Acquiring and Transferring Energy Technology, Andrews Kurth Middle East Newsletter

The energy technology market is beginning to resemble other global technology markets in the way that technology and IP are invested, created, valued and traded.

There are two key themes setting the current agenda. Transactions involving energy and oilfield technology are undergoing the same changes as other technology transactions, evidenced by international, market-driven acquisition and trading with new participants active in the market. Secondly, there is increasingly a deconstruction of the traditional product and service components from the IP and technology components in the value chain.

Jeff Dodd said: “The oil and gas service sector has traditionally been heavily invested in technology and innovation that was distributed embodied in tangible products, principally equipment, or in connection with services. We are now seeing a deconstruction of product and service components from IP and technology components. At the same time, oil and gas is becoming like the other global technology markets with the technology and IP traded as commodities in their own right, disassociated from the products and services.”

This is reshaping how energy IP and technology is traded and the industry’s traditional IP value chain – comprising creation, securing, acquisition and monetization of IP – now has many complicating factors.

On the creation front, the mobility of innovative workers within the industry creates issues of who owns inventions – especially when invention assignments and non-disclosure agreements may be signed at different stages – and how information leakage is contained. Likewise, collaborations throw up issues around co-ownership. For example, the field-testing of a new technology could create new IP but does it belong to the inventor, the service company doing the field test, or the end customer whose asset was being worked on and permitted the trail to be carried out. Companies need to have clear contractual provisions, including assignment, license, sharing, enforcement and exit mechanisms, in place to address these factors.

The traditional assessment and obtaining of best protection and value for IP, via patent or trade secret routes, is a defensive strategy founded upon the principles of mutually assured destruction. With an appropriately designed, strong patent portfolio, anyone who tries to sue you for infringement is probably infringing your patents, so you both stand down.

Jeff Dodd said: “Nowadays, in acquiring or holding IP there needs to be far greater diligence and analysis on the creation and securing process to take account of the ebb and flow of IP strength. There also needs to be greater assertiveness in pressing IP claims. The availability of post grant reviews and new monetization avenues should lead to more stress testing assessment and evaluation, examination of offensive moves as less expensive routes to challenge invalidations and critical review of MAD as the default strategy – looking at the quality of weapon and target plus unexpected vulnerabilities.”

In acquiring IP the importance of evaluation in the round is growing, according to Dodd: “Look in your backyard, your neighbor’s backyard and your neighbor’s neighbor’s backyard. In evaluating the acquisition of IP you have to think of what competitors are doing, industry trends and the international dimension too in order to have a strategy that is informed by gap and vulnerability analysis, alongside understanding of your IP strengths.”

Active markets are creating greater visibility into technology and IP and the new monetization forces affect all, competitors included. This climate calls for tougher identification, evaluation, diligence and allocations in relation to IP.

However, it is the monetization section of the value chain where perhaps the greatest changes are occurring.

The industry is seeking greater control over distribution and income streams. Monetization of IP is considered earlier than ever before and market forces, which necessitate mining IP to identify and unlock value, drive this. The market drives more aggressive IP acquisition or blocking, challenge and assertion and IP is being evaluated more thoroughly for repurposing in other industry sectors.

New financing arrangements and investors, wholly focused on IP, are creating more visibility of IP value, or the lack of IP value. The new market dynamics and techniques for decoupling and trading in oil and gas IP may not yet be as publicized as in other technology markets but they are evident and growing.

New financing arrangements are also becoming more common, including royalty and revenue stream assignments and financings, securitizations and specialty loans on IP, while aggregators and non-practicing entities are supporting R&D with finance and grant backs in return for enforcement and license rights. Industry participants often now use project finance to fund R&D to gain access, where the IP can be assigned to a single purpose vehicle by an inventor or operator with the investor owning the equity and the originator getting cash, a development contract and claw back.

“The trade in energy IP and technology is, as with the rest of the industry, truly international. Evaluating strategy for one geographic market must take into account approaches in other markets. Cross-market collaborations and transactions can create both issues and opportunities in other markets. Companies also need to take a 360° of strategy and assessment across markets and recognize that new financial techniques and transactional structures around IP can facilitate the sharing and allocation of financial and other risk,” said Dodd.