Defeating the Giant

An oil and gas exploration equipment supplier scored a colossal victory over a much larger competitor using a focused litigation strategy

It’s easy to believe that the bigger party will always win legal disputes, but ION Geophysical recently proved that isn’t true.

In 2012, a Texas district court jury found that ION Geophysical had infringed on patents for underwater geological surveying equipment held by WesternGeco. The jury’s award of $124 million was a major blow for ION, which at the time had about a $500 million market capitalization. The amount, nearly one-quarter of the company’s value, threatened to cripple the supplier of advanced acquisition equipment, command and control software, planning and imaging services, and seismic data libraries to the oil and gas industry.

ION had no choice but to appeal the decision. “This case was critical to the well-being of the company,” says Jamey Seely, executive vice president, general counsel, and corporate secretary for ION. Seely joined the company in September 2014 and had to quickly get up to speed on the case so she could guide the appeal strategy.

In previous roles with NRG Energy and Direct Energy, Seely had honed her litigation expertise in the energy industry, though no case in her past had such profound implications on a company’s future. Adding to the difficulty was the wherewithal of the opponent—a subsidiary of Schlumberger, the world’s largest oilfield services company—with a current market capitalization of over $100 billion. How ION took on and eventually beat the industry Goliath, is an instructive and inspiring case study for legal professionals.

Two major decisions were critical to the successful appeal, Seely says. One was the choice of Fish & Richardson, one of the top patent litigation firms in the country, as outside counsel. The other was a sharply focused argument aimed at recovering the highest-value portion of the jury’s award, rather than a full-scale attack to try to recover it all.

This approach was designed to prevail under the practical limitations of the appeals process, where the number of words permitted by the court of appeals in each brief is capped. “You’ve got a massive amount of things that you think should be resolved, but you have to be tactical,” Seely says. “You can never go after everything. We needed to focus on one or two arguments.”

Coming into the picture after the legal struggle was already underway did provide Seely with an advantage. “I didn’t have an emotional attachment to any of the original trial arguments,” she says. “So it was easier to be focused on the narrow issues we thought were most important.”

The core of the appeal strategy was to challenge the premise that ION could be held liable for the overseas use of its products by its foreign customers—which is not infringement of a US patent. WesternGeco had argued it could recover lost profits from ION’s acts of export from the United States based on ION’s customers’ foreign use. ION’s legal team argued that US patent law allows damages for non-infringing acts overseas.

WesternGeco had charged that it had lost lucrative contracts as a result of ION’s sales of “DigiFINs,” motorized, computer-controlled, fins attached to seismic streamers to control their horizontal movement. The streamers are loaded with seismic equipment and are towed behind a ship, and bounce signals off the ocean floor to develop a geological map of sorts. This data helps to identify the best drilling locations for undersea oil and gas exploration. WesternGeco contended that ION’s technology violated their patents in this area—a contention that ION disputed—and that WesternGeco said led to a significant loss of revenue.

In a separate action, ION was able to take advantage of a provision that allowed it to attack the validity of WesternGeco’s patents before the US Patent and Trademark Office through its inter partes review process once another party’s petition was granted. ION could not file independently because its suit predated the law. ION and its co-petitioner argued that the WesternGeco patents should never have been issued, and their arguments resonated with patent and trademark officials. The office issued a decision holding that the majority of the patents should be invalidated in December 2015. WesternGeco has since appealed that decision.

This is a major victory for ION and validates the legal strategy, Seely says. “We could have gone after the whole judgment, but it was better to be very strategic and go hard after the lost profits,” she says. With a more focused argument, the odds of success were improved, and the highest value of the judgment was overturned.

WesternGeco has appealed the appellate court’s decision to the US Supreme Court. As of mid-June, the high court had not yet determined whether it will hear the case. There also is a possibility that, in light of the Patent and Trademark Office’s decision, the district court’s full judgment could become ineffective.

Having both cases—the inter partes review dispute and a judicial proceeding—ongoing simultaneously is an unusual circumstance, Seely says. It’s also an example of a legal team contributing to the company’s financial health well beyond its weight. It has given the company, which is coping with a widespread slump in its industry, something to cheer about.