Title: Practical IP Lessons From the Field Part Two: Navigating IP Risk in Oil & Gas
Speakers: Charles Baker and Greg Len
Greg Len (00:09):
Welcome, Charles. Thank you for taking the time to talk with me today about IP issues in oil and gas companies. Let’s get back to some of your experience in litigation. Since you’ve had many years of patent litigation experience relating to oil and gas technology, can you share with us some of your more memorable cases in oil and gas?
Charles Baker (00:26):
Sure. This is not the most recent, but the most memorable one. It’s from several years ago. We were embroiled in multiple pieces of litigation — the patent infringed two competitors we represented. We were the defendant, and the competing company on the other side had just entered the marketplace. The market for this particular product is for the fracking of oil and gas wells, mainly in West Texas but all throughout the United States.
Part of the process of fracking a well, you’ve got to make holes in the wells, and they use what are called perforating guns. They’re dropped down into the well, and they’ve got explosive charges at the end of them — like little grenades going off. They make holes in the pipe, and the oil and gas eventually gets fracked and goes back up through the pipeline.
Our client had been in this business a long time. They didn’t have many patents because, quite frankly, they believed that some of this technology was old. So we had a new entrant with a bunch of patents. They were a foreign company trying to take the market, and they had sued many competitors. We came in, and over the years there were several pieces of litigation. They all settled, and then the last case that settled involved a trade secret misappropriation claim. The client told me he never wanted to settle again with these guys, so they got sued again — we told them they would be. They got sued here in Houston. We tried the case two years ago before Judge Lake, and we had a complete defense verdict in that seven-day trial.
The important thing that came out of that case is that because of the good result, we were able to settle globally all the pieces of litigation that were going on, and we’ve not heard from them since.
Greg Len (02:13):
That shows that the client was happy with that outcome.
Charles Baker (02:14):
Yes. So that was one of the most memorable ones.
All right, the second and more recent example is a case we were retained on again — we replaced former counsel. It involved technology relating to the fracking of oil and gas wells. There’s special wellhead equipment associated with super high-pressure fracking that I wouldn’t consider proprietary. Our client certainly did not, but the competitor did, and they had over a dozen patents on what I consider very basic technology.
We came in while the case was in the midst of completing discovery and expert reports. Some things had been done in the case that we didn’t think were good, so we had to straighten it out, get it into a strong position, actively fight the case, and show that we were serious about trying it. I also happened to know opposing counsel very well — he used to be at the same firm that Bill and I worked at many years ago — so we had a good rapport. We were able to position the case so that it settled very well for the client, and now they’re back in business and competing in the marketplace.
Greg Len (03:34):
And that settled prior to trial?
Charles Baker (03:35):
Yes.
Greg Len (03:36):
What about any other cases?
Charles Baker (03:40):
We have a couple more memorable ones. These didn’t go to trial, but we got very good outcomes.
Several years ago, there was a company called Transocean that had a patent issued on what are called dual-activity drill ships. These are huge offshore drill ships that drill what they call deepwater wells — 10,000 feet of water and another 10,000 to 12,000 feet underground, drilling for oil and gas. Super expensive. Day rates for these ships back then were $500,000 to a million dollars a day charged to the operator.
We actually had two separate clients that were sued by Transocean on this patent in two different venues here in Houston. We were hired in both cases, and we thought we had a good chance of invalidating the patents. We wanted to use the inter partes review process, which was fairly new at the time — I can talk more about that later. We filed the IPRs, and while we didn’t win outright, we put some significant holes in their argument, and it led to successful settlements in both cases. In fact, one client today is drilling very successfully in offshore wells in Brazil, which has become a very hot market, and but for that settlement, they would not have the license to do so. All in all, a very good outcome for both companies.
The fourth case I want to mention briefly — this one was memorable because the plaintiff hired a fairly well-known plaintiff’s IP firm that took the case on contingency. They thought they had struck a gold mine because the technology involved what’s called closed-loop mud drilling systems. Basically, in oil and gas drilling, you have to pump mud down the well and bring it back up. What drilling companies used to do was dump it or have it removed. Then they came up with a system called the closed loop, where you send it through a process, clean it, remove the contaminants, and reuse it — obviously saving the operator a significant amount of money.
The plaintiff in this case unfortunately sued the wrong parties. They sued ExxonMobil and also our client, a large service company. We fought this very hard. We hired a really good expert who had spent his entire career in the industry, and all he did was go out and find excellent prior art. We presented it to the plaintiff’s lawyer as part of an expert report, and the case went away. No money was exchanged. We settled and got a very good result for the client.
Greg Len (06:33):
That’s amazing.
Charles Baker (06:34):
Yeah.
Greg Len (06:34):
In one of your earlier cases, you were talking about IPRs — inter partes review. Can you tell us a little bit about what an IPR is and why you’d want to use one?
Charles Baker (06:46):
Sure. Most of my work is on the defense side — representing companies that have been sued for patent infringement. One of the defenses available is challenging whether the patent is actually valid. Before the inter partes review process existed, you really only had the opportunity to challenge validity in district court, where the burden is much higher — clear and convincing evidence. Alternatively, you could use what’s called the ex parte route, but in my opinion that doesn’t have the strength to really knock out a patent the way an IPR can.
An inter partes review is essentially a mini lawsuit, but without a trial. Everything is done through expert declarations and a petition. The patent owner gets to respond. The reason we’ve liked it so much is that we’ve had very good success rates in invalidating patents. In fact, when the process started in 2011 with the America Invents Act, you were seeing 75% to 80% of patents — depending on the technology — being deemed invalid.
I will say that has somewhat changed more recently. We have a new director in place at the patent office who has introduced new factors in deciding whether to institute an IPR. Let me step back: you file a petition, the other side files a response, and then a decision is made on whether to institute the review. The director now has authority to grant or deny institution. In the past, institutions were rarely denied. That has changed. The prevalent action this past year has been denial of petitions, and the reason is a new factor called settled expectations.
What are settled expectations? The director looks at how long the patent has been issued, how long the patent owner has been enforcing it, and how long the defendant has known about the patent. If it skews toward the later end — say, an older patent that hadn’t been actively enforced — the director is denying institution on the grounds that the patent owner has a settled expectation that the patent is valid. That’s been the significant change in the landscape this year.
Greg Len (09:26):
We’ll want to keep our eyes on that. Can you tell us how IPR procedure compares to district court in terms of timing and cost?
Charles Baker (09:34):
Sure, that’s a good point. IPR is much more cost-effective. A single-patent IPR will run roughly a couple hundred thousand dollars from start to finish, excluding expert witness fees and filing fees — and those filing fees have really shot up. But that’s still far more cost-effective than a district court case, which can run six to ten million dollars.
On the timeline, there are two great things about IPR. First, you can hopefully get your district court case stayed, which means you’re not litigating on two fronts simultaneously. Second, the time from start to finish in an IPR is much shorter than a district court case — I believe it’s 18 months from start to finish. A district court case, except perhaps in rocket dockets like the Eastern District of Texas, can take years and years to litigate.
Greg Len (10:29):
That’s a great tool in the arsenal for patent defendants. Well, thank you, Charles. I want to thank you for taking the time to speak with us today, and I hope to get together again soon.
Charles Baker (10:40):
Great. Thank you, Greg.
Copyright, Troutman Pepper Locke LLP. These recorded materials are designed for educational purposes only. This video is not legal advice and does not create an attorney-client relationship. The views and opinions expressed in this podcast are solely those of the individual participants. Troutman does not make any representations or warranties, express or implied, regarding the contents of this podcast. Information on previous case results does not guarantee a similar future result. Users of this video may save and use the video only for personal or other non-commercial, educational purposes. No other use, including, without limitation, reproduction, retransmission or editing of this video may be made without the prior written permission of Troutman Pepper Locke. If you have any questions, please contact us at troutman.com.
DISCLAIMER: This transcript was generated using artificial intelligence technology and may contain inaccuracies or errors. The transcript is provided “as is,” with no warranty as to the accuracy or reliability. Please listen to the video for complete and accurate content. You may contact us to ask questions or to provide feedback if you believe that something is inaccurately transcribed.
