OIL AND GAS PATENTS: DO MULTINATIONAL CORPORATIONS IMPEDE THE GROWTH OF TECHNOLOGY IN DEVELOPING COUNTRIES?

: 82% of the world’s proven oil reserves are in the members of the Organization of Petroleum Exporting Countries which are predominantly developing countries. The international oil corporations (IOCs) otherwise known as the O&G (Oil and Gas) multinational corporations (MNCs) of the advanced nations develop the technology for extracting the hydrocarbons from the reserves and assist the developing oil-rich states in doing so. In exchange for the technology, developed nations have obtained access to the O&G resources that they lack. Because the technology required to extract oil is highly sophisticated and requires substantial research and development (R&D), the MNCs have secured them using patents. However, some of the strategic patenting practices and supplementary offensive methods employed by the MNCs of technologically superior countries over the past century have been criticised as being anticompetitive. Though these methods were employed to secure their own investments, they have inadvertently hindered technological development of some developing oil-rich nations and created a large technology gap between the Global North and South which I will present through the course of this paper. I conclude that oil-rich nations that lacked capital and technological infrastructure due to weak governmental support for Research & Development have been the ones to suffer in contrast to those oil-rich nations whose governments were committed to technology and advancement. Therefore, to overcome the technology gap, I urge host countries to have the political will and take proactive measures to develop their own technology. Reformation of International Intellectual Property Laws must also be considered if developed nations are indeed committed to helping the developing countries succeed, as encouraging innovation in all countries is indeed the very foundation of IP Law.


INTRODUCTION
82% of the world's proven oil reserves are in the members of the Organization of Petroleum Exporting Countries who are predominantly developing countries. 1The international oil corporations (IOCs) otherwise known as the O&G (Oil and Gas) multinational corporations (MNCs) of the advanced nations develop the technology for extracting the hydrocarbons from the reserves and assist the developing oil-rich states in doing so.In exchange for the technology, developed nations have obtained access to the O&G resources that they lack.Because the technology required to extract oil is highly sophisticated and requires substantial research and development (R&D), the MNCs have secured them using patents.However, some of the patenting practices and supplementary methods employed by the MNCs to secure their technology has at times been criticised as being anticompetitive and curtailing the innovation of the oil-producing states.Although the impact of petroleum operations conducted by IOCs to the environment and human rights of these states has been a highly debated issue for many years, their impact on their technological growth particularly from the patenting standpoint has not been a thoroughly explored subject.The situation thus begs the question 'Oil and Gas Patents: Do MNCs impede the growth of technology in developing countries?'Though proponents of the patent system believe that patents are a vehicle of technology transfer, intended to facilitate technical exchange among users with common purposes, 2 this has not always been the case.Particularly in the oil industry, there have been instances in which oil-rich states have suffered a setback to their technology growth because of the strategic manner in which patents owned by the oil corporations have been wielded.And other than a handful, most oil-producing nations continue to be technologically deficient.Therefore, rather than limiting myself to a single jurisdiction, I focus on their general use in the international O&G industry.I examine oil-rich nations that have experienced technological growth as well as those who have experienced technological stagnation, explore the reasons for these and consequently determine what role if any, the patents owned by the O&G MNCs played in them.Because it is my intention that this paper be of use to oil-producing nations who wish to close the technology gap, my analysis culminates in a set of recommendations to develop suitable domestic and international reforms.This paper is organized as follows.In chapter 2, I present the rationale behind Patent Law, the role of Antitrust Law and enumerate the corporate practices that affect the balance between these laws.In chapter 3, I demonstrate the presence of a technology gap between the advanced states who develop the oil technology and the oil-producing developing states.I will use country examples to demonstrate the usage of anticompetitive practices such as patent strategizing and restrictive patent licensing by MNCs and also present the adverse effects resulting from their use.In chapter 4, I present the counter argument by citing examples of oilproducing nations who have not only managed to escape the adverse effects of O&G MNC patenting, but in fact benefited from them and increased their technological level through technology initiatives, transfers, and collaborations.Having analysed both sides of the issue I suggest reforms to enable the technology deficient nations to increase their technological capability in chapter 5.Here I also detail the Shale technology revolution of the United States as the ideal manner in which patents can be used to increase innovation.Because patenting is a good indicator of technology growth,3 I will present patent statistics to illustrate my point throughout the course of this paper.Chapter 6 concludes this paper by summarizing both sides of the argument and presenting my position on the topic.

A. The Rationale Behind Patent Law
Patents are a type of intellectual property rights (IPRs).A patent confers upon the inventor exclusive rights to commercialize the invention and obtain revenue from its sales during the duration of its validity.It also guarantees the inventor protection from another's exploitation of his invention through claims established in the patent application.Patent rights are typically territorial i.e. valid only in the country they are granted and can be renewed periodically 4 for about 20 years 5 allowing the inventor a temporary monopoly over that technology.The Patent Convention Treaty system allows an inventor to obtain patent rights in all its member states by filing a single application. 6Currently 152 states are party to the PCT making it the main international patent granting authority.
In their current form, most patents are owned by companies that develop them for commercial applications through investment in R&D activities.In addition to securing protection for and exclusive use of the technology, the availability of a patent also allows firms to earn royalty income through licensing of that technology.Patents are thus closely linked with trade and commerce.Because patent rights are typically territorial, to enable smoother cross-border trade while ensuring adequate protection for them, the World Trade Organization has defined regulations in the Trade-Related Aspects of Intellectual Property Rights. 7TRIPS provides a means of harmonizing the different national IP systems and allows developing nations with nascent IP laws to learn from those of the developed countries.However, TRIPS has received much criticism for being tilted towards the developed nations because it requires developing nations to guarantee minimum standards of protection for foreign patents by adopting a system that is predominantly western in nature.This has been attributed to the WTO being dominated by MNCs of developed countries who want to ensure that their technology is protected during trade with the developing world.Because 80% of the R&D takes place within the private MNCs of only ten of the advanced nations of the world, they have a greater say. 8ough proponents of patents consider them as a means for technology exchange unlike trade secrets where technology is undisclosed, they can sometimes be a "barrier to entry" 9 for other inventors, restrict competition and create a monopoly which ultimately leads to reduced innovativeness.This naturally defeats the purpose of Patent Law and hence in order to maintain the balance between patent protection and healthy competition and to stimulate innovation, Antitrust Law has been developed.

B. The Role of Antitrust Law
Antitrust law is intended to regulate the conduct of business corporations and to promote fair competition in any market for the benefit of the consumers.But although international patent regulations and harmonization exists, antitrust issues have been largely left to national legislations. 10To comprehend how antitrust law functions, the anticompetitive legislative provisions of a few countries are examined below.
In the United States, the Sherman Act, 11 the Clayton Act 12 and the Federal Trade Commission Act (FTC) 13 are the main means of antitrust control.The US verbiage for anticompetition is antitrust. 14The Sherman Act of 1890 is the federal statute which authorizes the Department of Justice to bring suits against anticompetitive agreements or for market monopoly.The FTC Act of 1914 focuses on detecting and banning all unfair methods of restricting competition including but not limited to the Sherman Act.The Clayton Act of 1914 focuses on joint ventures, mergers and acquisitions which may unfairly create monopolies or reduce competition.These laws are limited to the jurisdiction of the US only and courts are usually reluctant to adjudicate foreign patent claims or interfere in antitrust issues outside its territory unless American consumers are affected. 15 Europe, antitrust control is established through two main regulations in the Treaty on the Functioning of the European Union and is enforced by the European Commission. 16The first regulation is defined in article 101 17 of the Treaty which bans contractual agreements that restrain competition, and the second regulation is defined in article 102 18 which prohibits market abuse by corporations holding dominant positions.The EC requires these to be applied in conjunction with the national antitrust controls. 19 Australia, the welfare of the Australian consumer is ensured through the Competition and Consumer Act 20 which promotes competition and encourages fair-trade practices.
The Competition Act 21 of Canada provides small and medium enterprises in Canada equal opportunities by regulating the competition in its economy while at the same time aiming to provide consumers with "competitive prices and product choices." 22st of the advanced nations possess similar national antitrust legislation but in contrast, most developing nations only possess nascent antitrust laws having only recently acknowledged the need for anticompetitive control and enforcement.What we can gather from the antitrust laws of the advanced countries described above is that they are territorial, and their main focus is on the impact to the consumers in their own market.There is no international antitrust governing body for international activities.And because of this gap in the international antitrust regulation, many anticompetitive activities of O&G MNCs, who were often tougher than their developing state counterparts have continued unchecked for a long time.These are detailed in the next section.

C. Patent Usage in the O&G Industry
Patents are extensively used by firms in the O&G industry for two main reasons.The first reason is to acquire a competitive advantage 23 over other firms through the ownership of highly essential and sophisticated technology.The second reason for patent usage in the oil industry is that innovation is capital-intensive and commercializing a concept takes about 16 years. 24Therefore in order to guarantee returns, patents are essential.With "easy oil" 25 having been used up, the need to secure technology to extract the maximum value of the reserves is imperative to the survival of MNCs and hence many of them have drastically increased their R&D budget and accumulated large patent portfolios. 26O&G patents are not simply a means to safeguard proprietary technology, but are in fact a commodity for revenue generation from licensing technology. 27,28 n increase in global patent litigation when oil prices started to drop is also indicative of the value of patents as revenue generators. 29Patent settlements as high as C$52 million in Varco Canada v. Pason Systems 30 in 2013 confirms the importance of patent litigation in the oil and gas industry, making it more lucrative than pharmaceutical litigation in Canada. 31 Despite the many advantages of patents, the manner in which they have been wielded can sometimes be regarded as anticompetitive.For example, the use of wide claims in the patent application, blocking patents, 32 non-essential patents and claims of infringement are mainly intended to deter competition but can instead hinder innovation.Strategic practices like patent aggregation 33 both through development and acquisition of technology allows firms to accumulate large patent portfolios making them a "formidable adversary". 34Because the cost of defending a patent infringement suit averaged around 2.2 million USD 35 in 2015, fear of such high costs from patent litigation can discourage smaller companies from innovating. 36In the petroleum industry this has resulted in an inadvertent technological oligopoly by major oil corporations and created barriers to entries 37 for new entrants.
Another manner in which O&G MNCs have been known to deter competition is by 'patent pooling' in which firms form patent pools and cross-license when the rights of several patents are needed to develop a certain product or when they hold blocking patents. 38Although patent pooling can have cost benefits for the consumer, it can also reduce competition and in the long term is not beneficial.The case of Standard Oil 39 described in the next section is one such instance.
Multinational oil corporations often hold patents for the same invention in multiple jurisdictions which makes it safe to license out their oil technology to the national oil companies (NOCs) of different oil-producing nations.However, they have at times used practices such as restricted licensing and non-compete clauses to stifle innovation and eliminate local competition in the host countries.Restricted licensing occurs using clauses when licensing technology to NOCs.Conditions like patent grant-backs require the licensee to grant back any improvements made to the licensed technology to the licensor. 40Some clauses even outrightly ban the licensee from conducting any R&D. 41Patent extensions through which the life of the patent is extended by patenting the improvements so that the technology is never free are also often used.In some cases, the receiver of the technology may be required to return all technical information and stop using the technology once the agreement has expired. 42Noncompete agreements prevent NOCs from conducting research that might compete with the technology of the MNC partner.Because patenting can be a luxury 43 for some due to its high cost and because local firms and inventors are less familiar with and wary of the western patenting systems, many developing nations have been slow to adopt it.
Having developing states heavily reliant on their technology has allowed MNCs to charge large amounts in licensing and royalty fees.In 2002, the royalties earned from licensing patents internationally by the US alone was about 80 billion USD. 44With the United States being the largest developer of oil technology, 45 it is no surprise that nearly 60% O&G patents produced in the US are deployed abroad. 46MNCs also build defensive patent portfolios and accumulate patents through mergers and acquisitions.These are detailed in section 3.3.

D. Significant Antitrust Cases involving Patents in the O&G Industry
Despite the alleged use of patents as "anticompetitive weapons" 47 in the oil industry, only a few cases have been processed.This is because of the difficulty in detecting and classifying any of these acts as anticompetitive and due to jurisdictional limitations.Nonetheless, the cases described below will help us understand some of the antitrust issues within the oil industry.
The 1910 case of Standard Oil Co v United States 48 was the first antitrust case of the US oil industry.Standard Oil was known for developing and patenting a superior refining technology which was highly beneficial to the American consumer.However, over several years it went on to obtain monopoly in that sector by conducting a series of unfair anticompetitive acts through the use of 37 subsidiaries.These acts included but were not limited to the acquisition, use, sale, and grant of patent licenses across the world.Standard Oil was charged guilty under the Sherman Act for price fixing by restraining competition which increased cost to consumers and was subsequently dissolved.
A similar allegation of price fixing by Atlantic Richfield Company alleged by USA Petroleum Company was not held illegal because the act was actually advantageous to consumers. 49Likewise, in Kinnear-weed v. Humble Oil & Refining Co, 50 the court found that patent infringement even wilfully committed did not constitute a crime because it did not actually restrain commerce and because the public benefit.As we can see, benefit to the consumer is key in antitrust allegations.
The 1931 case of Standard Oil Co v United States 51 is the classic example of anticompetition through patent pooling.Four petroleum firms created a patent pool by crosslicensing 46 patents creating a market dominance.The acts displayed an intent of monopoly through the division of royalties and were held as violating the Sherman Act. 52e use of wide claims in patents is commonly used to foil competitors requiring them to invent around the patent or to charge infringement.But in Oil States Energy v Greene's Energy, 53 infringement of Oil States' patent by Greene's was dismissed and the patent was invalidated because its claims were found to be weak and lacking in novelty.The court wanted patent monopolies to be kept within their legitimate scope.
In a similar issue, misrepresentation of its patent claims by Unocal 54 harmed competition and lead to unfair monopoly.The FTC came down hard against Unocal for attempting to earn huge royalties for the use of its technology after making a fraudulent claim to California Air Resources Board.Unocal was subsequently found guilty.
Despite a handful of lawsuits in the US, the antitrust sensitivity of the oil industry is low. 55In many jurisdictions, patent protection has priority over anticompetition.For example, in Korea patent abuse is extremely hard to prove because of the occurrence of "sham" litigations and in Brazil and Spain the burden of proof for anticompetitive acts falls on the claimant who can be held liable if the claim is determined to be in bad faith. 56

II. THE CASE AGAINST O&G MNC PATENTS -EVIDENCE OF THE TECHNOLOGY GAP
Petroleum operations are divided into three portions: upstream, midstream and the downstream sectors.The midstream sector focuses on the storage and transport of oil and gas, whilst the downstream sector includes oil refineries and distribution plants.The upstream sector where the exploration and production (E&P) occurs is the most innovative sector.Here, technologies to extract oil efficiently and maximise production using conventional and unconventional methods are developed and patented by O&G corporations.But in order to increase the competitiveness among themselves, the petroleum industry has resorted to closed innovation methods 57 and patent strategizing which have morphed into their use as an "offensive competitive weapon" 58 with repercussions beyond borders.This can be clearly observed in the technology dichotomy between the developed countries like US, Europe and Japan which possess the oil technology and the developing oil-producing countries.

A.
The Technology Gap 59 An ideal and balanced scenario of the petroleum industry would have comprised of MNCs of advanced states sharing their technology with developing host states in exchange for petroleum for use in their home state.But, because many O&G MNCs were often stronger than the developing countries and were motivated purely by commercial gains, they closely safeguarded their technology and used it as leverage to obtain access to the reserves and in some instances completely exploited the nations and damaged their environments. 60,61 he MNCs felt justified in guarding the technology they licensed to the host state NOCs because they spent considerable time and resources to develop them and the NOCs did not take initiatives to innovate.In fact, prior to the 1980s more than 80% of R&D expenditure was borne by only eleven of the main oil companies. 62However, patent protectionism took an ugly turn when MNCs started to place restrictions on the users of their technology such as patent grant-backs, 63 non-compete clauses and restricting innovation of the licensee including outright bans on their R&D.These restrictive clauses were included in the licensing or technology agreements between the IOC and the NOC and have previously been described in section 2.3.I refer to these clauses as anticompetitive practices because they would not have met the standards of the US antitrust laws had they been within its jurisdiction. 64Because the oil industry is mainly a process-based industry, 65 a large part of the proprietary technology is retained in the "know-how" 66 of the personnel.Therefore, to prevent technology leakage, MNCs employed expatriate technical personnel in crucial technical areas and limited the local workforces' access to them.Some MNCs also "colluded" with corrupt host governments "against the best interests of the local population". 67Often two foreign firms engage in a competition to gain market share through their patented technology, which creates a sort of duopoly deterring the local firms.acts have collectively reduced the technology transfer into the host state, created barriers for new entrants, reduced competition, effectively constrained domestic innovation and created 'foreign dependency'.
Much pressure has been applied on developing states keen to receive Foreign Direct Investment (FDI) to adopt certain "good policies" 69 to guarantee the minimum standards of protection for developed countries' technologies defined by TRIPS.TRIPS has thus resulted in large implementation costs 70 for the developing countries and also led to higher royalty payments for licensing patented foreign technology. 71TRIPS was also not easily assimilated by inventors in the developing states because of its high cost and a lack of trust in the patent system leading them to conduct their research in secret to avoid being copied.This unfamiliarity with the western patent system, a "culture of secrecy" and the high cost of patenting deterred many inventors in Africa. 72TRIPS's main flaw was in assuming that MNCs would freely transfer their patented technology and assist in the capacity building of the host states in exchange for patent protection. 73Though art.7 74 did outline these requirements on the part of the developed nations, they have not been enforced.Other intrinsic limitations of the oil-producing states such as poor legislation, enforcement, corruption, lack of innovative capability and poor technological absorption worked to the advantage of the O&G MNCs and resulted in the creation of a substantial technology gap.By prioritizing international IP protection over endogenous economic and technology transfer incentives, TRIPS failed the developing countries! 75r several decades, the NOCs of developing countries have consistently shown lower patent growth than the IOCs of developed states evidencing the technology gap.In recent years there has been an increase in the number of filings from NOCs of China, Brazil and Norway. 76owever, many NOCs still lag behind their IOC counterparts.Another way to ascertain the internal technological capability of a country is to analyse the number of resident patent filings.By examining the patent filings in WIPO in 2017 we can see that in developed countries like the US, Japan and Europe, resident filings are high whereas in developing oil-producing nations like Brazil, South Africa, Malaysia and Mexico, the non-resident filings account for more than half of the patent applications. 77In addition to showing evidence of the technology gap, what this tells us is that foreign MNCs in those countries still hold a monopoly.
Nigeria is one such oil-producing state whose resident patent filings for several years was as low as 1%. 78Nigeria and the other country examples presented below will demonstrate the incidence of anticompetitive patent practices by O&G MNCs and their adverse impact on the technology growth of the host nation.

B.
Nigeria and Other Countries that did not Sustain Technology Growth Foreign MNCs that brought their technology to extract oil in Nigeria have not only destroyed the ecosystem of the Niger Delta 79 but may have also impeded its technology growth.During the 1970s and 80s, a large volume of foreign technology was brought into Nigeria through FDI, contracts and licensing.But growth of domestic technology did not occur as a consequence of extrinsic and intrinsic factors and for several years, the ownership of patents in the Nigerian patent office by Nigerians was consistently only about 1%.Intrinsic factors included a lack of capital, poor technological infrastructure, lack of government support for R&D, lack of trust in the patent system, and other political and economic reasons.But the main extrinsic reasons were the private foreign companies that operated in Nigeria.Although the Nigerian patent office was created with the primary intention of enabling an inflow of foreign technology from MNCs which would lead to knowledge 'spillovers' 80 to their subsidiaries or links which in turn would kindle local inventiveness, the reality was far from it. 81The MNCs in Nigeria which conducted the petroleum operations, actively patented their technology in the Nigerian patent office to obtain market share.Because of their considerably high resources and experience in comparison to the local inventors, they dominated not only the patent office but also the market effectively eliminating local competition. 82Often, a mismatch between the technology being transferred and the domestic capability also hindered technology absorption.During this period, the foreign MNCs also used a few anticompetitive means to restrict local innovation.43.7% of the license agreements included clauses for patent grant backs and 64.3% of the contracts banned R&D of the domestic licensee. 83Although Nigeria did make changes to its legislation such as the "local content development programme" which required inclusion of Nigerians in technology transfers, the ultimate outcome was merely the production of good Nigerian "workers in a process tightly controlled by foreign expertise, without any transfer of technology". 84Even after 50 years of oil industry operations Nigeria could not overcome its intrinsic limitations 85 and has consequently been technologically stunted.The anticompetitive patenting practices of 'resource-seeking' 86 oil corporations have been partly to blame.
Brazil is another nation whose oil technology was under foreign dominance for a long time.Foreign MNCs in Brazil had significant freedom in conducting petroleum operations and actively used anticompetitive methods to eliminate the domestic competition. 87Despite being aware of the abusive market dominance by the foreign MNCs, Brazil's NOC Petrobras 88 did not intervene because it needed them to conduct its operations.Instead, it focussed on developing its internal innovative potential by remaining close to the MNCs and learning from them.This strategy paid off when Brazil's oil reserves were discovered in 2007 allowing Petrobras to grow into a self-sufficient technology producer. 89Petrobras's success story is detailed in section 4.3 as a nation whose technology growth was not stifled by the O&G MNC patenting practices.
However, this has not been the case in African nations like Ghana.Ghana's nondevelopment can be attributed to a corrupt and dysfunctional political system that conducted petroleum operations through agreements with foreign MNCs, some under the table, with the state always at the losing end. 90Ghana has since made changes to its policies, mandated "local content" inclusion in petroleum agreements with foreign companies and also undertaken technology collaborations with them.It has also chosen to form a partnership with Norway in an effort to emulate the success of Norway's oil industry in developing its technology. 91Whether Ghana will be successful in breaking free of foreign technological domination is yet to be seen.
Many Less Developed Countries (LDCs) in Africa such as Zimbabwe, suffered a fate like that of Ghana and Nigeria.Even in Asia and South America despite the presence of large FDI, technology spill over was actually found to be negative. 92These cases illustrate how the anticompetitive practices of MNCs in an oil-rich state already rife with internal limitations, can technologically cripple it.
Another manner in which IOCs have continued to maintain their technology dominance in the oil industry is through mergers and acquisitions (M&As).These are described in the next section.

C.
M&As in the O&G Industry 85  Mergers or "amalgamation of undertakings" 93 among corporations are common in the oil industry due to their many benefits predominantly cost savings.The 1999 merger between Exxon and Mobil resulted in cost savings of over 7 Billion USD and the ConocoPhillips merger of 2004 resulted in a saving of 1.9 Billion USD within sixteen months. 94Mergers also enable firms to undertake large scale projects and capacity expansions, manage the risks associated with E&P and improve their efficiency. 95Some mergers are conducted in order to increase the scope of R&D and to enable better management of innovation capabilities in a larger scale. 96ergers are one way through which oil corporations gain monopoly or market share.
Acquisitions on the other hand take place when O&G corporations purchase or acquire smaller firms who possess key technology in order to increase their business portfolio.This can be advantageous to obtain market share in a specific sector, and even lead to cost savings for the consumer.Because the O&G industry is a conservative industry, the buyers of technology have preference for well-known names and newer firms struggle to get market acceptance.In such instances, the new technology companies prefer to be acquired by larger better-known firms. 97t although the benefits of M&As are many, they possess another side.Sometimes O&G corporations acquire smaller firms who are their competitors and or to build a large defensive patent portfolio.Nowadays even small oil MNCs from developed states have started to develop defensive patent portfolios to deter competition and to become more attractive for acquisition. 98Such M&As reduce competition and allow for the concentration of technology in a few hands. 99nce, governments of developed nations closely scrutinize M&As for antitrust issues that might adversely affect the consumers within their market.For example, the merger of Halliburton and Baker Hughes in 2016 that would have allowed greater than 50% ownership in 3 markets 100 and led to monopoly was challenged by the U.S. Department of Justice on antitrust grounds.Mobil Corporation's intended hostile takeover of Marathon Oil Co in 1981 raised anticompetitive concerns due to concentration of power and ownership of oil reserves. 101lthough mergers in the oil industry are challenged more often than those in other industries particularly in the US, 102 many anticompetitive issues remain because the IP issues are often overlooked.In my opinion, cost savings resulting from mergers that are ultimately passed on to the consumer are often prioritized over patent aggregation.
In the international level M&As are not regulated and developing nations have been impacted by mergers which may result in cost savings for consumers in the home country of the MNC but creates technology monopoly in the host state.The Baker-GE merger significantly increased its technology portfolio, and Schlumberger-Cameron merger increased its market share by 45% in 25 international markets. 103The sheer size of these corporations and their substantial patent portfolio can deter new and smaller entrants into the market.International mergers have so many far-reaching consequences that improved regulation and stringent enforcement is essential. 104Hence, some African nations such as Nigeria have put into place committees and measures to regularize mergers. 105 chapters 2 and 3, I presented my case against the manner in which patents are wielded by O&G MNCs and how they impeded the technological growth of some countries.In the next chapter, I present the counterargument.

III. THE CASE SUPPORTING O&G MNC PATENTS
A.

Evidence of Technology Transfers and Collaborations
In this chapter, I examine the technological growth of a few oil-producing states and analyse what role if any the MNC patents played in them.I will pay particular attention to the technology transfers and technology collaborations between MNCs and host states as these provide evidence of MNC facilitating their technological growth.But before launching into these examples, it is important to understand how the ownership of technology among the O&G MNC has evolved over time.

Evolution of Technology Ownership in the Oil Industry
Through the many geo-political upheavals and oil crises, major oil corporations have recognised the importance of continuous innovation in the oil industry.By substantial investments in R&D, oil corporations accumulated large patent portfolios in order to maintain their competitive advantage.But the oil crisis of the 1980s was worse than the previous ones and caused oil corporations to reduce innovation expenditure and divest their R&D segments. 106It was during this window that the NOCs of developing nations and the oilfield service companies gained a technology foothold in the industry. 107The newly formed oil service companies' main business was the development of oil technology.During this period and since then oilfield service companies invested heavily in R&D and have consequently grown to become the new technology MNCs.The 2014 global survey of oil and gas patents clearly shows the oilfield service companies as the leaders. 108These oilfield service companies 109 have also assisted several NOCs in building their technological competence. 110aving ceded technology control to the oil service companies in the 1980s, the oil majors over time needed new partners to share R&D costs and subsequently opened up to collaborations. 111Despite previously preferring to conduct R&D activities in their home country, factors like reduced cost and the improved technical capability of some host states have led MNCs to also internationalise their R&D. 112Technology transfers have also become important to the oil corporations due to the benefits of higher returns resulting due to the effective use of technology, 113 and reduced costs due to use of local workforce. 114Despite the advantages of collaborations and technology transfers, many intrinsic factors of the host state influence the attitude of the MNC in adopting these methods.These are described in the next section.

B. Technology Transfers and Collaborations among MNCs and Host States
Petroleum operations are normally conducted using concession contracts, joint ventures, production sharing contracts or service contracts. 115Knowledge of petroleum operation is especially important to oil-producing states because foreign firms might exit the oil fields and future operations need to be addressed. 116But in most petroleum operations only the importation of high-technology tools and expatriate personnel results without any real technology transfer.Real technology transfer involves not merely the exchange of explicit information stored in patents, manuals, procedures and blueprints, but also exchange of tacit know-how through training and collaboration. 117The basic factors which affect whether and what technology the O&G MNC transfers into the state are strength of its patent regime, the technical capacity of its oil industry, and other government incentives for the MNC.
The first factor affecting MNC technology policy is the strength of the host state's patent regime.In evaluating the strength of a patent regime, the features that MNCs look for are, membership in an international treaty, sufficient duration of patent protection and strong enforcement for patent infringement. 118Therefore, nations keen to benefit from technology exchange and transfer tend to comply with the TRIPS regulations and provide a reasonably strong patent protection and enforcement schemes for foreign-owned patents.In states with strong IP regime, foreign MNCs do not hesitate to license their patents,119 transfer technology and collaborate because they have no reason to fear imitation.Norway is the perfect example of such a nation which as a result of its internal initiatives circumvented restrictive patenting practices and grew technologically.I will discuss Norway in detail in section 4.4.
In nations with weak IP regimes, only indirect technology spill overs are possible because MNCs prefer to conduct their activities through their direct subsidiaries, use expat personnel in key technical areas and avoid licensing their patents in order to restrict the flow of knowledge. 120Weak patent rights also lead to reduced exports or FDI 121 from countries like the US. 122Countries with weak IP regimes and weak imitative capabilities like the African countries, continue to be technologically monopolised by foreign MNCs. 123Countries that have weak IP regimes but have high absorptive capability such as China, have a high risk of imitation.Although imitation played a large part in the manner in which the United States built its technological competence, it is less tolerant of its own technology being copied.Nonetheless, using this imitative strategy China has surpassed Japan and closed in on the US in the number of international patents filed. 124e United Nations has acknowledged that technology collaborations are the best way to transfer or exchange technology 125 and the sharing and exchange of patents is known to increase global innovation and technology. 126t aside from the strength of its patent regime, the technical capability of a country determines whether MNCs undertake technology transfers and collaborations with it.Studies show that steps taken by the developing countries towards building internal technical competence were taken as a positive sign by MNCs. 127Building internal competence within a state increases competitiveness among local firms, which in turn induces MNCs to transfer high quality technology to their subsidiaries. 128When host states increased their technology level independently, MNCs were even open to conducting R&D operations with them.
The examples given below show evidence of the above.These oil-producing states successfully engaged in technology collaborations with MNCs and benefited from increased technology transfers once they strengthened their patent regime and improved their internal technological competence.The exchange of patented information and absence of patent strategizing in these collaborative efforts proves that O&G MNCs did not stifle the technology growth in these instances.

C. The case of Petrobras
Brazil had for the longest time imported oil to meet its energy needs.But all that changed with the discovery of the oil and gas reserves in the country's South-eastern coast in 2007.The discovery of this ultra-Deepwater reserves by its NOC Petrobras created the possibility of turning Brazil into a substantial oil producer. 129Having worked closely with MNCs over the previous decades and tolerated their anticompetitive behaviour, Petrobras had quietly developed its internal technological capability.But, despite having the technical knowledge in Deepwater exploration, the harsh environment of its ultra-Deepwater reservoirs could not be conquered without substantial R&D, because the technology to do so simply did not exist. 130Therefore, Brazil's federal government put together new long-term development goals prioritizing R&D for a dynamic and strong technology-based oil industry. 131The country focussed on independently increasing its technological level in the oil sector by using an openinnovation method and collaborating with universities, vendors and other industry counterparts. 132Petrobras also collaborated with other O&G MNCs and formed strategic alliances with those possessing relevant technology. 133As a result, it has grown into a highly regarded technology NOC self-sufficient in the area of ultra-Deepwater exploration. 134etrobras has also gained access to resources of other countries through operating licenses and become a competitor to other O&G MNCs. 135noteworthy increase in its patent filings at the Brazilian patent office between 2001 and 2010 is evidence of its technological growth. 136 filings at the USPTO 137 support the technological significance of these patents. 138Although the technological growth of Brazil was at one time impeded by the anticompetitive practices of O&G MNCs, it broke free of foreign domination in two phases.The first phase consisted of it improving its intrinsic technical capabilities through domestic initiatives, and the second phase involved it making strategic alliances and collaborations with O&G partners to advance to the next level of technological self-sufficiency.Although not all oil-rich states who increased their technology followed the same path, many similarities can be seen.These are presented in the next section.

D. Other NOCs and their Technology Growth Path
Norway has already been highlighted as the shining example of an oil-producing nation that transformed itself into a competitive oil technology producer within 20 years. 139By examining the steps Norway undertook to build its technical competence, we can develop a path for other oil-producing states that hope to do the same.When oil was discovered in Norway in the 1950s, the tremendous impact it would make on its economy was not expected. 140The Norwegian personnel had no experience in operating and managing petroleum operations and for that reason, foreign MNCs were allowed to carry out these operations under the precondition of training the Norwegian counterparts.Subsequent collaborations with foreign companies caused a transfer of knowledge into the country and resulted in the ultimate strengthening of its intrinsic technical capabilities.Norway's story supports the theory that O&G MNCs did not impede its technology growth but instead enabled them to share their technology when assured of patent protection.
The Malaysian NOC Petroliam Nasional Berhad 141 did not exist when oil was discovered in the country and foreign IOCs were the ones who developed its oil industry. 142owever, two decades later the production rates started to decline and the country had to take control. 143Malaysia's newly formed NOC Petronas achieved this by moving its technical operations abroad in order to avoid governmental interference, focussed on innovation and subsequently developed enhanced oil recovery methods for the wells back home. 144Petronas also adopted new policies and formed strategic alliances with MNCs in order to increase domestic innovation and has subsequently built itself into a technology superpower. 145nezuela's NOC Petróleos de Venezuela, S.A. 146 had also broken free of foreign dominance and built itself up to be a technology leader similar to the path of Petrobras.However, the recent political upheavals have allowed its technical competence to deteriorate.Venezuela's story highlights the need to continuously prioritise innovation or else short-sighted governmental polices could result in technological setbacks.147 Other reasons for the poor technology growth of NOCs from certain oil-rich nations are the availability of easy oil and the reliance on their "monopolistic position" 148 leaving little need to innovate.A prime example of this is the Kingdom of Saudi Arabia. 149For decades, the Saudi Arabian NOC Saudi Aramco 150 did not aggressively accumulate patents allowing foreign oil companies to have a technology monopoly.But in recent years, the country has prioritized innovation with autonomous Saudi Aramco at its forefront and drastically increased its patent filings.151 By adoption of an open innovation model, 152 the creation of strategic alliances with foreign countries advanced in oil technology, collaborations with educational institutions, oil service companies and other technology providers, increased investment in R&D and funding of start-up ventures, Saudi Arabia has attempted to emulate the Western innovation and patenting model.153 As a result of these initiatives, the ownership of patents by Saudi Aramco in the Saudi Arabian patent office has grown to the level of the super majors.154 The forward citation of patents owned by Saudi Aramco is further proof of its technological advancement.155 The technology growth path of Brazil, Norway, Malaysia, and Saudi Arabia show that O&G MNCs share their patents through collaborations, licensing and technology transfer so long as they are protected from infringement and provided the states take initiatives to increase their technology independently.As a result, these countries are technologically self-sufficient and among the leaders of oil technology.Among state-owned firms, Equinor and Petrobras are among the largest patent producers of today.156 The factors which led to the technological growth of these countries and those that led to the absence of it in others have been identified in the last two chapters.Based on these, I suggest reforms for other nations to adopt and attain technological independence in the next chapter.

IV. THE FUTURE OF THE O&G INDUSTRY AND WAYS TO DECREASE THE TECHNOLOGY GAP
Prior to launching into the recommended reforms, I touch upon the subject of patenting within the Shale operations because it will have a significant impact on the future of the O&G industry.

A. The Shale Technology Revolution
The presence of hydrocarbon in earth's shale formations has been known to man for a long time.But tapping into the formation to extract the oil and gas had been a technological challenge for many years.The extraordinary way in which this was achieved in the US illustrates the proper way to foster innovation. 157Although many factors contributed to the shale revolution, most of it has been credited to the unwavering effort of George Mitchell.Mitchell collaborated with the US government and other industry counterparts using an open innovation method.By risking millions of dollars over two decades synthesised a new method of 'fracking' the shale formations by combining the technology of horizontal drilling and 'slickwater' fracturing and adapting it for shale gas extraction. 158These efforts paid off in the late 1990's resulting in the Shale Boom of 2001.During the course of its development Mitchell and his successor Devon Energy did not patent any of their technology, which enabled others in the industry to use it freely.Despite not patenting their technology or gaining any royalty payments, the company made significant profits.The story of the US shale fracking revolution is the perfect instance where "restraint in patenting" 159 and use of open innovation and collaboration enabled a technological transformation.As a result, the US has grown to be one of the largest producers of hydrocarbons and a world leader in shale gas technology.
The socio-economic impact of shale technology to the developing world will be minimal because nearly 43% of the world reserves are in highly developed countries, 33% in the MDCs and only 3% in the LDCs. 160For developing countries like Algeria, South Africa and Bulgaria which possess a few shale gas reserves, the technology may possibly even be detrimental due to weak regulatory systems leading to environmental consequences from fracking. 161The US and China are the top two applicants for patents in shale technology, the only difference being that private companies own the technology in the US which is already in the commercial domain, but in the case of China, the patents are not yet close to commercialization. 162Despite the technical ingenuity of Chinese innovators in exploring for oil abroad, 163 they lack the cutting edge technologies to tap their own shale formations which are more complex than those present in the US. 164And though China has larger reserves than the US, 165 without collaboration with US companies and technology transfer from the US they cannot tap their reserves because much of the tried and tested shale gas technology is held captive in patents owned by the major oil corporations in the United States. 166But US firms hesitate to collaborate with China because of risk of imitation in a weak IP regime.China has amended its IP laws after the US exerted pressure in the WTO, but there are still concerns. 167he Chinese "Bamboo Capitalism" 168 which involves operating outside the bounds of legal rules is also a deterrent to importing technology.The Chinese instance highlights the need for a strong patent regime for increased technology transfers and collaborations.
In Europe, the recoverable shale reserves small and are present in complex formations making them difficult to extract. 169Hence despite the presence of oil corporations like Total, 170 BP 171 and Equinor 172 with decades of technical experience in conventional techniques, the lack of experience in unconventional hydrocarbons makes them dependent on the US. 173Likewise, most MDCs and LDCs possessing shale reservoirs will also have to rely on US technology.In a sense, there already exists a technology gap between the US and the rest of the world regarding patents in shale technology. 174Because concentration of technology causes a technological monopoly and can bring up anticompetitive issues, steps must be taken to avoid a repeat of the technology dichotomy of the past oil industry.

B. Recommendations and Reforms to Close the Technology Gap
Despite nearly 100 years of oil industry, 175 MNCs of developed countries still hold most of the advanced technologies through "technical imperialism" 176 as described in the previous chapters.Although NOCs of oil-producing states now have 90% ownership of the hydrocarbons whereas in the 1970s they only controlled 10%, the petroleum technology is still controlled by the MNCs. 177Only a few oil-producing countries like Norway have closed the technology gap and a few others like Brazil and Malaysia have gained technological independence.But many other oil-producing nations are still technologically deficient.Although this can be attributed to the intrinsic limitations of the state and an inherent lack of absorptive capability, 178 one cannot dismiss the effect of anticompetitive methods practiced by MNCs as being partly to blame.
In the past, oil corporations were mainly "resource-seeking" 179 or "efficiencyseeking" 180 and had no compunction for local development.In contrast, the "marketseeking" 181 corporations like the oil service companies of have positively contributed to the technology development in nations like Brazil.But in recent years, even major oil corporations have realised the advantages of teaming up with NOCs to benefit from reduced costs and higher returns.
Innovation is essential for the host state if it wants to take control of its technology, break free of foreign domination, to diversify because oil will run out and also to close the technology gap.This can be achieved by independently developing and patenting technology, through transferring or purchasing technology and through technology collaborations.MNCs play a significant role in the second and third way of bringing developing nations to the standards of developed nations through the sharing of patented technology.This is especially crucial for states whose internal capability is limited and cannot achieve technological growth without significant support from the MNCs.But this requires a convergence of attitudes among developed and developing countries and result in reforms for co-operation, collaboration and technology transfer intended to bring maximum benefit for a larger group of people as opposed to prioritizing economic returns for MNCs.The Newly Industrialized Countries 182 whose NOCs have become the MNCs of today also provide a basis for developing reform to stimulate innovation and technology growth.Some such reforms are presented below.Although the list of dos and don'ts is not comprehensive, the suggestions made in here should be useful in developing a potential road map for developing nations wishing to close the technology gap.They are grouped under seven subheadings.

Strong but Flexible Patent Regime
Evidence of increased technology transfer from the US to countries that pose a limited threat of innovation or possess strong IP regimes was observed in the empirical models evaluated by Smith. 183The strengthening of IP rights also allowed NOCs from Brazil, Malaysia, Saudi Arabia, and Norway to build their technical competence through collaborations and technology exchanges with the IOCs. 184Thus, oil-producing nations must improve the strength of their patent laws and comply with TRIPS.However, a more flexible and efficient IP system, or as I like to call it the 'TRIPS-minus' that allows technologically deficient states an opportunity to "catch-up" 185 like the case of India and Korea 186 is recommended.The patent system should offer foreign and domestic patents sufficient protection from infringement, while at the same time reducing the cost of patent application and term of protection from 20 to fewer years.In many LDCs the cost of patenting is a huge deterrent.Therefore, patenting costs must take into consideration the affordability of the local inventors, in order to encourage the inventiveness of domestic firms and academic institutions.Shorter patent protection term can encourage additional new entrants into a market.

Increased Collaborations
Malaysia, Brazil, Saudi Arabia, and Norway have increased their technology through collaborations and strategic alliances with foreign MNCs and other countries.Other oil-rich states must apply the same methods and increase their external collaborations.Because oilfield service companies have been known to make the most technology collaborations, 187 and own the most technology and maximum number of patents, 188 it is recommended that NOCs form partnerships with them.Collaborations are needed to extend the life of the oil-producing wells, enable cost and time savings in production, improve production efficiency, create lesser environmental impact, create a sustainable growth and significantly improve the profit margins. 189MNCs also benefit from collaborations due to improved efficiency from the effective use of technology, 190 reduced production costs due to use of local workforce and even reduced R&D costs.But although collaborations can be mutually beneficial, MNCs have at times been criticised as desiring to collaborate only if the resulting technology is of benefit to them.For example, 90% of the patents in the upstream sector of the Brazilian oil industry some of which may have resulted from collaborative efforts are owned by private foreign companies. 191Despite the technical progress achieved by Petrobras, the fewer patents in comparison to the foreign the MNCs could be indicative of the dominance of foreign MNCs in technology collaborations or merely a slow adoption of the Brazilian patent system by the domestic inventors.Nonetheless, it is highly crucial that collaborative agreements between firms clearly capture the non-disclosure terms and the terms of any resulting IP.

Mandated Technology Sharing
In the upstream and the oil refining sector, states can directly purchase technology from technology suppliers, engineering contractors and through licensing. 192In such contracts and in all petroleum contracts, the NOC must make technology sharing a precondition.Simply requiring inclusion of local personnel in petroleum operations may not help technology transfers as we saw in the instance of Nigeria, therefore the training and technology transfer requirements must be properly defined.Norway mandated the training of Norwegians by the IOCs who conducted its petroleum operations in exchange for patent protection.

Independent Technology Initiatives
Opponents of the patent system believe that patents are not means to transfer technology, but only a means to control technology 193 and are not the main way to increase the technology level of a state.Instead, this can be achieved through independent technology growth initiatives such as the creation of high-quality centres of higher education, encouraging start-ups, increasing R&D funding and methods of open innovation.These methods have been known to function better when a solid patent protection regime is in place.But governments can adopt a few additional measures to encourage local innovation.For example, in Brazil, companies are required to consult with the national patent bank before acquiring foreign technology. 194

5.
Open Innovation Models The development of Shale in the US has been attributed to an open innovation model.Although the O&G industry has traditionally been known as a closed innovation system, some openness must be accepted in order to enable increased collaborations so as to enhance the technological level of the complete industry.Saudi Arabian NOC has adopted this path to enhance its technological competence and has since then shown a substantial increase in its patenting. 195

6.
Anticompetitive Controls Many LDCs and MDCs 196 have suffered as a result of restrictive licensing practices and patent strategizing.Lack of international antitrust regulation and enforcement has left these issues in the hands of national legislation. 197This system has been ineffective in weak nations with poor enforcement capabilities and because many MNCs are substantially stronger than the host state counterparts.Requiring MNC subsidiaries to be made into separate entities from their parent can make them answerable to the local government.As mentioned in section 3.2, Nigeria has recently enacted legislation to do so, and this has been useful in regulating MNC activities.However, strong domestic antitrust regulation and enforcement is extremely necessary.For example, Mexican anticompetitive laws 198 expressly prohibit the use of clauses restricting local R&D and even prohibits companies from entering into agreements for technology already available in the state. 199Brazil's antitrust regulation prohibits the use of non-compete clauses, limits the term of a licensing contract to less than 10 years and reduces the obligations of the licensee.Subsequently, the licensee is free to use the technology after having paid 10 years' worth of royalties. 200The Competition Act 201 of Zimbabwe prevents horizontal and vertical restraints of competition, abuse of dominant position and anticompetitive mergers.
The very need for these acts in these nations is proof that MNCs used anticompetitive practices in the past.

International Legislative Reforms
On the international front, though TRIPS 202 and the OECD 203 demand technology benefits for the host nation, there is no regulation or enforcement of these requirements.And though the rights to regulate and supervise the activities of a foreign MNC belong to the sovereign state under international law, 204 these have not been enforced because many MNCs are richer than the countries.The efforts of organizations like the Intergovernmental Commission on Transnational Corporations and the UN Center of Transnational Corporations to regulate the international activities of MNCs have also not succeeded 205 mainly because of the probable harm to the developed countries' economies. 206Because developed nations such as the US prioritize their strategic needs 207 and the impact to their own commerce above fairness, 208 the international regulation for anticompetition has not developed.The US supreme courts' reluctance to extend illegality into the case of the US being involved in international cartels with the middle east and British participants since 1920 209 serves to prove this point.Thus, in the absence of international regulatory enforcement, the anticompetitive practices of MNCs have continued unchecked.However, moving forward, such international anticompetitive harmonization efforts must be renewed and standards complementary to TRIPS must be developed.210These standards must regularize M&As, ban the use of anticompetitive clauses in international contracts and also provide a means for states to bring forward their grievances against MNCs.In international contracts, MNCs must focus not only on the core business and commercial gains, but on the whole social aspect of the host country which would lead to prospective opportunities. 211Although the initiatives and reforms proposed in this section can be incredibly useful, states must be aware that it is not merely enough to insert clauses into legislation and agreements, but they must also have methods to enforce them.

CONCLUSION
During the course of this paper, I have analysed two groups of oil-producing countries, one that experienced significant technological advancement and another that experienced no technological growth as a result of dealings with O&G MNCs.Having done so, I have identified the factors leading to both circumstances and also determined whether patents of the O&G MNCs played any role in these.Therefore, my response to the question "Oil and Gas Patents: Do MNCs impede the growth of technology in developing nations?" is Yes, in selected instances.These are the instances in which the host countries did not take proactive measures to improve their technical capabilities, possessed weak regulation and enforcement and were wholly constrained by their internal limitations.Although the states themselves are liable for being unable to overcome their limitations, in having taken advantage of their situations and in being purely driven by commercial gains, sometimes even wielding patents anticompetitively, MNCs have brought a portion of the culpability upon themselves.
It is an absolute fact that resource-rich developing states that lacked the capacity to innovate would not have been able to tap their reserves without the technology from the MNCs of developed nations.However, it is also equally true that not only did oil-rich states have to pay a form of "patent tax"212 to the MNCs in order to obtain access to this technology, but that they in fact paid a much greater price in some instances.While on one hand, the growth of technology in countries such as Norway, Brazil and Malaysia have been accomplished as a result of collaborations with MNCs and through the licensing and transfer of patented technology.But on the other hand, Nigeria, Ghana and other oil-producing LDCs have been unable to grow their technical competence.This can be equally attributed to intrinsic country specific and extrinsic industry and organization specific factors.Nevertheless, the intent of this paper is to raise awareness of the extrinsic factors such as patent strategizing and restrictive licensing practiced by the O&G MNCs which are at times anticompetitive and have impeded the technology growth and created foreign dependence in some host nations.These have ultimately resulted in the formation of a technology gap between the oil-producing nations and the oil technology producing nations.
Because it is my intent that this paper is of use to those nations wishing to close the technology gap, I have made certain recommendations after having evaluated the reasons for the technology growth and stagnation of different countries.These recommendations will aid the technologically backward countries to independently increase their innovation and technology.Innovation is crucial to the petroleum industry.Despite declining oil prices, firms that have prioritized innovation have managed to maintain their competitive advantage and successfully survive. 213However, the use of anticompetitive practices must not be tolerated because that defeats the entire foundation of intellectual property law due to its adverse effects on innovation albeit in foreign nations.The benefits of innovation and intellectual property rights belong to everyone and not just the few who know how to practise them!Just as a transformation in the ownership and control of the oil reserves came about through increased awareness of the issue, and culminated in pressure from the OPEC, it is my wish that a transformation in the control of the oil technology will also come about.The suggested international and domestic reforms will regulate the dominant behaviour of O&G MNCs and facilitate the technology catch-up of the developing states.

213
Hossein Hassani et al., The role of Innovation and Technology in sustaining the petroleum and Petrochemical Industry, 119 TECH.FORECASTING & SOC.CHANGE 1,6 (2017).