Cole v. Hughes Tool Company

Decision Date15 September 1954
Docket NumberNo. 4785-4787.,4785-4787.
Citation215 F.2d 924
PartiesD. B. COLE, Appellant, v. HUGHES TOOL COMPANY, a Corporation, Appellee. B. F. CONAGHAN, Appellant, v. HUGHES TOOL COMPANY, a Corporation, Appellee. HUGHES TOOL COMPANY, a Corporation, Appellant, v. R. W. FORD, Appellee.
CourtU.S. Court of Appeals — Tenth Circuit

COPYRIGHT MATERIAL OMITTED

Robert F. Davis, Washington, D. C., and Charles M. McKnight, Tulsa, Okl., for appellants in Nos. 4785 and 4786 and for appellee in No. 4787.

Edward A. Haight, Chicago, Ill. (George I. Haight, Chicago, Ill., Robert F. Campbell, Houston, Tex., Ray L. Smith, Los Angeles, Cal., and Lynn Adams, Oklahoma City, Okl., were with him on the briefs), for appellee in Nos. 4785 and 4786 and for appellant in No. 4787.

Before PHILLIPS, Chief Judge, and BRATTON, HUXMAN, MURRAH and PICKETT, Circuit Judges.

PHILLIPS, Chief Judge.

These are appeals from judgments in three cases, of identical nature, commenced by the Hughes Tool Company.1 One case, brought against Ford, was commenced in the Eastern District of Oklahoma. The other two cases, brought against Cole and Conaghan, respectively, were commenced in the Western District of Oklahoma. Each defendant is engaged in reconstructing or rebuilding rotary drilling bits used for drilling oil and gas wells manufactured by Hughes and leased by it to drillers. Such reconstructing or rebuilding is commonly called and will hereinafter be referred to as retipping.

Each complaint contained three counts: (1) for patent infringement; (2) for conversion of Hughes bits; and (3) for interference with Hughes' property and contract rights. The defendant in each case filed a counterclaim charging violations of §§ 1 and 2 of the Sherman Act2 and sought damages under § 4 of the Clayton Act.3 For convenience, the three cases were consolidated for trial, but not for decision. The trial judges sat together. Chief Judge Edgar S. Vaught decided the Cole and Conaghan cases and Judge William Robert Wallace decided the Ford case.

The patents in suit are Fletcher No. 1,856,627; Scott and Garfield No. 1,983,316, and Scott, et al., No. 2,333,746.

In the Cole and Conaghan cases, each of the three patents in suit was adjudged to be valid and infringed and the respective defendants were adjudged to have converted Hughes' bits and to have interfered with Hughes' property and contract rights, and the defendants were enjoined from infringing Claims 1 and 4 of Patent No. 2,333,746 and from interfering with Hughes' rights in its leased bits, and the counterclaims were dismissed. The other two patents had expired during the pendency of the suits.

In the Ford case, Patents Nos. 1,856,627 and 1,983,316 were adjudged to be valid and infringed and Patent No. 2,333,746 was adjudged to be invalid for want of invention. In the Ford case, the court further found that the defendant had converted Hughes' bits and interfered with Hughes' property and contract rights, but denied relief on the ground that Hughes had violated §§ 1 and 2 of the Sherman Act and § 3 of the Clayton Act.

On the counterclaim in the Ford case, the court adjudged that Hughes had violated §§ 1 and 2 of the Sherman Act and § 3 of the Clayton Act, enjoined further violations of such Acts by Hughes, and ordered an accounting.

In rotary drilling, the bit is the key piece of equipment and the remainder of the drilling rig is designed to serve the bit. Such additional equipment must provide weight, and provide for removing the cuttings, changing the bit, and rotating it. Such additional equipment includes: A drill stem to which the bit is attached; a kelly joint and swivel used in rotating the bit; blocks, derrick and draw works to raise and lower the bit; mud pumps to circulate the flushing fluid; and a source of power. The cost of a large drilling rig for deep drilling is approximately $500,000. To operate the rig there are ordinarily three crews of five men each, each crew working eight hours a day, together with a tool pusher in charge of the rig. The cost of drilling varies from approximately $450 a day with a light rig in shallow formations to $1,500 per day with a large rig in deep formations. The requirements of a rock bit for rotary drilling are great and its structural design is subject to severe limitations. Obviously, a bit can be of no larger diameter than the hole which it drills. The limited space available must be so allotted as to secure the most desirable relationship among all the elements that are essential in an effective rotary drilling bit. Balance must be achieved between tooth depth, shell dimensions and bearings. Drilling conditions vary widely. Formations vary in hardness, tilt, and abrasiveness. It has been found desirable to provide bits that will obtain maximum performance in each of the varying depths, formations, and other drilling conditions. The cost of operating a rig may run as much as $40 to $50 per hour. Hence, it is of great importance that a bit drill as rapidly as possible. It is important that the bit minimize fatigue on the drill stem and have adequate clearance, so that it may be lowered into the well and raised out of the well. The bit must maintain a full-gauge hole. Some formations are sticky and tend to adhere to the cutters. The bit must be designed to shed formation cuttings and permit facility of cleaning by the flushing fluid. Of paramount importance is the number of feet that a single bit will drill in a given formation. At depths of 10,000 feet it will take approximately eight hours to change the bit. At such depths, the cost of changing a bit may be several times the cost of the bit itself. From the foregoing it will be apparent that the designing of an efficient rotary drilling bit is both difficult and exacting.

In the years 1929 and 1930, Hughes manufactured what was known as its "Simplex" bit, which had removable cones. It made and sold two types of cones for that bit. During those years, its cones were sold to supply stores, which supplied oil companies and drilling contractors with the cones.

As early as 1931, Hughes had established a research department with a central research laboratory at Houston, Texas, with a laboratory staff and field personnel. Its research department had two primary objectives — to reduce the number of bits required to complete the drilling of a well and to increase the drilling rate of its bits, thereby reducing the drilling costs.

In 1931, there was an unusually large amount of rotary drilling of oil and gas wells in East Texas. A large part of the Hughes research field personnel was concentrated in that area, and Hughes began a very extensive observation of the performance of its bits in the field and made further examinations, tests and analyses of its bits in its central research laboratory. It was then that Hughes adopted the practice theretofore used by other bit manufacturers, of leasing, instead of selling, its bits. Under the leasing arrangement, the bits, when they had served their useful life, were returned to Hughes for field examinations and for examinations, tests and analyses in its research laboratory. Comparisons were also made of the performance of different bits and of the performance of particular bits in particular formations and under particular drilling conditions. With the expansion of its field organization, the business of Hughes, between 1932 and 1934, was changed from that of manufacturing and selling to supply stores two types of conical cutters for its Simplex bits, to a bit service, which embraced many types of bits, each type being particularly adapted to a specific formation or drilling condition, and, pursuant to which, bits were delivered, under an informal lease, to oil companies and drilling contractors at the derrick floor, which were of the size and type best suited to the formations and conditions in which they were drilling. It was in 1934 that Hughes adopted a formal leasing contract, which contained the following provision: "When the original cutter teeth and/or bearings have served their useful life, the user will surrender the bits to Hughes Tool Company upon request. In accepting delivery, the user agrees not to surrender any of the tools as mentioned above to other than a duly authorized representative" of Hughes. Each bit is stamped with the words, "Property of Hughes Tool Co."

Hughes maintains, at its central research laboratory, personnel and equipment to test bits, make metallurgical investigations and chemical analyses, compare performance of different bits, and carry on other like research. It maintains a field organization of approximately 175 men. These men deliver new bits to the drilling rigs of the users and pick up the wornout bits. It also maintains a staff of field engineers, stationed at division points, who examine used bits and check their performance. Beginning in 1931, and continuing to the present time, each bit produced by Hughes had been marked with an identifying serial number. Hughes' field men follow the life of each bit from the time it is received by the driller until the time it has served its useful life. They maintain records in which the bit is identified by its serial number and which set forth the footage drilled, hours run, weight carried, speed of rotation, quantity of fluid circulated, and formations drilled. They make certain that the right type of bit is delivered for the particular drilling conditions existing at each drilling rig. A field man examines the bits picked up, and, if he thinks further examination is desirable, sends them to field division points, or to the central research laboratory at Houston, Texas, accompanied by information with respect to each bit as to the conditions of use, formations drilled, and its performance. The information gathered by Hughes' field organization, as to the performance of its bits in particular formations and areas, under specific conditions, is made available to users of Hughes bits...

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