Potential Fracking Legislation in California and its Possible Impact on the Fracking Industry's "Trade Secrets"

June 27, 2013

fracking.jpgWhile California is currently the fourth largest oil-producing state, there is still untapped oil within the state. Oil companies hope to retrieve an additional estimated 15.4 billion barrels of oil in the Monterey Shale (which covers areas of Kern County, Orange County, Ventura County, Monterey and Santa Barbara County, California) through hydraulic fracturing.

Hydraulic fracturing, or fracking, is the process where a large amount of water is mixed with sand and chemicals, and then injected deep underground into rock formation, fracturing the geologic formations to release petroleum, natural gas, or other substances for extraction. While the increased use of fracking has the potential to lead to billions of barrels of oils being accessed, millions of jobs, and huge contributions to the domestic energy supply, there are potential health and environmental risks associated with fracking methods.

More specifically, during the fracking process, billions of gallons of water are mixed with various chemicals, many of which are known cancer-causing agents, and kidney, liver, neurologic and respiratory toxins. In addition, although fracking generally consumes less water than farming or residential uses, fracking is also increasing competition for water, increasing the price of water, and burdening already drought-ridden areas. Finally, California's fracking industry could result in irreversible surface and groundwater contamination.

Up until now, the industry has refused to provide the names of many of the agents used under the guise of trade secret law, arguing that its commercial interests will be damaged if secrets are revealed. However, to combat some of the aforementioned risks and provide some oversight to the fracking process, 14 states, including California, are demanding that companies disclose the chemicals used during the fracking process. States hope that these regulations will allow the government to evaluate the environment and health impacts of fracking.

On May 29, 2013, the California Senate passed SB 4. The bill then moved to the California Assembly where it was further amended. If passed, the bill will require companies in California to disclose the names and concentrations of chemicals to state regulators in an attempt to bring transparency to the fracking process. In addition to requiring the disclosures of the fluids used during the fracking process, SB 4 would also require a fracking-specific permit and notice to property owners.

Notably, the fracking company operator would only have to post information relating to the volume and contents of the fracking fluid used. Companies could still claim trade protection for the chemical composition of the fluid additives. In fact, companies would only have to disclose the composition information to state agencies if the information was needed to investigate or respond to a spill. State regulators would then only disclose this information to first responders and health care professionals if needed to treat a patient or respond to a medical emergency.

The bill contains stiff civil penalties for noncompliance. Since the bill was amended in the Assembly on June 18, 2013, it will now return to the State Senate before it goes to Governor Jerry Brown. The Obama administration is also currently developing federal fracking regulations.

Passage of this bill may lead to litigation regarding the balancing of the public's right to know and the fracking industry's intellectual property rights. The Law Offices of James G. Schwartz represents businesses in establishing and enforcing their intellectual property rights, including trade secrets. If you have any questions about the potential impact of SB 4 on your company's trade secrets, contact one of our Bay Area intellectual property attorneys today using our online contact form or by calling us at 925-463-1073.

Sources:

California Fracking Rules Plan Stirs Trade Secrets Fight, by Alison Vekshin, Bloomberg.com