Protecting IP when using contractors Practical challenges for energy and resources businesses

What you need to know

• Intellectual property (IP) rights are crucial to the energy and resources sector, especially as industry operations become more sophisticated and businesses take advantage of the opportunities to innovate.  
• There are unique challenges for protecting IP in energy and resources businesses, in particular associated with the significant use of external contractors on operating sites such as mines.
• If steps are not in place to properly control and protect IP, you may permanently lose the opportunity to secure the value of that IP, and also create exposure to litigation. 

What you need to do

• Consider what IP rights your business needs to achieve its commercial objectives for each engagement and implement adequate contractual protections for your IP when engaging contractors.
• Implement practical steps to protect confidential information so that it is only disclosed where strictly necessary, especially in the context of operating sites which are often visited by personnel from a range of companies.

Energy and resources is a highly concentrated and specialised sector which frequently relies on external contractors such as consulting engineers, software developers, mechanics and installers.  Engaging external contractors can create a range of IP risks which must be effectively mitigated to maximise your business' investment in research and innovation.  

Case studies – the dangers of site

Energy & resources sector businesses engage specialist contractors for onsite works more frequently than most other sectors.  External contractors may be exposed to key confidential information of a business (or its other contractors) in the course of carrying out their duties.  For example, industrial engineers from suppliers who attend mine sites to perform maintenance services could gain access to information about the goods and services of their competitors, new technologies of the mining company, or other confidential data or information.

Unauthorised disclosures of confidential information may put your competitive advantage at risk. Once confidentiality has been lost, it is difficult (and is often impossible) to rectify.  Confidentiality is also important for potentially patentable technologies, which generally must be kept confidential until any applications are filed.

It is therefore critical for businesses in the sector to take proactive steps to identify and address the risk of disclosure of valuable intellectual property on each occasion where a contractor is engaged.

Quaker v Fuchs – Disclosure in the mine car park

A recent example illustrating the risks of disclosing confidential information in the energy and resources space is Fuchs Lubricants (Australasia) Pty Ltd v Quaker Chemical (Australasia) Pty Ltd (2021) 284 FCR 174).

In that case, two patents for a method to identify high pressure fluid injection (HPFI) injuries from hydraulic fluids in mining applications were found to be invalid because the invention had been publicly disclosed twice before the patent applications were filed.

The case was brought by Quaker Chemical, who had purchased the technology and patents from the inventor, Mr Thompson.  Quaker commenced patent infringement proceedings against a competitor in the supply of industrial fluids, Fuchs Lubricants, and was initially successful before the Federal Court of Australia.

On appeal, the Full Court held that both patents were invalid, because the evidence showed that the inventor had disclosed the technology without a confidentiality regime in place, prior to making the relevant patent applications.

The inventor, Mr Thompson, was contracted to provide HPFI safety training at a Peabody mine site.  In this context, he had the idea of using fluorescent dye (which is already used in hydraulic fluids for leak detection) for detecting HPFI injuries.  To progress this idea, Mr Thompson:

• contacted the manager of Peabody's Metropolitan coal mine regarding running trials and experiments to test the method; and
• demonstrated the invention to Peabody staff in the carpark at the Metropolitan coal mine on a pig skin model.

Fuchs successfully argued that these two disclosures were not subject to any confidentiality restrictions, and therefore the invention had been "publicly" disclosed.  This meant that the patents (which Quaker had purchased and invested time, effort and cost in prosecuting through to grant) were invalid - denying Quaker the benefit of a 20 year monopoly to commercialise the claimed invention.

Howden v Minetek – The dangers of a mutual customer's site 

Another ongoing case which demonstrates the risks of inadvertent disclosure of potentially sensitive information on operating sites is Howden Australia Pty Ltd v Minetek Pty Ltd [2019] FCA 981.

At the interlocutory phase, the Federal Court heard that a senior Howden design engineer had left Howden and commenced work at Minetek.  Minetek later developed a high-output axial mine ventilation fan which Howden claimed placed Minetek in "direct competition" with it. We will comment more on the risks associated with departing and incoming employees in a subsequent article in this series.

Unfortunately for Minetek, a Howden employee visited a mutual customer's mine site and was able to access a prototype Minetek ventilation fan, inspect it and take photos.  These photographs alerted Howden to Minetek's entry in to the secondary mine ventilation space, and triggered Howden to commence proceedings seeking a range of orders against Minetek based on claimed similarities between the Howden and Minetek fans. 

Practical considerations

There are a range of cost effective and straightforward steps that can be used to mitigate these risks, such as the following.

• Require contractors and site visitors to enter into appropriately robust confidentiality arrangements if they may have access to confidential information or trade secrets of the business.  These arrangements should specify, as clearly as possible, the confidential information which the contractor or visitor will have access to and the limited purpose for which that information is to be used..
• If you are a supplier, implement policies and procedures to ensure that your business' confidential information is not inadvertently disclosed by personnel to customers or competitors.  Practical steps such as making staff aware of what information is confidential and must be protected are often just as important as legal mechanisms.
• Consider additional controls to prevent leakage of confidential information, such as requiring contractors to be supervised when onsite in sensitive areas (eg, where research and development or new product testing is taking place) and implementing technology monitoring or bans for those on site as well as restrictions on the use of USB storage and data uploads from business devices.
• Physically isolate the most sensitive confidential information or data, to ensure it is accessed only on a need to know basis (eg, store the key algorithms or machine learning models of a digital solution on a separate server to the product itself).
• Maintain a register to track confidential material provided electronically or in hard copy to contractors.

Next steps 

IP rights must not be overlooked when engaging external contractors.  Effective contractual and practical protections must be in place to protect your business' confidential information and maximise the opportunities to secure value from your IP.

As illustrated above, poor management of confidentiality and sensitive information can thwart applications for a patent and the valuable monopoly a patent would bring as well as increase the risks of litigation.

In the next article of this series, we will discuss how to manage employees and embedded contractors when developing your business IP protection strategy.

Authors: Nina Fitzgerald, Partner; Tim Rankin, Senior Associate; Claudia Lewis, Senior Associate; Vivien Lin, Graduate; Lauren Howe, Graduate.