Packers Plus Energy Services Inc. v. Essential Energy Services Ltd.

Federal Court invalidates a patent for a well-known system of fracturing

In four separate actions that were consolidated before the Federal Court of Canada, a number of service companies in the oil patch, including Essential Energy Services Inc., Baker Hughes Canada Company, Weatherford International PLC and Resource Well Completion Technologies Inc., successfully invalidated a patent that claimed a well-known system for fracturing known as the “ball drop.”

The ball-drop system provides a way of fracturing a horizontal oil or gas well in stages or segments to increase overall production. With the rise of oil prices in the mid-2000s it became very popular in the industry.

Between 2013 and 2015 the owner of the patent, Packers Plus Energy Services Inc., and/or its licensee, Rapid Completions LLC, brought a patent infringement action against the four sets of defendants, arguing that their sales of the ball drop system infringed the Packers Plus patent.

Each of the defendants counterclaimed on the basis that the patent was invalid. The defendants’ counterclaims on validity were consolidated and heard together with an infringement issue for one of the defendants, Essential Energy, in a five-week trial beginning in February 2017. The Federal Court's Justice James O’Reilly found the patent to be invalid on two separate bases (and, in the Essential Energy case, not infringed). The first ground of invalidity is anticipation by prior use. Packers Plus had conceded that before filing its patent, it had marketed and sold the ball drop system to two oil-and-gas operating companies, Enron Oil and Gas (EOG) and Headington Oil. This would ordinarily prevent an inventor from claiming that his invention is novel, and therefore a patent would be invalid. However, Packers Plus argued that these disclosures were not “public disclosures” because they were confidential or because they were for “experimental use.”

The Court found that these defences were not made out. Justice O’Reilly found that in the process of marketing its version of the ball-drop system, Packers Plus had disclosed it at a meeting with EOG that included geologists, reservoir engineers, drilling engineers and completion engineers, and possibly outside consultants. Although there had been discussions about confidentiality with one of the EOG representatives in advance, that discussion was “general and brief” and the Packers Plus representative, Dan Themig, was not certain whether confidentiality had been discussed at the larger meeting. Although some of the drawings provided to EOG were marked “confidential,” EOG and Packers Plus had not entered into any written confidentiality agreements, and the agreements that existed did not address confidentiality.

Justice O’Reilly concluded that “Mr. Themig described to various people how the ball-drop system worked and presented them with detailed drawings of the tools and methodology” and that “[n]umerous persons were present at the well sites, observed the tools and watched them being put to use.” He therefore held that based on the evidence, while the confidentiality markings on certain drawings represented Packers Plus’s “hope that the drawings would be treated as secret,” it was not sufficient to impose a duty of confidentiality on the various individuals who had learned about the ball drop system.

The Court also held that the evidence was insufficient to establish that the sales were for “experimental” use and therefore not public. There was no evidence that Packers Plus provided its customers with any discount, that it had advised its clients that the work was experimental, or that it had prepared any report of the results. As a result, the plaintiffs’ argument that the disclosures were confidential was rejected and the claims were held to be invalid on the basis of anticipation.

Justice O’Reilly also found that the claimed invention was obvious. The ball drop system and its use in the North Sea had been previously described a number of times in a well-known industry journal. While Justice O’Reilly accepted the plaintiffs’ position that the “inventive concept” of the claims was the use of the ball drop system in an open-hole wellbore, he nevertheless held that the claims of the patent did not represent any “inventive step” over the state of the art.

Although the plaintiffs attempted to minimize these publications as not part of the “common general knowledge,” the Court rejected this argument on the basis that the test for obviousness compares the inventive concept to the “state of the art,” which is not limited to only the “common general knowledge.” The Court therefore held that the relevant claims were obvious and invalid.

The case is important to Canada’s oil patch as the patent claimed a particular method of fracturing which became very popular in oil-and-gas formations in the mid-2000s, and Packers Plus had been asserting its IP against numerous industry players.

Anthony Prenol and Antonio Turco of Blake, Cassels & Graydon LLP were counsel for Essential Energy and Tryton Tools Services Limited Partnership.

Dalton McGrath, Q.C., Michael O’Brien and Sarah O’Grady of Blake, Cassels & Graydon LLP were counsel for Baker Hughes Canada Co.

David Madsen, Q.C., Evan Nuttall and Leanne Desbarats of Borden Ladner Gervais LLP were counsel for Weatherford and Harvest Operations Corp.

Andrew Bernstein, Yael Bienenstock and Leora Jackson of Torys LLP were counsel for Resource, supported by Neil Kathol and Laura Macfarlane from Field Law.

Robert MacFarlane, Joshua Spicer, Michael Burgess and Donald Cameron of Bereskin & Parr LLP were counsel for Packers Plus Energy Services Inc. and Rapid Completions LLC in the cases against Essential Energy, Weatherford and Resource.

Anthony Creber and William Boyer of Gowling WLG were counsel for Packers Plus Energy Services Inc. and Rapid Completions LLC in the case against Baker Hughes.

Lexpert Copyrights © Thomson Reuters Canada Limited