PATENT SPOTLIGHT: AUSTRALIAN OFFSHORE OPERATIONS
More than $140 billion of committed capital expenditure underpins the recent claim by the Minister for Resources, Energy and Tourism, Martin Ferguson, that Australia is moving from a regional hub to a global leader in liquid natural gas (LNG)1. The bulk of the projects in the sector are offshore operations that include the North West Shelf
project, Pluto and Gorgon LNG projects, Chevron’s Wheatstone LNG hub, and Shell’s Prelude Floating LNG (FLNG) project. Many more projects are in the pipeline with the anticipated final investment decision (FID) in the next few months, or undergoing well- developed front-end engineering and design (FEED)2.
Several of these projects are groundbreaking – either in terms of their scale or technological innovation, and both in the case of Shell’s Prelude FLNG project3.
Many aspects of the technology employed in these projects are protected by patents. A recent study4 of the Australian Patent Office records has identified nearly 5000 active oil and gas patents for inventions in the field of drilling and refining, alone. This begs the following important questions:
Despite a relatively high concentration of patents in these technologies, what relevance do patent rights really have with respect to offshore operations, particularly stranded fields, which are located more and more remotely from mainland Australia in increasingly deeper waters?
Are patent rights enforceable in respect to offshore operations? What about the cross border activities that are inherent in shipping, manufacture, procurement, processing and LNG export? Are vessels with floating production storage and offloading (FPSO) units and floating storage offloading (FSO) units exempt? Or could an interlocutory injunction for patent infringement prove a bigger risk to production than hydrate plugs in pipelines?
One only has to refer to the global patent wars between Samsung and Apple Inc. that are being played out around the world to realise that these questions are not trivial.
In this report, we identify the limits of where Australian patents can be enforced with respect to Australian offshore operations including those in the Timor Sea Joint Development Area.
We also discuss the risk of infringement liability for offshore industry participants with respect
to cross-border transactions and activities, and the need to have appropriate strategies to manage
IP – in particular, to negotiate the patent landscape in each country where various activities along
the procurement chain, the supply chain, and production occur.
Under Australian law, a patent gives the patentee the exclusive rights to exploit, or to authorise another person to exploit, the invention throughout the patent area5, which includes the Australian continental shelf and the waters above the Australian continental shelf6.
The Patents Act 1990 (Cth) defines the Australian continental shelf7 as meaning the continental shelf as provided under s.3(1) of the Seas and Submerged Lands Act 1973, which in turn is interwoven8 with Article 76 of the United Nations Convention on the Law of the Sea (UNCLOS) done at Montego Bay (Law of the Sea) on 10 December 1982.
According to Article 76, the limit of the continental shelf can be determined by either of two criteria:
200 nautical miles from the territorial sea baseline (TSB), or b) the outer edge of the continental margin which may extend beyond a distance of 200 nautical miles from the TSB – in other words, an extended continental shelf. Both criteria are directly or indirectly dependent on the TSB.
The entitlement of Australia to claim sovereignty over an extended continental shelf is a relatively recent development. With the assistance of the Maritime Boundaries Advice project, Australia submitted details together with supporting scientific information to the United Nations Commission
on the Limits of the Continental Shelf (CLCS) on 15 November 20049. More than three-and-
a-half years later, the CLCS handed down its recommendations in which it accepted around
90 per cent of the Australian claim, thereby entitling Australia to an additional 2.5 million square kilometres of continental shelf, an area the size of Western Australia9.
The entitlement of Australia to claim sovereignty over an
extended continental shelf is a relatively recent development
Australia’s maritime zones
Figure 1: Australia’s maritime zones as accepted by CLCS on 15 November 200410.
Continental Shelf Extended Continental Shelf
Australia’s maritime zones are represented in
Figure 110, where the area shown in yellow represents the continental shelf (ie. 200 nautical miles from the TSB) and the extended continental shelf is shown
in light blue. It is evident that the outer limit of the continental shelf extends beyond 200 nautical miles from the TSB in several regions, notably along the northwest coast of Australia where the offshore petroleum industry is increasingly focused.
The economic significance of this maritime territorial expansion to Australia is not to be underestimated. Australia has sovereign rights over the continental shelf for the purposes of exploring
and exploiting the mineral and other non-living resources of the seabed and subsoil, together with sedentary organisms11.
Australia also has jurisdiction in this area with regard to marine scientific research as well as other rights and responsibilities. These additional rights also include the exercise of exclusive rights under
a patent in respect to exploitation of an invention. Therefore the exercise of patent rights in Australia extends to, and is relevant for, offshore operations and related activities that are located on or in
the waters above the Australian continental shelf (extended or otherwise).
Timor Sea Joint Petroleum Development Area
There is uncertainty, however, as to whether Australian patent rights can be enforced in the area of the Timor Sea where there are overlapping territorial claims by Australia and Timor-Leste (formerly known as East Timor).
In the absence of the delimitation of the continental shelf between Australia and Timor-Leste, both countries entered into the Timor Sea Treaty on
2 April 2003. The Treaty establishes a Joint Petroleum Development Area to permit development of the substantial petroleum resources contained
in the disputed territory to the benefit of both countries12. The duration of the Treaty was for 30 years from the day it came into force or until
there was a permanent seabed delimitation between Australia and Timor-Leste, whichever came earlier13.
Subsequently, the duration of the Treaty has been extended by virtue of the Treaty on Certain
Maritime Arrangements in the Timor Sea (CMATS),
Both countries entered into the Timor Sea Treaty on
2 April 2003
which extended the moratorium on the territorial boundary dispute by a further 20 years to 205714.
On the one hand, the Timor Sea Treaty contemplates the exercise of patent rights within the Joint Petroleum Development Area. For example,
Article 10 of Annex G provides for the taxation
of royalties as consideration for the use of, or the right to use, patents and other forms of intellectual property within the Joint Petroleum Development Area. But without certainty with respect to the physical boundaries of Australia in this region (at least until 2057), it is difficult to envisage how patent rights could be enforced in practice.
Moreover, Timor-Leste does not have patent legislation15. Therefore it would not be possible for a patent owner to rely on corresponding Timor-Leste patent rights to co-exist with Australian patents
to protect its technology in the Joint Petroleum Development Area.
Risk minimisation and management
Patents are territorial rights awarded by a sovereign state and are only enforceable in the country where the patent has been granted. To obtain widespread geographical protection for the invention, a patent owner may hold several patents for the same invention in several countries.
The exclusive rights conferred on a patent owner are broad and include the right to authorise a third party to use a patented process or to keep, use, import, make, hire, sell or otherwise dispose of
a patented product or the product of a patented process16, 17. The exclusive rights also encompass making an offer to sell the patented product or product of the patented process16, 17.
A third party is at risk of incurring infringement liabilities if it engages in any of the activities described above without the authority of the patent owner. It would seem self-evident that only an unauthorised activity performed in the country where the patent is granted could be considered as infringement.
In a globalised world, however, where transactions for procurement of technology routinely transcend borders, it is important to understand that certain actions taken in one country may constitute infringement of a patent in a different country.
For example, there is evidence that the US courts18
are broadening the extraterritorial reach of patents in relation to some cross-border activities, in
particular in respect to offers for sale that occur outside the patent area. In view of the increasing harmonisation of patent laws among World Trade Organization (WTO) members and the attention paid by Australian courts to developments in patent law in the US, UK and Europe, be mindful that preliminary activities in the procurement or supply of technology may incur infringement liability even if these activities occur outside the patented area where the technology will ultimately be used.
It is also common for a product to be produced in one country and then imported into another country. A third party is at risk of infringement liability if the patent owner holds a patent in the country in which the third party uses a patented process to produce the product without the authority of the patent owner. But quite distinct from a consideration of the existence or otherwise of patent rights in the country of origin of the product, the third party is also at risk of infringement liability if the patent owner holds a patent in the country into which the product of the process is imported.
Therefore, the importation of LNG carries with it significant risk of infringement liability if no heed is taken to the patent rights that may exist in the
destination country that relate to the processes and methods by which the LNG may have been treated or produced elsewhere.
Suppliers may also risk contributory infringement
of a patent by supplying goods without the authority of the patentee, if the use of those goods by a third party would infringe a patent19.
Risk of contributory infringement is likely to be greater for suppliers that supply non-staple
commercial products, where the product would have more than one use. This may be particularly the case for pieces of plant equipment that may be configured in various ways, for example, to achieve increased production capacity, energy efficiency or reduced cooling loads, where the plant configuration is the subject of a patent to achieve these outcomes.
Exemptions may be granted to the use of patented inventions in or on a foreign vessel20. The exemption only applies if the vessel comes into waters above
the Australian continental shelf temporarily or accidentally and the invention is used exclusively for the needs of the vessel.
Therefore, the infringement exemption may not apply to vessels that reach an offshore facility and perform a specific function or task using patented technology in connection with the construction or operation of the offshore facility, where the patented technology is not exclusively for the needs of the vessel.
Infringement exemptions may also apply to experimental activities21 whose predominant purpose is to gain new knowledge or test a principle about a patented invention. To claim an exemption, the experimental activities must be on a patented invention but not with a patented invention22.
For example, the infringement exemption would apply to experiments on the composition of a patented drilling mud to improve or enhance
its performance. Conversely, however, the infringement exemption would not apply to the use of a patented drilling mud when conducting research on directional drilling techniques.
To claim an exemption, the experimental activities must be
on a patented invention but not with a patented invention
The final word
The geographical boundaries of the Australian continental shelf were expanded in 2007, particularly in the area of the northwest shelf. Therefore, the exercise of patent rights in Australia is relevant for offshore petroleum operations and related activities that are increasingly located in remote waters above the Australian continental shelf (extended or otherwise).
The only area where uncertainty resides in respect to the enforceability of Australian patent law is the Joint Petroleum Development Area in the Timor Sea where the borders between Australia and Timor-Leste are unlikely to be delimited until 2057 at the earliest.
Investigate the patent landscape Have an awareness of the patent landscape in the jurisdiction in the field of relevant technology – be it the gas liquefaction train or the process, or an inhibitor composition for preventing hydrate formation. A patent landscape will provide information on the patents that relate to the technology of interest, the patent owners, and the countries in which these patents are in force.
Knowledge of the patent landscape provides a map of where infringement liability risk is evident. Strategies to reduce risk can then be developed and implemented where necessary.
2. Request an IP health check from suppliers
Before commencing discussions with external parties
and suppliers about technology, it may be useful to request an ‘intellectual property (IP) health check’ from them in which they demonstrate that they have completed comprehensive due diligence enquiries about the IP surrounding their technology offers.
3. Engage with suppliers in relevant countries
Better yet, engage directly with technology suppliers
that own patents granted not only in the country of origin of the technology, but also granted in the
countries where the technology will be operational, as well as countries in which products of patented processes will be imported. After all, patent infringement liability is rendered moot by obtaining authority from the patent owner to exploit the invention in the patent area.
4. Cover all your bases when it comes to IP protection
The above point should encourage innovative
companies to consider protection of their products and processes with patents in a wide selection of countries where the technology will be offered for sale, manufactured, sold and employed, and where the product resulting from the use of the technology is imported. Notwithstanding the commercial advantages obtained from obtaining patent rights, the ‘marketability’ factor associated with patented technology is not to be underestimated, in particular when the patentee can offer a ‘zero’ infringement liability risk associated with a patent licence.
Co-existing with patent rights, or alternatively in the absence of patent rights, may be several other
IP rights including copyright, confidential information, and know-how. While this report has not attempted to discuss the interplay of other IP rights and the offshore petroleum industry, suffice to say that contractual arrangements concerning the management of these IP rights are highly recommended.
Need to know more?
CONTACT THE AUTHOR
If you would like more information or assistance, please contact Dr Mary Turonek on +61 8 9213 8300 or email email@example.com
The Hon. Martin Ferguson, ‘Resources and Energy at the Heart of Structural Change in Australia’s Economy’, 27 September 2011, speaking in Sydney. Bureau of Resources and Energy Economics (BREE), July 2012, Gas Market Report. Shell Australia media release, 20 May 2011: ‘Shell decides to move forward with groundbreaking Floating LNG’. Griffith Hack analysis of Australian patent applications. Patents Act 1990 (Cth), s 13. Patents Act 1990 (Cth), s 12. Patents Act 1990 (Cth), s 3, Schedule 1. Sea and Submerged Lands Act 1973 (Cth), s 3. Symonds, P., Alcock, M., French, C., AusGeo News, Issue 93, March 2009, ‘Setting Australia’s limits, Understanding Australia’s marine jurisdiction’. Geoscience Australia, Australia’s maritime zones. United Nations Convention on the Law of the Sea 1982 (UNCLOS), Article 77. Timor Sea Treaty between the Government of
East Timor and the Government of Australia 2003, Article 3.
Timor Sea Treaty between the Government of East Timor and the Government of Australia 2003, Article 22. Treaty between Australia and the Democratic Republic of Timor-Leste on certain maritime arrangements in the Timor Sea 2007, Article 12. World Intellectual Property Organization (WIPO): http://www.wipo.int/export/sites/ www/ldcs/en/country/pdf/tl.pdf Patents Act 1990 (Cth), s 13. Patents Act 1990 (Cth), s 3, Schedule 1. Transocean Offshore Deepwater Drilling, Inc.,
v. Maersk Contractors USA, Inc., United States Court of Appeals for the Federal Court, 2009- 1556, decided 18 August 2010.
Patents Act 1990 (Cth), s 117. Patents Act 1990 (Cth), s 118. Patents Act 1990 (Cth), s 119C. IP Australia: http://www.ipaustralia.gov.au/ about-us/public-consultations/ip-reforms/ factsheet-experimental-use/