.

Gwilym Roberts, Partner at Kilburn & Strode LLP, and author of ‘A Practical Guide to Drafting Patents’, commented: “Fracking is now becoming a global industry rather than just an American one. The big players in the oil and gas services sector are manoeuvring to build the strongest possible global portfolios of intellectual property in this fast-growing sector.

“These figures show that in fracking, access to intellectual property and even small technological advantages over competitors is becoming ever more important.”

“Traditionally, finding new reserves has been the most hotly contested area of the energy sector, now developing proprietary technology to extract hard-to-tap resources and competition over outsourcing contracts is catching up.” said Mr Roberts, adding: “They are doing this not only to improve licensing revenues but also to shut out competitors.”

With fracking producing 39% of all natural gas in the US in 2013, according to EIA, many new patents address expanding fracking operations in remote locations and the difficulties associated with them. Difficulties such as providing power to isolated fracking projects, or heating the water needed in fracking procedures without electricity. Other patents are in the field of fracking fluids.

New players – China and Russia.

A new and interesting development is the presence of Russian and Chinese oil and gas businesses such as Tatneft, Petrochina and Daqing Oilfield in the list of prolific fracking patent filers in 2013.

A recent study comparing shale-related patents in the U.S. and China, shows patents in both countries coming closer in number in recent years, with 391 and 345 U.S. patents in 2011 and 2012 respectively, compared to 345 and 217 Chinese patents for the same years.

The rise in Russian patents is also telling. Traditionally Russian businesses have not been as heavy users of the global patent system as US and European oil and gas companies.

“At one time, it was rare to see Russian businesses use the patent system or build portfolios of intellectual property, but this is changing as more businesses become aware of the potential for securing royalties from competitors by patenting vital technology” Gwilym Roberts commented.

What does it all mean?

Is the increase in the number of fracking-related patents good or bad news for the state of the world?

On one level it is definitely good. Patents are a kind of societal bargain. In exchange for limited monopoly over an invention, a patent applicant agrees to disclose the invention to the world. This allows for greater transparency and control in an industry that has often been accused of using ‘trade secrets’ as an excuse for environmentally irresponsible practices.

However, when it comes to fracking technology – and fracking fluids in particular – the situation is not as simple. A recent study published by Pennsylvania State University noticed that:

“As with agricultural technologies such as genetically modified crops, simply knowing the structure of the chemicals or the steps in a method of use is not sufficient. Field and laboratory experimentation are necessary to fully capture how the exploitation of shale gasses impacts the environment.”

“Normally, third parties such as NGOs and universities would be able to fill this information gap by conducting experiments, but patents may play a new and surprising role in limiting this important source of information production.”

What is more, recent changes to U.S. patent law in the America Invents Act have expanded the benefits of keeping an invention secret, thereby reducing the need for a patent race in order to preserve use of the technology.

The study’s findings seem to be confirmed by data suggesting that as the use of hydraulic fracturing was becoming more widespread, visible, and controversial, patenting activity related to the practice began to rise.

Everybody agrees that the industry is in great need for innovation. New technologies are needed to make the process not only more environmentally-friendly but – with high costs of exploration eating into profits – also more efficient. Unfortunately, transparency in this highly competitive industry might be difficult to obtain.

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