Crude oil prices, which have declined over 60 percent in the past six months, are at recent record lows. The impact of the price decline is being felt throughout the energy sector. Commentators agree that with few exceptions, in the near term, profit margins will be narrower, downward pressure will be placed on prices for services and competition for business will be more acute.

In this challenging environment, the need for continued focus on innovation is keen and the value of not only creating but also managing and protecting intellectual property is at a premium. In an atmosphere like this, Ovid’s words seem apt: “Misfortune sharpens the genius.” 

Indeed, innovation already is fundamental to virtually all aspects of the energy industry. The dramatic increase in US oil production is in large part due to technological innovations and efficiencies recently introduced by the oil field services sector. Most exploration and production companies also have robust R&D programs in place as part of normal drilling optimization. 

With yearly R&D expenditure in the oil and gas industry recently surpassing $10 billion, the importance of intellectual property has soared. The number of patents related to extractive industries more than doubled from 2005 to 2010.1 The importance of technological superiority, performance and efficiency will be even greater differentiators among companies in the current leaner, more competitive environment.

Lean times also make managing a company’s IP and innovation strategy even more critical. Central issues include licensing and monetization of patents, IP protection, implementation of a global IP acquisition and enforcement strategy, and potential IP acquisition, divestiture and collaboration.

As to IP monetization, companies that historically have maintained their patent portfolios more for defensive purposes than exploitation, or merely as cost centers, could consider shifting their focus to an income-generating approach. Lean times provide an excellent opportunity to review portfolios (both US patents and foreign counterparts) for potential moneymakers. Invention disclosures not core to a company’s business could be assessed to determine if they could provide revenue or force competitors to license. Similarly, non-essential IP could be sold, or exchanged for more strategically desirable IP.

Unique opportunities may exist to acquire IP from companies unwilling or unable to maintain it until oil prices rebound or from companies realigning their portfolios to better fit their businesses. Companies employing a global IP acquisition and enforcement strategy may find this time particularly fruitful as they shore up the bulwarks of their portfolio or brand in a particular region or country.

Cross-industry collaboration and technology crossover has further stimulated new processes, techniques and efficiencies in energy exploration and production. Lower crude prices should be seen as an impetus to continue this activity, not shrink it.

With respect to IP enforcement, what a company might have considered a tolerable technological proximity to its IP during boom times can be an unacceptable encroachment in lean times. Today, losing even a bit of market share to a competitor or infringer may be fiscally intolerable. In addition to exploring strategies for licensing, companies should also examine their litigation options. While initiating IP litigation can be expensive, alternative fee arrangements and litigation funding options exist that can ameliorate the direct economic impact.