Smith Ordered to Pay Hughes $230 Million in Bitter Patent Dispute
In a shattering blow for Smith International Inc., U.S. District Judge Harry Hupp on Friday ordered Smith to pay Hughes Tool Co. an estimated $230 million to settle a 14-year-old patent infringement battle.
The award, which caps a complex and bitter battle between the two rivals, is believed to be among the largest awarded in any U.S. patent infringement case, according to lawyers from both sides.
The ruling is expected to be appealed by both Smith and Hughes.
Although Houston-based Hughes had sought $1.2 billion from Newport Beach-based Smith, including virtually every penny of profit it earned on certain kinds of drill bits sold between 1973 and 1985, the $230 million awarded Friday still totaled nearly four times what Smith had hoped to pay.
The $230-million judgment is more than half of Smith’s shareholders’ equity of $399.2 million as of last June, the latest date for which figures are available. Until the ruling, many oil industry analysts said anything much higher than $60 million would seriously jeopardize Smith’s future as an independent company.
Comparable to Pennzoil Award
For a company of Smith’s size, the large judgment could be considered similar in magnitude to the $11.1-billion awarded to Pennzoil recently by a Texas jury against Texaco. Texaco is appealing the ruling, but that has been complicated by a requirement in Texas law that the oil company post a $12-billion bond to keep Pennzoil from imposing liens on Texaco assets during an appeal.
Smith Chairman Jerry Neely and President Fred Barnes appeared shocked at the amount of the award. Immediately following the ruling, the Smith entourage left the Los Angeles courtroom for its “command post” at the Biltmore to discuss the action.
“We don’t even know what it means yet. We’ll have to go back and analyze it,” Neely said as he was leaving the courthouse. Neely declined comment regarding a possible appeal or what the ruling means to Smith’s future.
Though a victory of sorts for Hughes, company officials and lawyers expressed dismay that the award was much smaller than what the company had asked for.
“I personally am very disappointed,” said Rolf Stadheim, one of Hughes’ attorneys.
Stock Hit New Low
“I’m not ever disappointed. If that’s what his decision is, we’ll live with it,” said a visibly irritated James Lesch, Hughes’ chairman. However, the ruling will be discussed at the next Hughes board meeting, possibly at a special session, he said.
In the wake of Friday’s ruling, Smith common stock hit a new low of $3 a share Friday on the New York Stock Exchange. Although volume was a relatively light 341,600 shares, Smith stock lost $1.375 a share, or 31% of its price, to become the Big Board’s biggest loser of the day. The $3 close compares with the stock’s most recent 52-week high of $14.25 and its all-time high of $70.25 reached in the early 1980s.
Hughes closed at $11 a share, unchanged for the day on light volume of 180,000 shares in trading on the NYSE.
“Considering the state of the oil industry, Smith’s debt picture and cash flow projections for the next three years, I wouldn’t be surprised to see them elect to go into bankruptcy,” said Jeff Freedman, an analyst with the New York investment firm of Smith Barney, Harris Upham & Co.
