2nd Hughes Patent Suit Called Unlikely to Affect Smith Case

Smith International’s corporate lawyer said Monday that a federal appellate court’s decision on Hughes Tool Co.’s patent-infringement lawsuit against Dresser Industries will have no effect on the outcome of Hughes’ separate $205-million judgment against Smith.

The U.S. Court of Appeals for the Federal Circuit upheld the district court decision that Dresser did, in fact, infringe on Hughes’ patent. However, the justices also ruled that the 25% royalty ordered by the District Court on all the affected bits sold by Dresser was arbitrary, and they sent the case back to the District Court to ascertain the proper royalty rate.

Smith, a Newport Beach-based oil service company, is eagerly awaiting a decision from the same five-man panel of judges sitting on the country’s top patent court regarding how much money Smith will be required to pay for infringing on a Hughes bit patent.

“If they (the judges) had held the patent invalid, it would have helped us,” said Bob Vargo, Smith’s in-house attorney, reflecting on the Dresser decision.

But Vargo said Smith, unlike Dresser, is contesting the scope, rather than validity, of the Hughes patent in its argument that the award for damages should be reduced from $205 million to no more than $10 million.

In addition, Vargo said the federal court’s rejection of the royalty rate that Dresser would pay to Hughes on patented drill bit seals also would not affect the Smith case. He said the federal court objected to the plan by which royalties paid by Dresser to Hughes would be based on a percentage of profits from the sale of the patented drill bits. But he said Smith has argued that the royalty it is obliged to pay Hughes should be based on cost savings that Smith realized by using the patented bits.