No. 2, 2008

Creation of the Eurasian economic community should start with the formation of a uniform patent area

In the oil and gas industry today, investments in encouraging inventions are quite effective. The conclusion is based on analysis of the activities of a number of the world’s biggest power companies, whose rapid growth is largely a result of introduction of new inventions.

Innovations in oil

The concept of “innovation activities” has become so widespread that it would seem to require no specification. All existing wordings of the term “innovation” characterize it through its results.

The connection between innovations and intellectual property is clear. The reasons for which an invention should be patented are also well known, the main one being to obtain exclusive rights. Then, under their protection, the invention may be turned into a source of profit, which will raise the yield on related investments. If the owner of a patent chooses not to use it, it may sell the rights to commercialization of the invention to another industrialist. A portfolio of patents undoubtedly strengthens the position of their holder on the markets for goods and services.

Experienced businessmen are well aware that if a proprietary design is not patented in time, someone else might do so.

If a company’s technology is not protected by patents, this complicates all actions performed therewith (licensing, sale, transfer). The difficulties often emerge at the stage of negotiation, when the seller, in the absence of a patent, is hesitant to reveal the details of its invention, anticipating that the other party might be satisfied with the information thus obtained and proceed independently. An unpatented license is, in any case, worth much less.

Yet, Russian companies, including oil-producing ones, are in no hurry to obtain patents. According to Rospatent and the European Patent Office, over the first 11 months of 2007, fewer than 300 patents and invention applications were published in Russia in any way connected with production or refining of oil.

The indubitable leader among Russian companies in this respect is JSC Tatneft, which demonstrates enviable activity, as testified by the following figures: during the period from 1994 to 2005 inclusively, the company received 120 RF patents and only 60 before 1993. Moreover, it has registered over 130 inventions during the last two years (2006-2007).

The respective indicators for LUKOIL are similar. Within this Group, it is the subsidiary companies RITEK, LUKOIL-PermNIPIneft and LUKOIL-Permnefteorgsintez that are the leaders in obtaining patents. It is indicative that 35% of the total number of the company’s patents have already been introduced into production.

JSC Surgutneftegaz holds 96 patents, 14 of which were added to its assets during the last two years. The other vertically integrated oil companies possess much less intellectual property. JSC Rosneft, for instance, holds fewer than 50 patents.

Patenting of inventions is traditionally at a high level in higher educational establishments. In Russia, this applies to three higher educational institutions in the oil industry: the Tyumen State Oil and Gas University holds about 230 patents, 110 of them having been received in 2006-2007; the Ufa State Oil Technological University has somewhat fewer (a total of about 200, including 40 received over the last two years); finally, the Russian State University for Oil and Gas named after I.M. Gubkin was issued about 140 Russian patents between 1994 and 2007 inclusively. Also worth noting, however, is that, before 1993, this higher educational establishment (then the Moscow Oil and Gas Institute) received over 400 inventors’ certificates of the USSR.

Weighty arguments

So what is Russia’s contribution to the world’s wealth of invention patents in the oil sphere? In 2007, over 20,000 such applications had been published in the world (see the Worldwide data base of the European Patent Office), so our country accounts for only a 1.5-percent share. Considering this low indicator, a system of measures is needed to increase patenting activity. Yet is it true that intellectual property constitutes the decisive factor in turning an innovative idea into a competitive product?

The most obvious argument here is that the most successful global companies are leading patent holders. A good example is ExxonMobil. What does its intellectual property portfolio consist of? In just the 10 years since 1998, when Exxon merged with Mobil (which was previously part of Standard Oil), over 12,000 applications and patents have been published by the company. (In turn, Standard Oil accounts for over 27,000 patents obtained since 1928.) In just the first 11 months of 2007, ExxonMobil submitted about 1,000 applications.

The Worldwide data base of the European Patent Office contained 348 applications and patents of PetroChina, the biggest oil and gas producer in China, published during the period between 1999 and 2007 inclusively. It is important to note that a quantitative increase in the given sphere is observed with each passing year.

So what is more profitable: oil or innovation? The experience of the two giants – PetroChina and ExxonMobil – testifies that the answer is innovation in oil.

Analysis of patent activities in general prompts the conclusion that a rise in inventions in virtually any sphere correlates with an innovation policy and an improvement in companies’ financial performance.

Patents for Eurasia

Participant countries from the former Soviet republics are striving toward a reintegration in the sphere of protection of intellectual property and, in parallel with national patent systems, have created a Eurasian patent area uniting nine states: Russia, Belarus, Kazakhstan, Azerbaijan, Armenia, Moldavia, Turkmenistan, Kyrgyzstan and Tajikistan. Corresponding agreements were signed in 1994 and, already by 1995, came into effect, this being an unprecedentedly short time for ratification of international agreement or affiliation thereto. In 1996, a supranational body was set up – the Eurasian Patent Organization, with its headquarters in Moscow, and its executive structure – the Eurasian Patent Office.

Worldwide experience shows that as economic systems draw closer, a corresponding infrastructure is required, its most vital element being a uniform patent area. That is how preparations were made for the economic unification of Europe. The basis of the consolidation of the West European countries was, of course, the treaty of Rome establishing the European Economic Community (1953), which envisaged unification of the legislations of the member states through the conclusion of international treaties in the sphere of patent protection. Thus, in 1973, the Convention on the Grant of European Patents (the Munich Convention) was born. As a result, a system was created whereby a single application sufficed to obtain a European patent enforceable in all the Contracting States and its legal regime was determined by the national legislation of the territory on which it was enforced. In 1973, the European patent area included only seven countries, but today over thirty states have ratified the Munich Convention.

The Eurasian Economic Community (no matter in what form it is organized) now has a reliable patent protection instrument, recognized throughout the world – the Eurasian patent effective in all the member countries.

Like other regional patent associations (the European and two African), the Eurasian model not only cuts the number of barriers to goods and technologies, but also makes it possible to form a system exceeding the possibilities of national patent offices. This is tantamount to creation of a patent of high reliability. Cooperation between countries is also furthered by the fact that the costs of maintaining and improving information funds are today considerable and can be covered only given a substantial flow of applications. In addition, only by combined efforts can the common problem be addressed of ensuring broad access to patenting and a high patent quality.

These provisions fully comply with the activities of the Eurasian Patent Organization. For the inventor and the patent holder, the barriers on the technology market are, possibly, not so important. Neither is the applicant too concerned about the problems of informatization of patent offices. A patent organization can be chosen at will, so, no matter how good an idea of unification might be, the viability of a regional patent system depends on how useful it is to those who create and use intellectual property and need its legal protection.

The services of the Eurasian patent system are used not only by the former Soviet republics, but also by countries of Europe, Asia and America, including the United States, Japan, France, and Norway. Eurasian patent holders include such global companies as the above-mentioned ExxonMobil, BP and Shell. The last of these, by the way, already holds 86 Eurasian patents and continues to submit applications. (In total, as follows from the Worldwide data base, in 2007 Shell published over 1,000 patents and applications.)

Today, the Eurasian patenting system is on the rise. The existence of patents everywhere promotes the appearance of new technologies, production units and jobs. The users often return with new applications and the range of Eurasian patent holders is expanding. For instance, the list was recently supplemented by the Norwegian oil and gas corporation StatoilHydro, which received a patent for a “Method for oil production and refining.” It appears that other global companies in the oil and gas industry are also likely to joint it in the near future.