A Pair of SAGD Cases Highlight the Application of Purposive Patent Claims Construction: Swist v MEG Energy Corp and Betser-Zilevitch v PetroChina Canada Ltd

March 3, 2021
By Joshua Spicer

The Federal Court recently issued two trial decisions in patent infringement proceedings related to the extraction of heavy oil (or bitumen) from tar sands deposits in Alberta. Each involves a technology referred to as steam assisted gravity drainage (SAGD) and, coincidentally, was brought by the inventor of the patent in issue against a major oil producer. The Federal Court dismissed both cases. In each, it applied a purposive approach and arrived at a narrower claim construction than that sought by the inventor resulting in a finding of non-infringement. The cases illustrate the potential downfall of pursuing an overly literal construction, and the importance of considering claim language in the context of the entire patent specification.       

Swist v MEG Energy Corp

On January 10, 2021, the Federal Court issued its public Judgment and Reasons in Swist v MEG Energy Corp, dismissing the plaintiffs’ claim for patent infringement over the defendant’s heavy oil extraction methods.1 Justice Fothergill also held that the 746 Patent in issue was invalid on the basis that the claimed subject matter was not new or useful.2

The 746 Patent, entitled “Pressure Assisted Oil Recovery”, relates to a method of injecting steam into oil wells to improve production over traditional SAGD methods. SAGD involves the injection of steam into a horizontal “injector” well positioned above and parallel to a horizontal “producer” well. The steam heats oil trapped in the formation surrounding the well pair and allows the oil to flow into the producer well where, together with water from the condensing steam, the mixture can be pumped to the surface. The process takes years. The 746 Patent claims a method where steam is injected into a third well positioned in between the injector and producer wells.3 In particular, following the injection of steam into the injector well, claim 1 of 746 Patent specifies “generating a large singular zone of increased mobility” by injecting more steam into the third well.    

Construction of the term “generating” proved decisive. The parties and experts agreed that the injection of steam would create “steam chambers” surrounding the wells, and that these chambers would eventually merge to create a large singular zone of increased mobility. Swist argued that “generating” only required that the third well “positively influence” the generation of a large singular zone of increased mobility. Justice Fothergill disagreed. He held that the purpose of the invention is to accelerate the process and improve the percentage of oil recovered. He therefore concluded that injection into the third well must have a material and substantial effect on the speed with which the steam chambers merge and their ultimate dimensions: “Injection of the third well must cause the merger of the steam chambers to occur sooner than would otherwise be the case, and ultimately permit the operation of SAGD over deeper oil sand formations”.4

MEG employed a process where it injected steam into a third well; however, it did not inject the steam for the purpose contemplated by the 746 Patent. Justice Fothergill concluded MEG did not infringe because Swist did not establish MEG’s process has the effect of “generating” a large singular zone of increased mobility, as the term was construed.5 The evidence showed that MEG did not inject enough fluid for a sufficient length of time, and only did so to heat up the well and put it on production.6 In contrast, MEG’s experts testified the simulations in the patent show continuous injection for up to 10 years of volumes several orders of magnitude greater than MEG’s operations.7 In other words, although MEG injected steam into a third well, it did not do so for or accomplish the purpose contemplated by the 746 Patent. It did not use the invention.

Betser-Zilevitch v PetroChina Canada Ltd

Barely two weeks after the decision in Swist, Justice Manson on January 26, 2021 issued the Federal Court’s Judgment and Reasons in Betser-Zilevitch v PetroChina Canada Ltd.8 He dismissed the plaintiff’s claim on the basis of non-infringement of the 627 Patent in issue, but upheld the validity of all claims.

The plaintiff, Betser-Zilevitch, asserted claims 1-8 of the 627 Patent, entitled “System and Method for Steam-Assisted Gravity Drainage (SAGD)-Based Heavy Oil Well Production”, and alleged infringement based on the construction and arrangement of PetroChina’s heavy oil well “pads” (called “MRCP Modules”). A well pad refers to a collection of multiple injector and producer well pairs. The well pads are connected to a central processing facility through kilometers of flow lines. Justice Manson described the subject matter of the 627 Patent as follows:

The 627 Patent generally relates to a modularized SAGD well pad for heavy oil production and a method for its installation, describing the structure and orientation of equipment, flow lines and instrumentation used on the modules and at the well pad site. This includes, for example, the placement of cable trays, walkways, stairways, piping and the location of flow lines on various levels of the modules. The 627 Patent teaches a system and method for producing heavy oil or bitumen economically by SAGD.9

Again, claims construction determined the outcome. The parties disagreed about the meaning of several claim terms. In particular, both independent claims 1 and 4 specify systems for heavy oil production having, inter alia, a “first level” and a “second level”. The claims specify the first level as “having a plurality of flowlines”. However, PetroChina’s MRCP Modules have several levels, with the steam injection flow line positioned on the lowest level, and the heavy oil production flow line supported above on scaffolding.10 In order to avoid infringement, PetroChina argued the term “level” refers to a single horizontal elevation or plane. On the other hand, Betser-Zilevitch sought to have the terms construed to mean an “amorphous functional volume above the ground” to support a finding that both flowlines (i.e. a plurality) are on the first level.

Justice Manson rejected both proposed constructions, finding that PetroChina’s was too limited and Betser-Zilevitch’s so broad “that it circumvents the benefits of the 627 Patent.”11 Instead, “in light of the ambiguity” in the claims he turned to the “function and objects” of the 627 Patent.  Applying a purposive construction, Justice Manson concluded a skilled person “would understand the first level is constrained by the flow lines being connected on a lower level, without the need for or use of scaffolding.” In doing so he relied on a statement in the patent specifically identifying the elimination of scaffolding as an advantage of the invention: “The location of the pipe at the lowest possible point eliminates the need for scaffolding, reduces the safety issues, increases the productivity, and reduces the cost.”12 Since the heavy oil production flow lines in PetroChina’s MRCP Modules were elevated on scaffolding, Justice Manson held they were not located on a “first level” and dismissed Betser-Zilevitch’s claim for infringement.

Neither of these results is surprising. MEG avoided infringement because its steam injection operations differed significantly from those contemplated by Swist’s patent. Similarly, PetroChina’s MRCP Modules used scaffolding and were of a different construction and arrangement than the systems for heavy oil production of Betser-Zilevitch’s patent. Both patentees were seeking generous constructions apparently at odds with an informed and purposive reading of the whole of their patent specifications. Although these cases went to trial on all issues, it seems these decisive construction issues may have been appropriate for summary adjudication.

1 2021 FC 10.

2 Interestingly, the defendant’s counterclaim for invalidity based on obviousness was dismissed, notwithstanding the judge had already found there to be no difference between the prior art and the invention for purposes of anticipation.

3 Ibid at ¶15-17.

4 2021 FC 10 at ¶100.

5 Ibid at ¶129.

6 Ibid at ¶133.

7 Ibid at ¶134-135.

8 2021 FC 85.

9 Ibid at ¶10.

10 Ibid at ¶137.

11 Ibid at ¶116.

12 Ibid at ¶116-119.

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