6,017,855.
Wouldn't it be great if that figure represented dollars?
Instead, it's the number of a patent, a particularly
valuable patent. It's not often when the value of a
patent clearly exceeds its number. The ‘855 patent isn't
worth just $6 million, it's worth over $100 million.
BJ
Services of Houston is the proud owner of the patent
and is likely handing out the cigars to celebrate its
victory over Halliburton. Not only does BJ Services
stand to collect the $100 million judgment, it also
continues to use the patent for its own benefit.
BJ
Services is a $2 billion a year company that provides
a variety of oil well services. It takes its name from
Byron Jackson, a guy who liked to build pumps in the
late 1800's. Today the company is an amalgamation of
a number of service companies. Spun off from Baker Hughes
in 1990, Bryron Jackson probably wouldn't recognize
his namesake. Fort Worth locals might remember that
Eddie Chiles' The Western Company was absorbed into
BJ Services in 1995.
BJ
Services positions itself as providing just about every
completion service that a well operator might need.
It does cementing, acidizing, well control and well
bore cleaning to name a few. What the ‘855 patent covers
is fracturing.
Fracturing
is a process that makes a well more productive. Drilling
a hole down to the oil (or gas) formation is only part
of the story. If the formation is closed, only the oil
close to the borehole will flow into the well. Fracturing
opens up the formation to allow the oil, especially
the oil that's relatively far away, to flow into the
well. Once the rock is opened, sand is forced into the
cracks to keep them open. The sand is called a “proppant”.
Fracturing has been in the news lately because the Barnett
Shale in and around Tarrant County requires the technique.
Intuitively,
the easy way to break a rock is to hit it with a hammer.
Engineers have substituted fluid for the hammer. When
subjected to high pressure fracturing fluid, the formation
rock cracks. The fluid is viscous or syrupy so that
it isn't forced into the rock. The viscosity comes from
adding a polymer to water. One commonly used polymer
is guar gum or some derivative thereof. Before the ‘855
patent, common knowledge said that it was critical to
add a certain amount of the polymer for the fluid to
maintain a minimum viscosity.
The
invention of the ‘855 patent discovered that the amount
of the polymer added to the fluid could be less than
everybody believed. This discovery went against the
grain of thought and was therefore counterintuitive.
Not only does the syrupy fracturing fluid work, but
it costs less (less polymer) and doesn't damage the
formation during fracturing. BJ sells the fluid under
the trademark Vistar.
Halliburton
tried the new fracturing fluid and liked it so much
they copied it. Poor Halliburton. It has all of those
contract problems in Iraq, all of those nicely valued
contracts to haul gasoline and supplies, serve food,
deliver mail to troops, etc. Halliburton's Iraq business
is mostly non-oil field related. With the ‘855 patent,
Halliburton's bread and butter business got hit with
a $98 million judgment for patent infringement. Interest
during appeals raised it $8 million. Thank goodness
for low interest rates!
Not
only does the amount of the judgment take your breath
away, there's another interesting tidbit. A Houston
jury made the award. Not a judge, not an arbitrator,
but a jury of folks who probably didn't know the first
thing about fracturing, much less about oil wells (they
would've been struck by the lawyers if they did).
The
patent describes the fracturing fluid in terms of a
C* concentration, which happens to be the concentration
needed to cause the polymer molecule chains to overlap
each other and get the viscosity up there. The jury
had no problem understanding the invention, and had
no problem understanding that Halliburton used the same
thing.
Like
elections, jury verdicts are hard to overturn. The losing
party wants to say that the jurors were dumb or uninformed,
but it can't. Instead the loser can argue that the jury
was incorrectly told how to apply the law, or that the
jury simply ignored the evidence. Halliburton appealed
all the way to the Supreme Court.
On
appeal, Halliburton said that the BJ patent didn't adequately
explain the invention and in particular it left out
some information pertaining to C* so that someone of
ordinary skill in the art couldn't understand the invention.
Now keep in mind that Halliburton was using some Washington
D.C. lawyers. Maybe things are different in D.C., but
what the Halliburton lawyers were saying was the patent
couldn't be understood by someone who knows about fracturing,
despite the fact that a jury of lay people apparently
has no problem. The appeal was… unsuccessful. Time to
pass out those cigars!
There
are some baseball players who are paid so much that
when their salaries are broken down, they earn thousands
per pitch or per at bat. The ‘855 patent has about 5000
words. Halliburton is on the hook to pay about $20,000
per word. That's a deal sports agents can understand.
Originally
Published in the Fort Worth Businss Press
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