Smith Lawyer Hopeful That Court Will Drastically Cut Hughes Award

An attorney for Smith International Inc. said Monday that he is “cautiously optimistic” that a federal appeals court may substantially reduce the $205-million judgment won by Hughes Tool Co. in its patent infringement case against Smith.

A five-judge panel of the Federal Circuit Court of Appeals heard arguments Monday morning in Washington by lawyers for the two companies.

Smith attorney Richard J. Stone said that during the about 90-minute session, the panel’s questions showed that the judges were interested in a legal issue that Newport Beach-based Smith considers key to determining the size of the award to which Hughes is entitled.

Stone said Smith has argued that the Ninth Circuit Court of Appeals, which in 1982 held Hughes’ patent to be valid, concluded that the patent covers only “O-ring” drill bit seals made of soft rubber.

But Houston-based Hughes Tool has argued that the trial court did not take the hardness of the rubber seals into account in determining the scope of the patent infringement.

If only soft rubber seals are covered by the Hughes patent, Stone said, Smith would owe Hughes unpaid royalties and interest of $10 million rather than the $205 million awarded in March by U.S. District Judge Harry L. Hupp.

The announcement of Hupp’s giant patent infringement award caused Smith to seek protection in a Chapter 11 bankruptcy proceeding. The company also filed the appeal that was argued Monday.

Stone said the appeals panel singled out the rubber hardness issue from among six legal issues presented in the Hughes and Smith briefs.

“The kinds of questions (asked by the judges) showed that they had some inclination to accept Smith’s arguments,” he said.

Hughes’ lawyers were in transit from Washington Monday and were unavailable to comment on the hearing.

The U.S. Circuit Court of Appeals customarily takes up to six months to issue a written decision after listening to oral arguments.

However, some observers believe that the court’s decision may be speeded because it may be issued in tandem with a long-awaited decision on an appeal of a $136-million judgment that Hughes won last year in a similar patent infringement suit it filed against Dresser Industries of Dallas. That decision is being appealed by Dresser.

Stone said the judges who heard the Smith patent infringement case Monday were the same ones who heard the Dresser case.