Hughes Tool Seeking $1.2 Billion in Damages : Questioning Begins in Smith Trial

Detailed questioning of current and former Smith International executives Thursday kicked off what one observer described as a “legal Super Bowl” between Smith and Hughes Tool in a federal courtroom in Los Angeles.

Executives from both oil field services companies, including Smith President Fred J. Barnes, attended the opening session of a trial on the damages portion of a 13-year-old patent infringement battle between Smith and Houston-based Hughes.

Hughes is seeking $1.2 billion in damages from Smith, based on lost royalties, bit sales and interest. The amount is almost twice the $747 million in total sales that Smith reported during 1984.

“It’s apparent that the numbers they (Hughes) are talking about, the company (Smith) would not be able to withstand,” said Richard Stone, Smith’s attorney. Smith’s own damage estimates range from $22 million to $62 million.

A federal appeals court previously overturned a District Court decision favoring the Newport Beach company and ruled that Smith infringed on a Hughes rock- drilling bit patent.

In his opening arguments Thursday, Stone said Hughes’ patent, which covers a rubber seal called an O-ring, is overly broad and confusing.

Began Instant Questioning

“No competitor in this business is going to allow another competitor to use a big, overly broad patent to dominate a whole area of technology,” said Stone, adding that the Hughes patent “wasn’t clear in 1972 because God knows it isn’t clear now.”

The three attorneys representing Hughes declined to present an opening statement, preferring to immediately begin questioning the first two witnesses.

Dale Boyar, who served as president of Smith Tool Co. from 1968 through 1977, said Smith’s attorneys told him the Hughes patent was ambiguous. Smith Tool--a division of Smith International--manufactured the bits in question.

Boyar and Don Thomas, Smith’s current vice president for business development, acknowledged that certain types of Smith’s rock-drilling bits were similar to ones made by Hughes but denied that Smith intentionally infringed on the Hughes patent.

Throughout hours of detailed questioning, Dorsey Baker, a Hughes attorney, tried to cajole the Smith executives into admitting that Smith owed its success in the drill-bit market to Hughes’ technology. Smith’s executives denied his allegations.

Because of Smith’s recent history of quarterly losses and the size of the damage award that Hughes is seeking, oil industry analysts have expressed concern about the outcome of the trial on Smith’s future. Hughes, they say, won a similar lawsuit, filed in 1976, that resulted in Dresser Industries being ordered to pay Hughes $121.5 million in damages. That March, 1985, decision by a federal court in Houston is on appeal.