Hughes Tool May Lose Profit Claim : Smith International Could Pay Less to Settle Patent Suit

In a move that could potentially save Smith International Inc. about $100 million in damages stemming from a critical patent-infringement suit, a Los Angeles federal court judge Thursday apparently rejected Hughes Tool Co.’s claim for lost profits.

A claim for profits that Hughes would have earned if Smith had not infringed upon one of its patents is part of the $1.2 billion in damages Hughes is seeking from the Newport Beach oil services and equipment company.

“I cannot determine from the evidence what the damages from lost sales are,” U.S. District Judge Harry L. Hupp said in court late Thursday.

Richard Stone, Smith’s attorney, said that if Hupp throws out the lost profits claim in the final accounting, it would remove about $100 million from Hughes’ damage claim.

Rolf Stadheim, an attorney for Hughes, played down Hupp’s apparent decision to discount the lost-profits claim, saying that “it’s not going to be significant.”

Stadheim declined to speculate on the amount of damages Hughes will be awarded. But he said he expects a similar amount of money whether or not Hupp includes lost profits in the equation.

A source close to Smith said that company officials now believe they will have to pay about $65 million to Hughes, based on a 3.2% royalty. Hughes was seeking to collect a royalty of about 60% on about 500,000 rock-drilling bits manufactured by Smith. “We believe there will be a reasonable royalty,” said Stone.

Three years ago, a federal appeals court ruled that Smith infringed upon a Hughes patent for a rubber seal used in a rock-drilling bit. What remains to be decided by Hupp is the amount that Smith must pay Hughes to end the 14-year legal battle between the bitter industry competitors, and lawyers for both companies said the decision probably would be made today. The damages trial began on Jan. 2.