FORT WORTH, Texas—The oil and gas industry spends about $1 billion each year on research and development (R&D), largely on seismic, drilling, completion reduction, automation and subsea technology, and since 2008 there has been double-digit growth in the number of companies obtaining patents to protect their investments. All told, off and on the books, there is more than $700 billion in intellectual capital, including patents, within the industry, according to Charlotte Rutherford, an expert on intellectual property.

And, Rutherford said, like wells that slowly produce less and less until they go dry, much of the capital spent on patents is idle.

“You’ve paid the money to acquire the patents and obviously invested in the technology, and now you’re paying the maintenance fees to keep these patents alive, but it turns out that what you’re paying now for those patents is more than the revenue you’re generating from the commercial products or services you’re currently conducting,” Rutherford, senior vice president of the Energy Practice for Acacia Research Group, a patent monetization firm, told the audience at Hart Energy’s DUG Permian conference recently.

Given these times of low commodity prices and an ever-increasing focus on reducing costs, particularly when patents can cost a company as much as $100,000, Rutherford posed the question: Why leave money on the table?

She dispelled the number one myth, or misunderstanding, about patents. Many think that patents give companies the right to use, make or sell the patented invention, when, in reality, that’s not true.

“A patent gives you the legal right to exclude others from making, using or selling your invention,” she said. “So, it’s the right to exclude, not necessarily the right to practice.”

This distinction is important, Rutherford explained, because patents can be a means of not only protecting a company’s technology but also become a competitive advantage.

“For example, when it comes time to bid a job, they can say, ‘I’ve got the technology, I’ve got the patent and I have the legal right to exclude others from practicing it,’” she said.

And that is where patent monetization comes into play.

“I’m being approached more and more by energy companies,” Rutherford said, “and they’re saying, ‘I know I have a fiduciary duty to do something with these patents. …How can I turn them into revenue or cash to help the business?’”

There are two advantages to monetizing patents, Rutherford said.

First, companies can value their patents to determine they can be licensed for cash in form of a lump sum or an ongoing revenue stream, immediately improving their bottom lines.

The second way, Rutherford said, busts a second myth about patents. “Oftentimes, a company thinks that if they license their patent, they give up the right to practice that patent or invention,” she said. “If the deal is structured correctly, the patent owner can retain the right to practice that invention, so they don’t give it up.”

To navigate the patent monetization process correctly and efficiently, Rutherford said, many companies are outsourcing the work to patent licensing companies such as hers, which have the necessary patent attorneys, scientists and technologists to capture the most value from patented technology.

And because the process can potentially cost millions of dollars, Rutherford recommended that companies partner with a patent licensing firm that is capitalized, so that the costs of the transaction are shifted onto the firm.

“One thing that’s fascinating about patent monetization,” she said, “is that for every million you bring to the bottom line through a patent monetization program, depending on the cost of capital, you may have to generate $10 million on the top line.” Shifting that cost to the patent licensing firm, Rutherford said, is “music to people’s ears.”

Contact the author, Veronica Bucio, at vbucio@hartenergy.com.