Benefits of digitalisation
The oil and gas industry is facing uncertainty and rapid change. Low prices are forcing companies to increase efficiency, and many companies are producing more costly and technologically complex resources. Further, the industry is facing the imminent “Great Crew Change,” in which up to 50% of its engineers and geoscientists may retire within the next few years.
Digital technologies, including big data and artificial intelligence (AI), are important tools to address these challenges. Digitalisation promises increased efficiency, improved safety, and reduced costs and staffing, with the World Economic Forum estimating it has the capacity to unlock around $1.6 trillion in value for oil and gas companies. Industry analysts believe that digital technologies can reduce capital expenditures by up to 20% and cut operating costs in upstream by 3-5% and half that in downstream. When even a 1% gain in capital productivity “could help offset the cumulative net loss of $35 billion reported by listed upstream, oilfield services, and integrated companies worldwide in 2016,” digitalisation may prove to be the industry’s saving grace.
Digitalisation offers advantages in several technical areas. For example, digitalising drilling technology allows for remote monitoring and data analysis of existing oil rigs and offshore drilling. AI can be used to run simulations and create predictive models to test potential impacts of new developments and even to explore remote areas. Data analytics can help analyse geophysical data to find new exploration opportunities and exploit existing assets more efficiently. And these technologies can also enable autonomous and self-learning systems that make better safety decisions and protect workers.
Despite these advantages, the oil and gas industry has been slow to embrace digitalisation, and these technologies have not yet become widespread. The industry has not seen the same post-recession rebound in patenting rates observed in other fields, many of which have been quicker to adopt digital innovations and seek patents on those technologies. This lower rate of patenting and slow adoption of digital technologies, in combination with the challenges and uncertainty the industry faces, means the time for digitalisation is now.
Challenges and uncertainty
Despite the immense opportunities digitalisation offers in the oil and gas industry, obtaining and asserting patents on these innovations can be challenging. One of the biggest hurdles is 35 USC Section 101, which the USPTO has applied to deny protection to many digital technologies and the courts have used to invalidate many issued digitalisation patents.
Although 101 defines “patentable subject matter” broadly, the US Supreme Court has recognised several judicial exceptions—claims directed to abstract ideas, laws of nature, or natural phenomenon are patent ineligible. Under the Supreme Court’s two-part test set out in Alice v CLS Bank, a claim is ineligible under 101 where (1) it is “directed to” a law of nature, natural phenomenon, or abstract idea and (2) the claim elements, considered “both individually and ‘as an ordered combination,’” are insufficient to “‘transform the nature of the claim’ into a patent-eligible application.”
Since the Supreme Court’s 2014 ruling in Alice, 101 has been used to invalidate numerous patents on digital technology and AI as directed to no more than an abstract idea. Even patent claims that involve tangible, physical elements sometimes face the same fate. In Electric Power Group v Alstom,for example, the US Court of Appeals for the Federal Circuit upheld a district court ruling invalidating claims directed to automatically analysing events in real-time on an interconnected power grid to generate a composite indicator of grid reliability.
Oil and gas patents traditionally haven’t faced many 101 challenges, but that is changing. Recently, in TDE Petroleum Data Solutions v AKM Enterprises, the Federal Circuit upheld a district court decision holding claims directed to “various processes for determining the state of an oil well drill” ineligible under 101. The claims recited a method of receiving data from oil well sensors, validating the data by removing any erroneous data, and determining the state of the oil well drill. Under Alicestep one, the appeal court held that “it is evident from our precedent that claim 1 is the sort of data gathering and processing claim that is directed to an abstract idea under step one of the Aliceanalysis.” Under Alice step two, the court held that “claim 1 simply recites generic computer functions that amount to nothing more than the goal of determining the state of an oil well operation.” The court explained that the claims “recite the what of the invention, but none of the howthat is necessary to turn the abstract idea into a patent-eligible application.”
In contrast, in Canrig Drilling Technology v Trinidad Drilling,the US District Court for the Southern District of Texas upheld claims directed to systems and methods for rotating a drill string to a predetermined angle to allow directional drilling and for oscillating the drill string between predetermined angles to reduce friction. The court found that Canrig’s claims “are not an attempt to patent the abstract concept of rotation.” Instead, the court concluded that the claims were directed to much narrower physical apparatuses and processes, highlighting the fact that the claims addressed “specific challenges in directional drilling through a concrete process for controlling the rotation of the long drill strings to and between predetermined angles.” The court reasoned that, although “rotation in isolation is an abstract concept,” the claims applied that concept to control rotation to orient and oscillate a drill string, which provides a tangible improvement to the prior method of directional drilling. Accordingly, the court found that the claims at issue were not “directed to” an abstract idea and thus were patent eligible under 101.
The disparate outcomes in TD Petroleumand Canrigprovide insight into how oil and gas companies can survive 101 challenges. First, companies should draft claims that reflect a practical application of any underlying abstract idea. One way to do so is to tie any underlying concept or data-gathering steps to the physical article or activity that the concept or data are meant to improve. In Canrig, the court relied on the fact that the underlying abstract idea was applied to change the behaviour of a tangible item (the drill string). The outcome likely would have been different if the patent claimed computer-assisted rotation without requiring any physical action by the drill string. The patent survived 101 because the concept of computer-assisted rotation was tied to an improvement in directional drilling. Companies should remember, however, that tying an underlying abstract idea to conventional computer components alone is insufficient to render claims patent eligible.
Companies should ensure that the patent specification clearly describes how the patent improves on prior-art methods or systems or how the patent overcomes a particular technical challenge in the field. Further, in addition to including that description in the specification, companies should draft claims that clearly require the technical features that the specification describes as distinguishing the invention over the prior art. This is particularly important in view of the Federal Circuit’s recent case law—such as Berkheimer v HP and Aatrix Software v Green Shades Software—holding that a patent’s purported improvements over conventional, prior-art technology raises a fact issue that may preclude an early dismissal of an infringement suit or summary judgment against the patentee.
Companies should also highlight any ways in which their patent claims reflect an unconventional arrangement of components to achieve the claimed benefits over the prior art. The Federal Circuit has further explained in Bascom Global Internet Services v AT&T Mobility that “an inventive concept can be found in the non-conventional and non-generic arrangement of known, conventional pieces.”
Relief on the horizon?
Although 101 has been a powerful tool to invalidate patents, help may be on the way in the form of revised USPTO examination guidance and legislation decreasing the applicability of the judicial exceptions to eligibility. In 2018, the USPTO released a memo based on Berkheimerinstructing examiners to “conclude that an element (or combination of elements) represents well-understood, routine, conventional activity only when the examiner can readily conclude that the element(s) is widely prevalent or in common use in the relevant industry.” This memo should make it easier to survive step two of the Alice test.
The USPTO released additional 101 guidance in January 2019 addressing how to assess whether a claim is “directed to” an abstract idea or other judicial exception under Alicestep one. The guidance instructs examiners to “evaluate whether the claim as a whole integrates the recited judicial exception into a practical application of the exception.” A claim that “integrates a judicial exception into a practical application will apply, rely on, or use the judicial exception in a manner that imposes a meaningful limit on the judicial exception,” and examiners thus should find that such claims are not directed to a judicial exception under step one of the Alicetest.
The 2019 USPTO guidance reinforces the lessons learned from Canrig—a claim that involves an abstract idea is not necessarily directed to that abstract idea, and drafting claims to highlight a specific technological improvement should help persuade an examiner that any potential abstract idea is integrated into a practical application.
Legislative changes have also been proposed to 101 that could narrow the applicability of judicial exceptions and make it harder to invalidate patents. One proposal would have the statute define a closed list of categories of ineligible subject matter, such as fundamental scientific principles and pure mathematical formulas, while otherwise abrogating the judicially created exceptions at issue in Alice and its progeny. The proposal would also add language clarifying that patent eligibility under 101 should be determined by considering every element of the claim as a whole and without regard to whether those elements are novel or non-obvious.
The challenges that 101 poses in the oil and gas fields should not deter companies from seeking patents on digitalisation and AI innovations. These technologies are vital tools to increase efficiency, decrease costs, and address the coming knowledge gap that will exist when many experienced workers retire. Through strategic claim drafting, oil and gas companies can overcome 101 and derive a competitive advantage by obtaining valuable patents covering innovations in digital technologies and AI. These patents will be even more valuable if new legislation passes making it easier to survive 101 challenges and assert those patents in litigation.