Do patents enable innovation or stifle it?

Are patents a sword or a shield for the people who hold them? It depends on who you ask – and how you look at them

March 17, 2015

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08_property_story01Swist
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Illustration Kyle Metcalf

As it turns out, innovation isn’t just about building a better mousetrap. You also have to try and convince the mousetrap makers to actually look at your product – and, if they do, not to turn around and make their own version of it. That’s certainly been Jason Swist’s experience as an inventor and innovator who’s tried to bring some of his ideas forward in the oil and gas industry. According to Swist, he has the largest privately owned SAGD patent portfolio in the world, one that includes more than 300 different claims relating to thermal oil recovery. But it’s one thing to file a patent, and quite another to enforce it – particularly when you’re trying to bring a multibillion-dollar company to heel in the process.

“You get a lot of smart technical people … they can’t get through ‘the valley of death’

– Cory Fries, AITF

That’s exactly what Swist is in the midst of doing right now. On April 29, 2014, he officially launched a lawsuit accusing a large Canadian energy company of infringing on patents he owned through his company, Crude Solutions. The suit, which was filed in federal court, alleges that MEG infringed upon Canadian Patent No. 2,800,746 with its RISER project and eMSAGP process. His decision to take MEG to court wasn’t an easy one, Swist says. “If you’re talking about litigation, you’re talking millions of dollars. To get from point A to point B in the legal process, there are huge financial hurdles to overcome.” One firm that he talked about his case with asked for a $250,000 retainer to look at his file. “That’s not going to court, that’s not suing anybody – that’s for them to do their own due diligence.”

Swist isn’t the only one using the courts to remedy what he sees as an unjust infringement upon his intellectual property. In Alberta, energy companies are filing four times as many patents as they did a decade ago, and are enforcing those intellectual property rights with unprecedented volumes of litigation. For example, Suncor and Cenovus went to court in 2010 over who owned the rights to a SAGD-related process called wedge well technology. They eventually settled in 2013.

Jason Howg, a Calgary-based patent agent and lawyer, thinks the growing number of contested patents may merely reflect the growing value that they have in an increasingly knowledge-based business. “The recent increase in patent litigation in the energy sector in Canada has made companies more aware of the importance of understanding intellectual property when they are developing, making, using or selling products or services, particularly when they are incorporating new technology,” he says.

But while big players like Suncor and Cenovus have the resources needed to take their disputes to court, that’s not necessarily the case in most patent disputes. Cory Fries, the vice-president of corporate and legal services at Alberta Innovates Technology Futures, says the table stakes on patent litigation make it risky for those who don’t have the budget for it. “It’s a very specialized type of litigation, and those types of lawyers are very expensive,” he says. For small or medium enterprises, particularly those that are pre-revenue or even pre-profit, “to get into a lawsuit gets prohibitively expensive … The scientific experts, the legal fees … it all adds up very quickly.”

(Click image for full resolution)

(Click image for full resolution)

That’s why, he says, it’s common for smaller companies, when they find another enterprise infringing on their patents, to sit back and do nothing. Another strategy innovators often go for is foregoing the patent process altogether. According to Fries, “A large percentage of innovations are still trade secrets. This is true across all sectors.” If a company can protect its proprietary technology through secrecy and confidentiality agreements with its employees, there is strong incentive to do so. Trade secrets, by definition, are not released into the public sphere. As soon as you file a patent, everything is on the public record and available to your competition – and ready to be contested in court.

Winning a patent fight in court isn’t necessarily the end of the story, mind you. As Fries points out, it’s not as though getting a patent on an idea – and being able to defend that patent in court – is the end of the story. He thinks it’s much closer to the beginning, and the real bottleneck on the road to innovation occurs with commercialization. De-risking new technologies for the notoriously risk-averse energy sector is an arduous process, says Fries. “The patent is just the right to practice the innovation. You haven’t proved it works at a large scale. The costs to do this are extremely high.”

As a result, while Alberta Innovates can provide some guidance on securing a patent, much of its work focuses on what happens next. “You get a lot of smart technical people with great ideas who don’t get their innovations to market because they can’t get through ‘the valley of death,’ ” Fries says. That’s the “gap between where you get the technology to where a big producer is willing to adopt it … it’s very difficult to bridge it. You need to have the business resources and the ability to generate capital.” He says he’d rather pass on a top-notch technology in favor of “the number two idea that comes with a strong business leader who has strong community connections.”

For this reason, Alberta Innovates has been focusing on helping small to medium companies secure funding and opportunities to test out new technologies. “For a small or medium enterprise, if you’re looking at 10 to 15 years before you’re getting a lot of revenue in product sales … it’s hard to raise capital.” He says that while Alberta’s oil and gas sector is among the best in the world at investing in new technology, it’s also among the most cautious in adopting them – patented or not. “The losses can be substantial.”

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Jason Swist, private patent holder for several SAGD innovations

But while contested patents might seem like the corporate equivalent of divorce proceedings – occasionally messy and almost always expensive, but not terribly important in the grand scheme of things – Swist thinks the stakes are higher than that. “The energy industry is kind of a closed loop. You end up with a bunch of people working in the same field that all graduated from the same school that all had the same profs and all think exactly the same. Where is the innovation going to come from? It’s not going to come from these guys that all came from the same school and all have the same school of thought.”

The problem, he says, is that those same people tend to treat ideas that don’t come from within as threats rather than opportunities. “When someone comes to them and says they have a better mousetrap, they’re generally very defensive. I think they think it’s a threat to their livelihood. But I want to be buddies, right? I want to say, ‘Hey, this is the tip of the iceberg. With the money that you have in your budget, let’s sit down and really work this through and optimize what we’re doing.’ But instead of that being the result, they tell me to stop calling them.”

Swist thinks that the government could help even out the balance between individual entrepreneurs and big companies by creating an independent and expert body that could review patent disputes and potentially defuse them before putting the matter before a court – and generating huge legal bills in the process. But he’s not holding his breath. Instead, he says he’s pressing on, returned phone calls or not, with his attempts to improve the operational efficiency of SAGD.

One of those involves a deceptively simple change to the way most SAGD operations are designed that he thinks could make a big difference in the volumes of oil produced and the amount of steam required to do it. “I said to them – and I say ‘them’ because I’ve talked to all of them – ‘Why don’t you put the injector farther away? Why not use gravity to its full advantage? If you’re using gravity, and that’s your only method of producing the oil, start the ball at the top of the hill and let it roll down. Don’t push the ball to the top of the hill and let it roll back.’ They just said, ‘Well, no, we don’t do that. It’s not done.’ But doesn’t that make sense? It makes sense to me.”

Swist says he has achieved an instantaneous steam oil ratio (ISOR) of less than one in STARS simulations run by Alberta Innovates Technology Futures on his patented technology. Generally speaking, an ISOR of less than three is considered to be the sign of an efficient operation, while an ISOR under two puts the company that produced it at the leading edge. Getting that ratio below one, then, would be transformative – and lucrative – if he could replicate the results in the field. And while he has patented the process, he almost sounds resigned to the fact that any intellectual property he might claim to it will get stepped on by someone. “Will somebody adopt that, and change the protocol so they put the injector as far away from the producer as they can and as high up in the formation as they can? Probably. And, you know what? That’ll be an infringement of my patent. But will they care? No.”

The Road

No, it’s not quite as daunting as something you’d find in a Cormac McCarthy novel, but the distance between innovation, patent and commercialization can be long and difficult. Here’s how to travel it effectively

1. Have a patentable innovation
Not all innovations need patents. In fact, considering the commitment of time and money it takes, an innovator may decide that a patent isn’t required at all. Because patents are on the public record, protecting an innovation with robust non-disclosure agreements might make more sense. Obviously, this works better if the innovation can be protected by one – if it isn’t a product out in the world that can be copied. If it is, then a patent is probably necessary in order to assure intellectual property rights.

2. File the patent
This, Swist says, is the easy part. “If you have a good idea, good drafting skills and good patent agents or lawyers, you can [file] in as short as a week. But it can also take you six to 12 months.” If you want to file your patent in Canada, you file it to the Canadian Patent Office. But because many corporations operate transnationally as well, you will also want to file with the U.S. Patent Office.

3. Get ready to wait
Your patent is now waiting to be assigned to an examiner at the patent office. This step is only significant insofar as it can take a very, very long time. “Just now, one of my patents took three years to be given to an examiner,” says Swist. “I needed to get intellectual property protection before I could take it into the marketplace. Three years is a lifetime.”

4. The examiner examines
Once the patent application is in the hands of the examiner, the form and the content of the application are scrutinized. “Examiners look at grammar and page numbering. There’s a wrong word here, a mistake here – these are all very small things,” Swist says. “The examiner might say, ‘The lines of these drawings are too vague, too indistinct.’ ” You get the feedback and make your corrections. Then your application is compared to other patents to ensure it is, in fact, a new innovation.

5. Patent issued
Congratulations! If everything goes well, your patent is issued. It will provide 20 years of intellectual property protection, after which it reverts to the public domain.

6. Testing and adoption
The energy sector is one of the most cautious when it comes to adopting new technologies. Errors can be fantastically expensive. New innovations require ­robust testing before they will be ­adopted, if they are adopted at all. As a result, it’s not uncommon for a decade or more to have passed by the time this stage, and those preceding it, is complete.

7. Maintain the patents
The whole point of a patent is to ensure that your competition doesn’t steal your technology, right? Well, that means you have to keep abreast of what your competitors are doing and, if need be, call in the lawyers.

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