Halliburton Co. v. Schlumberger Technology Corp.

• Decision Date: 13 February 1991
• Docket Number: No. 90-1191,90-1191
• Citation: 17 USPQ2d 1834,925 F.2d 1435
• Parties: HALLIBURTON COMPANY, Plaintiff-Appellant, v. SCHLUMBERGER TECHNOLOGY CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1435

925 F.2d 1435

17 U.S.P.Q.2d 1834

HALLIBURTON COMPANY, Plaintiff-Appellant, v. SCHLUMBERGER TECHNOLOGY CORPORATION, Defendant-Appellee.

No. 90-1191.

United States Court of Appeals, Federal Circuit.

Feb. 13, 1991.

Rehearing Denied March 15, 1991.

Donald R. Dunner, Finnegan, Henderson, Farabow, Garrett & Dunner, Washington, D.C., argued for plaintiff-appellant. With him on the brief were Allen M. Sokal and Richard L. Stroup.

Ronald L. Palmer, Baker & Botts, Dallas, Tex., argued for defendant-appellee. With him on the brief were Mitchell D. Lukin, Sylvia M. Egner, Baker & Botts, Houston, Tex. and Dana M. Raymond and Richard G. Berkley, Brumbaugh, Graves, Donohue & Raymond, New York City, of counsel.

Before NEWMAN, and RADER, Circuit Judges, and SKELTON, Senior Circuit Judge.

RADER, Circuit Judge.

Halliburton Company (Halliburton) sued Schlumberger Technology Corporation (Schlumberger) for infringement of U.S. Patent Nos. 4,388,529 ('529 patent), 4,409,481 ('481 patent), and 4,424,444 ('444 patent). These patents embrace tools and techniques for neutron logging of oil wells. Specifically, the patents disclose use of high energy neutrons to measure the properties of underground geological formations.

The United States District Court for the Southern District of Texas determined that Halliburton did not disclose important prior art to the Patent and Trademark Office (PTO) during the application process. Hence, the district court found Halliburton had engaged in inequitable conduct. The district court refused to enforce Halliburton's patents and awarded Schlumberger $3,375,000.00 in attorney fees and expenses. See Halliburton Co. v. Schlumberger Technology Corp., 722 F.Supp. 324, 12 USPQ2d 1765 (S.D.Tex.1989). Halliburton appeals from this judgment and order. This court reverses.

BACKGROUND

Oil producers use well logging to detect oil in geological formations. This process involves lowering a complex instrument into a well borehole. As the logging tool moves down the borehole, it measures, or logs, the properties of the surrounding geological formation.

In neutron well logging, the instrument emits high energy neutrons (14 million electron volts) as it descends into the borehole. The neutrons collide with the nuclei of atoms in the borehole and the surrounding earth. These collisions generate high-energy inelastic gamma rays. These collisions also quickly drain energy from the neutrons. As the neutrons slow down, or moderate, they become thermal neutrons (0.025 electron volts). The nuclei of surrounding atoms capture these thermal neutrons. When this capture or neutron decay occurs, the capturing atoms emit capture gamma rays.

The logging tool detects these capture gamma rays. A count of capture gamma rays reveals the neutron population and the rate of neutron decay. Different materials capture neutrons at different rates. Thus, measuring the decay of thermal neutrons tells much about the composition of formations around the borehole. Oil, for instance, captures thermal neutrons at a different rate than saltwater. Figure 1 of the '481 patent depicts the logging tool:

NOTE: OPINION CONTAINS TABLE OR OTHER DATA THAT IS NOT VIEWABLE

During decay, the thermal neutron population changes in proportion to its size. Therefore, exponential equations express these neutron decay rates. These equations express scientific principles governing exponential growth and decay. ¹ The equations describe the results of any process in which a population--in this case thermal neutrons--changes at a rate proportional to its size. After measurement of the capture gamma rays by the logging instrument, these equations express the neutron decay rate.

Early in its use, however, neutron decay logging presented a major problem. The well casing itself, made up of metal and cement, absorbs neutrons and emits gamma rays. An accurate logging technique, therefore, must distinguish between gamma ray feedback from the well casing and feedback from the surrounding geological formations. In addition, water, oil, gas or air in the borehole may capture thermal neutrons and further distort the logging measurements. Early thermal neutron decay tools could not account for decay occurring within the borehole itself. To compensate for this limitation, these early tools assumed that decay within the borehole occurred faster than in the formation.

Under this assumption, the early logging methods delayed gamma ray measurement for an instant after a high-energy burst to allow borehole nuclei to capture thermal neutrons. These early methods arbitrarily attributed all measurements after the delay to the formation. This technique became known as "timing out the bore-hole." Because borehole conditions vary, this technique was fraught with uncertainty.

Appellant's Patents

The claims at issue cover techniques and tools to measure capture gamma rays. Capture gamma rays represent the thermal neutron population after the inelastic gamma rays associated with fast neutrons have all dissipated. The patents describe pulse-moderation neutron systems. These systems generate short bursts or pulses of fast neutrons about once per millisecond (a thousand times per second). During and after each short burst of neutrons, the fast neutrons rapidly moderate into thermal neutrons. The thermal neutron population gradually declines as the surrounding atoms capture neutrons and emit capture gamma rays.

Claim 1 of the '444 patent is representative of the technology involved in each of the Halliburton patents:

A method for simultaneously measuring the thermal neutron decay time of materials in and about a well borehole, comprising the steps of:

generating, in a well borehole, a relatively short duration discrete burst of fast neutrons which are rapidly moderated by interaction with nuclei of materials in the borehole and surrounding earth formations and slowed down to thermal energy, creating a thermal neutron population in the borehole and surrounding earth formations;

detecting, in the borehole, radiations representative of the thermal neutron population in the borehole and surrounding earth formations, in at least four time intervals subsequent to said burst of fast neutrons and generating at least four count signals representative of said thermal neutron population during said at least four time intervals; and

combining said at least four count signals according to a predetermined relationship to simultaneously separate the borehole and formation decay components The Halliburton inventions eliminate the imprecise "timing out" technique. Instead, the inventions measure capture gamma rays at four distinct time intervals. Halliburton's method then uses the two-exponential equation to separate the borehole readings from the readings in the surrounding formation.

and to derive at least two measurement signals representative of the thermal neutron decay time of the borehole medium and the earth formation medium in the vicinity of the borehole.

In essence, the Halliburton inventions assume the two-exponential equation represents mathematically the total neutron population at any particular time. This equation has four unknowns. ² After making four gamma ray measurements at different times, the Halliburton method solves the equations for the four unknowns. Two of these values provide the neutron decay feedback for the geological formations around the borehole. The other two values provide the neutron decay information for the borehole itself. The calculated value for each of the unknowns ensures that the resulting two-exponential equation matches the neutron populations at the four different time gates.

By taking four measurements to obtain four data points and then using a computer program to derive the unknowns from the data points, the patented inventions omit the "timing out" technique of the prior art. The inventions thus facilitate a more reliable measurement of thermal neutron decay in the geological formation. They also reduce the demand for continuous neutron bursts and take capture gamma radiation readings sooner. These measurements therefore encompass practically the entire thermal neutron decay curve. Finally, the patents teach mathematical processing of those measurements to determine the thermal neutron characteristics of the borehole and the formation.

During the patent application process, appellant did not disclose to the PTO any prior art reference. However, Examiner Willis cited six patents directed to pulse-moderation systems. At trial, the district court determined that appellant should have disclosed seven other patents of which it was aware. The district court determined that this failure to disclose constituted inequitable conduct which made the patents unenforceable.

DISCUSSION

The doctrine of inequitable conduct requires a trial court to undertake a two-step analysis. The trial court must discern whether the withheld references satisfy a threshold level of materiality. The court must also determine whether the applicant's conduct satisfies a threshold showing of intent to mislead. ³ See J.P. Stevens & Co. v. Lex Tex, Ltd., 747 F.2d 1553, 1559-60, 223 USPQ 1089, 1092 (Fed.Cir.1984), cert. denied, 474 U.S. 822, 106 S.Ct. 73, 88 L.Ed.2d 60 (1985). These initial determinations are questions of fact, which this court reviews under a clearly erroneous standard. Next, assuming satisfaction of the thresholds, the trial court must balance materiality and intent. Under Sea Indus., Inc. v. Dacor Corp., 833 F.2d 1551, 1559, 4 USPQ2d 1772, 1777 (Fed.Cir.1987). The more material the omission, the less culpable the intent required, and vice versa. N.V. Akzo v. E.I. Dupont De Nemours, 810 F.2d 1148, 1153, 1 USPQ2d 1704, 1708 (Fed.Cir.1987). The trial court has discretion

to determine inequitable conduct. This court reviews that discretionary determination under an abuse of discretion standard. Kingsdown Medical Consultants, Ltd. v. Hollister...